Ailie McGowan: Imminent reforms to the law of prescription – what you need to know

Allie McGowan

Since the UK Supreme Court ruling in David T Morrison & Co Ltd v ICL Plastics Ltd [2014] UKSC 48 there have been a number of court decisions, which could be described as “hard cases”; where claimants cases have been held to have prescribed in accordance with the Prescription and Limitation (Scotland) Act 1973.

Under the current law the five-year prescriptive period commences when the creditor should, or could with reasonable diligence, have been aware that loss, injury or damage has occurred. The Supreme Court has held that knowledge of a claim is irrelevant to this calculation. All that is required is that a party has suffered a loss, even if they don’t recognise it as a loss at the time.

In Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP [2017] UKSC 75, for example, the court held that the loss occurred in 2005 when a tenant failed to remove and the pursuer was aware that they had paid legal fees. The argument that they did not recognise this expenditure as a “loss” until a subsequent Land Court decision in 2008 ruled that the notices to the tenants were defective, was irrelevant.

These recent “hard” cases inevitably led to the introduction of the Prescription (Scotland) Bill.

On 8 November 2018, the bill passed stage 3 in the Scottish Parliament. An “as passed” version of the bill is to be published shortly, after which there will be a four week period where certain challenges to the bill can be made. If the bill is unchallenged it will be submitted for Royal Assent and will likely become an act before the end of this year.

Once the bill is enacted it will result in significant changes to the law of prescription.

The most significant change is an amendment to when the five-year prescriptive period will start to run. The bill provides that the prescriptive period will not start running until the creditor is aware, or could with reasonable diligence have been aware, of the following three elements:

• The occurrence of loss, injury or damage;
• The act or omission which caused the loss, injury or damage; and
• The identity of the debtor in the obligation to pay damages for the loss, injury or damage.

The effect of this amendment is that once enacted some claimants will have further time to raise a court action than they have under the current law.

The bill also seeks to introduce standstill agreements which, in certain circumstances, would allow parties to extend the prescriptive period by up to one year.

This change is likely to be useful for both creditors and debtors in circumstances where the quinquennium is approaching and parties are still in the midst of trying to resolve matters.

Allie McGowan is a solicitor at Shoosmiths in Edinburgh.