Prescription and limitation apply to all claims in delict/tort and contract. Different rules apply north and south of the border, but the purpose of both is to ensure that a wrongdoer cannot be sued for a historic delict/tort or contractual claim, as a matter of public policy. Time-bar will operate against these ‘stale’ claims, in order to avoid the difficulties of proof created by delays and to prevent businesses and individuals from living with a threat of litigation hanging over them indefinitely.
This area has been subject to significant controversy in Scotland in recent times, resulting in new legislation to alter the position. This article looks at both jurisdictions and provides some tips on the main periods that generally apply and how and when to stop or delay ‘the clock’ running for time bar, especially in claims for latent defects.
This article does not deal with all prescription or limitation periods or all features of those periods. Whether the periods apply and if so how, is usually highly fact-sensitive. Also, there is a ‘cliff-edge’ aspect to prescription and limitation, in the sense that when the periods expire, the rights are lost; there is no tapering. For these reasons, it is important to obtain timely and comprehensive advice from a specialist.
Scotland: legislation
Historically, Prescription and Limitation was regulated by the Prescription and Limitation (Scotland) Act 1973, as supplemented by case law.
5-year prescription period
Under section 6 of the 1973 Act an obligation is extinguished after five years:
(a) without any relevant claim having been made in relation to the obligation; and
(b) without the subsistence of the obligation having been relevantly acknowledged.
In general terms, this applies to:
- obligations to pay a sum of money and other contractual obligations;
- obligations to pay compensation;
- breach of contract and negligence claims.
It was the 5-year prescription period which gave rise to controversy following the case of David T Morrison & Co Ltd v ICL Plastics Ltd & Others [2014] UKSC 19 and other cases that followed it, such as Midlothian Council v Raeburn Drilling 2019 SLT 1327. This resulted in the 1973 Act being amended by the Prescription and Limitation (Scotland) Act 2018, which is discussed in more detail below.
20-year prescription period (longstop)
A 20-year prescription period applies as a long-stop. An obligation will thus expire if, after 20 years, no relevant claim has been made and the subsistence of the obligation has not been acknowledged. This is a “catch all” provision which applies to all obligations. It is designed to impose an absolute time limit on obligations being enforceable. Unlike the five-year period, the 20-year period cannot be extended on the basis of a lack of awareness by the pursuer.
It should be noted that there is a 2-year prescription period for a right of relief against a joint wrongdoer. This is governed by S.8A of the 1973 Act. The 2-year period generally begins when a party is found liable by a court or commits to a settlement, where it considers that a third party should also contribute.
David T Morrison & Co Ltd v ICL Plastics Ltd & Others [2014] UKSC 19
This was a significant judgment by the UK Supreme Court which effectively reversed 30 years of practice. The court held that where the 5-year prescription period applies, a claimant in Scotland must pursue its claim within five years of the date when it became aware that it had suffered a detriment such as an additional expense, or when it could, with reasonable diligence, have become so aware, whether or not the claimant knew the detriment to be a loss resulting from a breach of contract or negligence.
The decision in Morrison gave rise to perceived unfairness, for example in the case of Midlothian Council v Raeburn Drilling and others 2019 SLT 1327 where it was held that the 5-year period for the Council to make a claim against its engineer had started in 2006, when the engineer failed to advise the Council that the ground upon which the Council intended to develop properties required installation of a gas defence system. This was notwithstanding the fact that the Council was unaware of a design failure until 2013, when it received the first complaint from a tenant. The effect of this was that the Council’s right to claim against its engineer had become time-barred before the properties were completed.
This perceived unfairness was addressed in the Prescription (Scotland) Act 2018, key parts of which came into force on 1 June 2022, amending the 1973 Act. The amendments provided that the start of the 5-year prescriptive period for a claim for breach of contract or negligence would now only begin when the pursuer who suffered the loss claimed for, was aware, or could with reasonable diligence have been aware:
(a) that loss, injury or damage had occurred;
(b) that the loss, injury or damage was caused by a person’s act or omission; and
(c) of the identity of that person.
Crucially, now, all three of the above elements must be within the pursuer’s knowledge (or would be within the claimant’s knowledge if exercising reasonable diligence) in order for the 5-year period to start running.
This change will delay the start of the prescriptive period in many more cases than before Morrison. It does not apply to any obligations which were extinguished before 1 June 2022, so the old law will still be relevant to many existing actual or potential claims.
England and Wales: legislation
In England and Wales, the relevant legislation is the Limitation Act 1980. Limitation is the equivalent of prescription in England and Wales; the difference is that Limitation limits the ability to sue for an obligation whereas Prescription causes the obligation to cease.
6-year limitation period
The 1980 Act applies a 6-year limitation period in England and Wales to the following claims:
- tort;
- simple contract;
- sums recoverable by statute; and
- enforcing judgements.
12-year limitation period
The 1980 Act also has a 12-year limitation period for:
- actions on a specialty (e.g. contracts executed as a deed); and
- actions relating to recovering land.
15-year limitation period (longstop)
Section 14B of the 1980 Act specifies a 15-year (long-stop) limitation period for negligence claims.
In relation to negligence claims for latent defects, section 14A of the 1980 Act applies a ‘discoverability’ exception, meaning that the limitation period is the later of:
- 6 years from when the cause of action accrued (i.e. when the damage occurred); or
- 3 years from when the claimant knew or ought to have known:
a) the material facts about the loss suffered;
b) the identity of the defendant; and
c) his cause of action.
However, this exception will not apply where the construction contract excludes liability for negligence (other than for death or personal injury which cannot be excluded).
Like in Scotland, actions to recover a contribution from a third party are limited to 2 years. In England and Wales, this is regulated by S.10 of the Limitation Act 1980. The relevant date, from which the clocks starts running, is either the date of the decision of a court or arbitration, or in cases not involving a formal decision, the date upon which the amount of contribution is agreed between parties.
How to stop time running
There are a number of ways to stop or pause ‘the clock’ for time-bar:
- Raise court proceedings - raising court proceedings will stop time-bar and preserve an action. In England, this happens when the court receives the claim form. In Scotland, this happens when the Writ/Summons is served.
- Commence arbitration proceedings - commencing arbitration proceedings will stop the clock for time bar. This happens when an arbitration notice is submitted to the other party, or, in England and Wales, to a relevant body (e.g. the body appointed by the arbitration agreement to nominate an arbitrator), but the rules vary depending on which legislation applies.
- “Relevant Acknowledgement” - in Scotland, S.10 of the 1973 Act requires that there has either been such performance towards implementation of the obligation as clearly indicates that the obligation still subsists; or that there has been an unequivocal written admission clearly acknowledging that the obligation still subsists. Both will have the effect of refreshing the clock. Similarly, in England and Wales, acknowledgement or part performance refreshes the clock, which then starts running anew.
- Agreement between the parties - parties can enter into a ‘Standstill Agreement’ to alter the prescription/limitation period. This is a well-established practice in England and Wales, but is relatively new, and much more restricted, in Scotland, following the Prescription and Limitation (Scotland) Act 2018. For more information on Standstill Agreements in Scotland, see our article here.
- Induced error/fraud/concealment - The clock may be paused by fraudulent concealment or induced error such that the claimant is ignorant of or caused to believe there is no claim. In Scotland this is regulated by S.6(4) of the 1973 Act, whereas in England, the relevant provision is contained in S.32 of the Limitation Act 1980.
Falling foul of time-bar will normally extinguish any right of claim that a claimant may have. This could have potentially disastrous consequences for businesses that have suffered financial loss due to acts or omissions by others. It is therefore crucial to take legal advice on potential claims as early as possible and from a specialist.
Key Takeaways
- Time-bar should be ‘front of mind’ for anyone considering pursuing or defending a breach of contract or negligence claim. This is particularly so for latent defect claims which will often only become apparent well after the completion of works. For a claimant, unless the proposed claim is manifestly within time, it is prudent to commence protective proceedings as a matter of urgency, or if parties are being co-operative, consider entering into a standstill agreement to stop the time bar period running.
- If there is a choice of jurisdictions between north and south of the border, consider which set of statutory provisions and case-law will best allow you to advance your claim.
- If in doubt, seek specialist legal advice as early as possible.
If you have any questions regarding any of the above, please do not hesitate to contact Iain Drummond or Ryan McCuaig.