30th May 2022

Prescription and Construction Project Claims: A potted history of recent events

The law of time bar in Scotland has been in a state of minor flux since 2014 when the UK Supreme Court handed down its decision in Morrison v ICL Plastics . This and the subsequent case of Gordon’s Trustees, changed the way we as lawyers viewed the commencement of the five year prescription period which is governed by the Prescription and Limitation (Scotland) Act 1973. Prior to ICL, we would regularly advise clients that the start point for calculating the five year period would be when parties knew or reasonably ought to have known that they had both a loss and that someone was at fault for causing the loss. It was not necessary to know who caused the loss.

In a construction context, calculating the start date for the five year time bar period would often be taken as five years from the date of practical completion or, in the case of claims in relation to latent defects, five years from when the first signs that something was wrong started to emerge. However, Gordon’s Trustees and a later decision in Midlothian Council v Bracewell Architects & Others, meant that we had to look at the situation afresh and start to consider when loss, viewed objectively, with the benefit of hindsight, could be said to occur. Viewing claims conservatively, on a project with a lengthy build time, where the initial ground investigations prior to enabling works were to blame, claims could potentially expire before a project was out of its defect liability period, or worse, before it was even complete. The uncertainty, and quite frankly, the unfairness of this situation meant legislative change was needed.

In 2018, the Scottish Parliament passed the Prescription (Scotland) Act 2018. The transition provisions for the 2018 Act proved troublesome but on 1 June 2022 the new discoverability test along with the ability to enter into “standstill” agreements comes into force.

The discoverability test: 1973 Act vs 2018 Act

Discoverability test	1973 Act discoverability test	2018 Act discoverability test
What knowledge does the claimant need?	A claimant is aware, or should with reasonable diligence been aware, of the loss. They do not have to know that they have suffered a detriment. It is sufficient that they are aware that they have not obtained something which they sought or that they have incurred expenditure even if they did not know at that time that the expenditure would be subsequently turn out to be wasted or would fail to achieve its purpose.	A claimant is aware, or should with reasonable diligence been aware, of each of these facts: (i) that loss, injury or damage has occurred, (ii) that the loss, injury or damage was caused by a person’s act or omission, and (iii) the identity of that person
Which test applies?	The 1973 Act test applies if a claim is extinguished (using the 1973 Act test) on or before 31 May 2022.	The 2018 Act test applies if a claim has not been extinguished (using the 1973 Act test) on or before 31 May 2022.
Notes	It is awareness of expenditure (assessed objectively) that starts the clock ticking – and nothing more. There does not need to be knowledge that there is loss caused by a person’s act or omission.	The intention of the 2018 Act amendments to the discoverability test is that there must be knowledge that there is loss caused by a person’s act or omission (and the identity of the person) before the clock starts to tick.
Impact	Harsh on claimants. Beneficial for those exposed to claims.	More balanced approach.

To put the above in the context of claims in the construction industry, the below gives an example of how the coming into force of s.5 of the 2018 Act could affect claims:

Health warning

The Scottish Government has stated on numerous occasions that the intention of the 2018 Act is to give claimants more time to pursue a claim. However, since the Bill’s publication, legal commentators have questioned whether this aim will be achieved. The language used in the 2018 Act continues to be founded on an awareness of loss. This is not a defined term and the interpretation of what is meant by loss was at the centre of the Gordon’s Trustees case. We expect that we will need to await a court judgment and possibly a Supreme Court judgment to put this matter to rest.

Given the above health warning, our advice to clients remains the same: once you become aware that you may potentially have a claim, seek legal advice as early as possible.

Standstill agreements

The five-year prescriptive period discussed above cannot be contracted out of. However, the 2018 Act introduces one exception: standstill agreements. These can now be entered into from 1 June 2022, provided that the underlying claim has not already been extinguished by the operation of prescription. A standstill agreement can allow parties to agree to extend the prescriptive period by up to one year and could prove useful when a dispute is capable of resolution and parties do not want to incur the expense of raising or defending court proceedings.

Given that these agreements under Scots law are not yet even in their infancy, our strong advice would be to have the agreement drafted by your Scots law qualified solicitor.

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