Navigating the timebar in Scottish maritime indemnity claims

Imagine this common scenario: You (a P&I Club) receive a claim letter through your member regarding a personal injury case for which the member is allegedly responsible.

You check the contracts and there is an indemnity in your member’s favour. A third party, let’s say the injured party (“IP”)’s employer, is due to provide an indemnity in respect of injuries to their people. The indemnity is not quite as clearly worded as it could be and the IP’s employer refuses to accept the operation of the indemnity.

Meanwhile you have investigated the circumstances of the accident and you or your lawyers have responded to the IP’s lawyers and have denied liability for the claim. The claim is governed by Scots law and the Scottish courts have jurisdiction. The claim is proceeding as per the Pre-Action Protocol for Personal Injury claims in Scotland. The denial of liability means that the IP can raise a court action at any time. All then goes quiet.

The question is – what is the timebar for your member’s indemnity claim? Assuming the indemnity claim is also governed by Scots law and there are no express terms in the contract varying the deadlines, our short answer is (as explained in detail below) that there could be two different clocks ticking and you should have two entries in your timebar calendar:

(i) one for two years from agreeing settlement terms (or, if it goes to trial, judgment) of the personal injury claim; and (ii) another for five years from the date of the accident.  Erring on the side of caution, always assume that the earlier date applies.

In Scotland, you are required to serve proceedings to interrupt the timebar – not “issue”. Depending on where the IP’s employer is based, you may need to take action well ahead of the deadline.

How did we arrive at this answer?

There can potentially be two ways in which the IP’s employer can be pursued: (i) through a contractual claim; or (ii) as a joint wrongdoer. Both have different deadlines. It depends on how quickly a claim proceeds to settlement/trial as to which deadline arrives first.

Claim under contract

The law is contained within section 11 of the Prescription and Limitation (Scotland) Act 1973 (“PLSA 1973”). This applies to obligations to make reparation including through breach of contract. The law in this area has been subject to recent change in Scotland and from 1 June 2022, the relevant provisions of PLSA 1973 are amended by the Prescription (Scotland) Act 2018 (“PSA 2018”).

The relevant period is five years (not six years as under English law). There can be a lot of uncertainty as to when the five year clock starts. The new provisions in PSA 2018 were intended to address the ambiguity, but there remains a lack of clarity for many situations, including the scenario we have outlined above. The test is “when the loss, injury or damage occurred”. On one view the loss to the member is when the personal injury damages are paid. However, other costs might be incurred prior to that (such as post-incident response, legal or other professional fees when you might not appreciate that the expenditure is, in fact “a loss” per the legislation) which might also be caught by the indemnity. If in any doubt, err on the side of caution and choose the earliest possible date for starting the five year clock. For cases like this, that is the date of the incident.

For the avoidance of doubt, depending on the precise circumstances it may be credible to argue for a much later start date for the five year clock. But why risk it?

Joint wrongdoers

It may be that the circumstances of the accident mean that a contribution can also (or alternatively) be obtained from the IP’s employer as they would also have been liable to the IP, if sued.

The entitlement to pursue a joint wrongdoer post-settlement comes from The Law Reform (Miscellaneous Provisions) (Scotland) Act 1940. The timebar is two years. It is not settled law yet as to when the clock starts – is it the date that settlement terms are agreed, or paid, or is it when the judgment is issued? Again, err on the side of caution and assume the clock starts when settlement terms are agreed.

There are additional procedural requirements in Scotland regarding pursuing a post-settlement recovery. The most significant is that a monetary judgment is granted against the Member. The IP’s case does not require to proceed to trial, but there does need to be a judgment. In Scotland that simply involves recording the settlement terms in a “Joint Minute” and asking the court to grant a judgment accordingly. If settlement terms are agreed pre-litigation there would need to be “friendly proceedings” in order to generate the judgment. This needs to be factored into the planning of the recovery ‘campaign’ against the joint wrongdoer.

Often overlooked is that there is also a requirement to put the joint wrongdoer on notice of the claim before it is resolved so that it has the opportunity to intervene in the conduct of the claims defence. This is therefore something that claims handlers should bear in mind at an early stage, where there is scope for a contribution.