Prescription in Scotland: Proposed Changes
The Supreme Court judgment of David T Morrison & Co Ltd v ICL Plastics Ltd & Others [2014] UKSC 19 caused some uncertainty as to the application of the law of Prescription in Scotland. The decision arguably also moved the law beyond its policy objectives. With these points in mind, in March 2017, the Scottish Law Commission prepared a draft Prescription (Scotland) Bill with explanatory notes. The Bill attempts to address the uncertainty left by David T Morrison v ICL Plastics and enact some important changes to the law of prescription.
Scottish and English Legislation
An article providing an overview of the law of Prescription in Scotland and Limitation in England can be accessed here. In brief, the law is governed in Scotland by the Prescription and Limitation (Scotland) Act 1973. There is a five year prescription period after which a contractual or negligence claim will be extinguished with a 20 year “longstop” date to claims being raised. Broadly, time starts running when the damage is discovered and loss sustained.There are some exceptions to the 5 year time period which are detailed in the article mentioned above.
In England and Wales, the relevant legislation is the Limitation Act 1980. There are two different period of time depending on the type of claim; 6 and 12 years. There is a longstop limitation period of 15 years. There are alternative time periods in relation to defamation/slander, person injury and product liability.
Current Uncertainties in the Law
Although the law differs north and south of the border, the English limitation periods play a role in Scotland. It is common for large Scottish Construction and PFI contracts to provide for a 12-year limitation period on claims equivalent to the 20-year longstop under Scottish law. It is prohibited under section 13 of the 1973 Act to contract out of its provisions. Opinion is divided as to whether a 12-year limitation period infringes this prohibition.
Another uncertainty stems from the David T Morrison v ICL Plastics mentioned above. The Supreme Court’s judgment altered the commonly understood position on the start of the five-year period. A claimant in Scotland must, broadly, now pursue its claim within 5 years of the date when it became aware that it suffered a loss, or when, with reasonable diligence, should have become aware. This applies whether or not the claimant knew that the loss was a result of breach of contract or negligence by another, where the loss was suffered.
Proposed Changes
The Bill proposes that a final draft of the Prescription (Scotland) Bill is currently in preparation. It is therefore unknown whether the Bill is to be enacted in its current form. However, some important changes are currently proposed.
1. No Shortening Prescriptive Periods
The Bill proposes that a provision in an agreement which attempts to shorten the 5-year or 20-year prescriptive period will not be effective. This would have an effect on clauses in contracts which adopt the English 6 and 12 year approach. However, it would settle the current debate as to the competence under Scots law. No contract would be able to shorten the 20-year longstop to 12 years.
2. 5-year prescriptive period can be extended
The Bill proposes limited circumstances in which the 5-year prescriptive period can be extended by up to one year. There must be agreement to extend the period and it can only be extended once in relation to the same parties. Importantly, the Bill states that the prescriptive period can only be lengthened in this way after the prescriptive period has commenced.
This would be equivalent to ‘stand-still agreements’ in England, which allow the running of the Limitation Period to be ‘paused’ by agreement, without the need to raise proceedings. This device is not currently available under Scots law. It is clear from the Bill that this extension of up to one year cannot be agreed in advance. Therefore contracts agreeing to a 6 year prescriptive period (the English limitation period) would not be competent under Scots law.
3. Alteration of the starting point for 5-year prescriptive period
Section 5 of the Bill would replace the discoverability formula following the David T Morrison v ICL Plastics. Under the new formula, the prescriptive period would not begin until the claimant becomes aware or could reasonably be expected to become aware of:
- the occurrence of loss, injury or damage;
- the act or omission that caused the loss, injury or damage; and
- the identity of the party whose act or omission is in question.
Presently, only the first point is required for the 5-year period to start running. This test would bring some welcome clarity to the prescriptive period start date and would be likely to reduce the number of protective actions that are raised.
Conclusion
The draft Bill is currently being refined with an anticipated publication date this summer alongside a final report. While there may be some amendments to the draft Bill, it is likely that the three changes discussed above will be included in the final draft.
It is clear that there will be significant changes to the law of prescription in Scotland. These should be kept in mind for contracts which adopt an English law approach as the enactment of the Bill will undermine this approach.
At present, it is prudent to commence protective proceedings at the earliest date possible given the uncertainties as to when the prescriptive clock starts ticking. However, the proposed changes to apply a three-part discoverability formula will be a welcome source of transparency in the law.