Prescription: "Plus ça change, plus c'est la même chose"

New rules came into force in June which seek to address the difficulties in assessing when a claim is time-barred. However, it remains unclear whether the new rules will solve the problem or whether further action is required.

In construction cases building defects often do not become apparent until many years after a building is completed. This presents problems for claimants who must work out whether their claim is still live or has expired. This area of law is referred to as “prescription” in Scotland.

The basic rule in prescription is that legal obligations expire after five years. Until June this year, this rule was subject to an exception where the person raising the action did not know that they had suffered a loss. In this situation, the start of the five-year period was delayed until the person making the claim became aware, or ought to have been aware, of the loss.

On the face of it this sounds simple enough but in practice working out when someone is aware, or should have been aware, of a loss is very difficult.

The Morrison case, which arose out of the explosion at the ICL Plastics factory in Glasgow in May 2004, brought the problem into sharp focus.

In this case Mr Morrison brought an action against ICL to recover compensation for damage to his shop which had been caused by the explosion. Whilst the action was commenced in August 2009, more than five years after the explosion, Mr Morrison argued that the action was not time barred because the 5-year period only started when he became aware of who and what caused the explosion, which was much later than 2004.

The UK Supreme Court disagreed. It decided that the clock started ticking when Mr Morrison became aware that damage had occurred (i.e on the date of the explosion) and that it did not matter that he did not know the cause of the damage or the identity of the person to claim against when the explosion occurred. Consequently, his claim was time barred.

This was widely perceived as a harsh decision and the Scottish Parliament enacted legislation to address it.

The Prescription (Scotland) Act 2018 entered into force on 1 June 2022. It makes clear that the 5-year prescriptive period only starts to run when the party who is alleging that they have suffered a loss becomes aware:

• that a loss, injury or damage has occurred;
• that the loss, injury or damage was caused by a person's act or omission; and
• of the identity of that person.

This should - in theory at least - mean that the prescriptive period cannot now start to run without the person who suffered the loss knowing who is responsible for the loss in future.

However, since the Morrison case there have been a flurry of financial loss cases which raise another important issue.

The issue in these cases is not about whether knowledge of who or what caused loss is relevant in time bar situations but about how knowledge of the occurrence of a loss is itself assessed.

One recent example of this type of case is Midlothian Council v Blyth & Blyth.

In this case the Council employed professional advisors, Blyth & Blyth, to evaluate the suitability of a site for a housing development. The Council were informed that the site was low risk for ground gas and as a result the development received the green light, and it was completed in 2009. In 2013 hazardous levels of gas were detected within the properties on the site and the Council decided that it was necessary to demolish and rebuild them. The Council started proceedings against its advisors in 2018 to recover its costs.

Blyth & Blyth argued that the Council’s claim expired in 2014, 5 years after the development was completed, as the Council were aware of the wasted expenditure, and therefore of the loss associated with the doomed development, at that time.

In contrast the Council argued that the loss was the uninhabitable development which they only became aware of in 2013 and so they had until 2018 to begin their claim.

The Court decided in favour of Blyth & Blyth. The judge considered that that the clock started running when the Council was first aware of the loss as an objective fact (ie when the expenditure on the construction of the original development was incurred) and that it did not matter that the Council didn’t know that the expenditure amounted to a loss until a later date.

Like Morrison this decision was criticised as the claimants lost their right to begin proceedings against their advisors at virtually the same time as they became aware that they had suffered a loss.

So, will the new legislation address this situation?

On the face it, no. Whilst the new rules delay the start of the prescriptive period until the claimant knows who is responsible for the loss, they do not appear to change the fact that the court assesses awareness of loss objectively by reference to the incurrence of wasted expenditure.

If this is so, then the difficulties caused by the recent line of economic loss cases will most likely continue.

Until new case-law emerges claimants in such cases would be wise to adopt a cautious approach when assessing time-limits and should assume that the prescriptive clock starts running as soon as a loss is suffered even if they are unaware at that point that something has 'gone wrong' in law.

In evaluating the first possible date for the clock to start ticking claimants should consider whether any 'expenditure' is connected to the loss or damage suffered, as the date when expenditure was incurred could still trigger the start of the prescriptive period.

Finally, despite many years of uncertainty, and new legislation aimed at addressing the difficulties arising in this area of law in practice, it seems that the law of prescription will continue to present challenges in interpretation to construction professionals and lawyers alike in the years ahead.