Prescription Bill introduced

Prescription Bill to bring more clarity for creditors pursuing and debtors defending claims.

14 November 2018

On 30 July 2014, the Scottish time bar applecart was not just upset but overturned by the Supreme Court. The apples in question represented around 30 years of what was thought to be settled case law on the interpretation of the Prescription and Limitation (Scotland) Act 1973. In the case of David T Morrison v ICL Plastics [2014] UKSC 48 the Supreme Court held on a three to two majority decision that the Scottish Courts had previously misinterpreted the statutory provisions for around three decades by putting a gloss on the Act. It had been understood that for the Scottish time bar (prescriptive) clock to run a party had to be aware that they had suffered loss, injury or damage and that the loss was actionable. The Supreme Court held that a party simply had to know they had suffered loss, injury or damage for the prescriptive clock to start running. There was no requirement that they also needed to be aware that the loss was actionable. The decision in ICL had far-reaching consequences as it meant that the time bar clock could start running much earlier than was previously thought, potentially leading to harsh consequences whereby a claim could expire before a party was able to identity of the person against whom they could make a claim.

In his dissenting judgement, Lord Hodge, who was one of the Scottish Judges on the bench, noted a Scottish Law Commission report, published in 1989, had made a number of recommendations. If those recommendations had been followed, then David T Morrison would have succeeded in its claim against ICL. Given that the decision in ICL changed the law as was previously understood he urged the Scottish Parliament to give fresh consideration to the Law Commission’s recommendations.

It was not long before his call to action was taken up. The Scottish Law Commission was asked to consider the area anew in its next programme of reform. The Commission issued a Discussion Paper in February 2016, followed by its Report on Prescription in July 2017. The draft Bill was introduced on 8 February 2018. For the reform of such a fundamental area of Scots Law the process has been relatively swift.

New discoverability test

This new test has been devised to address the possible harsh effect on claimants following the decision in ICL. It does not however reinstate the law as it was previously understood in Scotland prior to ICL. Whether the claimant is aware that the act or omission that caused the loss, injury or damage is actionable in law is irrelevant to the triggering of the prescriptive period.

The test proposed by the Law Commission and followed in the Bill has three strands.

The claimant must be aware:

  • that 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.

Transitional provisions are not detailed in the Bill but are to be determined by way of further regulation and will be considered in due course once available.

The introduction of standstill agreements

Standstills are used frequently to preserve position while parties seek to negotiate a dispute. Although used extensively in other jurisdictions, they are not yet available in Scotland. Presently, the only way to interrupt prescription in Scotland is for the claimant to raise and serve proceedings “judicial interruption” or for the debtor to make a “relevant acknowledgement” (which must meet the rather onerous criteria laid out in section 10 of the Act).

There has been longstanding criticism of the inflexibility of the Scottish rules, which have been considered to not only hinder parties seeking to negotiate claims but also to lead to the unnecessary cost of protective proceedings.

The Bill will allow parties to enter into standstill agreements.

It should be noted, however, that free reign is not to be given to parties in terms of such an agreement. Standstills will only available:

  • once the prescriptive period has started to run;
  • for a maximum period of one year; and
  • only one extension will be permitted.

It is unclear to what extent these limited standstills will be used in practice once the Act comes into force but their introduction is certainly to be welcomed.

Changes to 20 year longstop

Under the 1973 Act the 20-year period runs from the date on which an obligation becomes enforceable.

For obligations to pay damages this is the date on which loss, injury or damage flowing from the act, neglect or default in question has incurred. Depending on the circumstances, loss, injury or damage might be incurred many years after the wrongful act or omission in question. As a result of this disjoint between the wrong and the resultant loss it is possible for a long period to pass before the prescriptive period will start. This was seen to undermine one of the key aims of the rules on time bar, which is to prevent stale claims and the considerable practical issues for parties in terms of pursuing or defending such claims.

Under the new rules, the 20-year prescriptive period will begin on the date of the act or omission giving rise to the claim and not when loss, injury or damage occurs. It was considered such a rule was more fitting with the overall intention of the prescriptive rules to prevent stale claims.

The 20-year longstop will no longer be amenable to interruption, either by relevant claim or by relevant acknowledgment, and it will not be possible to extend the period by standstill agreement, ensuring that it is indeed a longstop in name and effect.