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Court action must begin within five years of loss occurring, Supreme Court confirms

Out-Law News | 15 Nov 2017 | 4:12 pm | 3 min. read

The five-year 'prescriptive period' within which court action must begin in Scotland starts running as soon as a financial loss occurs, regardless of whether it is clear that the loss is the fault of another party, the UK's highest court has confirmed.

The Supreme Court's unanimous judgment emphasises the importance of certainty for litigants, even if it may result in some "hard cases" producing harsh results, according to commercial litigation expert Craig Connal of Pinsent Masons, the law firm behind Out-Law.com. However, he pointed out that the Scottish government intends to reform the law of prescription as part of its current legislative programme.

"So now over to the Scottish parliament to determine how best to reform the law to achieve a balance between competing interests," he said.

"The Supreme Court has espoused the value of certainty as a virtue, as parties will know when they have incurred cost. To that extent, hard cases give way to clarity and simplicity – and there is room for discussion on just how many hard cases there are. Perhaps, in a majority of cases, parties know that there is some sort of problem at the point that costs are incurred, if not yet what it is. In that context, five years to find out and sue may not be too harsh," he said.

The case had been brought by trustees of the late William Strathdee Gordon ('Gordon's trustees') in relation to some agricultural land owned by the trust. In 2004, law firm Campbell Riddell Breeze Paterson (CRBP) served invalid notices to quit on the tenant of the land, with vacant possession due by November 2005. The tenant refused to leave, although at that stage it was not known that the notices to quit were invalid.

The error only came to light in July 2008, after ejection proceedings brought against the tenant by the trustees' new legal advisers failed. The trustees brought an action against CBRP for their alleged breach of duty of care in issuing the flawed notices, and the resulting loss caused to the trustees, in May 2012.

The 1973 Prescription and Limitation (Scotland) Act sets a five-year time period, known as the 'prescriptive period', from the date of the action giving rise to a legal claim within which that claim must be brought. In 2014, by a majority of three to two, the Supreme Court ruled that this time period began at the point that the person making the claim became aware that they had suffered a loss, whether or not they were aware that it was caused by a breach of legal duty by another. Anything else "runs contrary to the legal certainty which it the objective of prescription", the court ruled.

That case did not directly address the question raised by Gordon's trustees, which was effectively whether the five-year period should start running at the point they spent money on CRBP's legal services without knowing that that expenditure was ineffective, the Supreme Court said. However, Lord Hodge, giving the unanimous judgment of the court, found that the date at which the prescriptive period began running must be based on an "objective assessment" of the wording of the 1973 Act when applied to the facts of the case.

"On an objective assessment, the trustees suffered loss on 10 November 2005 when they did not obtain vacant possession of those fields and therefore could not realise their development value," he said. "It does not matter whether the loss resulted from the tenant's intransigence, as the trustees may have believed, or from someone else's acts or omissions."

The mere fact of the tenant's refusal to quit the land was enough to count as a "detriment" for the purposes of the law of prescription, the judge said. Regardless, they were "actually or constructively aware" by 17 February 2006, when eviction proceedings began, that they had incurred legal costs to obtain possession, he said.

"As the trustees did not commence legal proceedings against [CRBP] until 17 May 2012, it follows that [CRBP's] obligation to make reparation to them has prescribed," he said.

Lord Hodge acknowledged in his judgment that "hard cases may be more common than it was previously thought" as a result of this interpretation. However, he noted that, following the Supreme Court's 2014 decision, the Scottish Law Commission had already recommended that the law should be changed so that the party seeking to bring legal action should be aware both that loss had occurred, and that that loss was caused by the act or omission of an identifiable third party.

"The first minister has announced on 5 September 2017 that the Scottish government intends to bring forward a bill to reform the law of prescription as part of its legislative programme," he said.

"It will be the task of the members of the Scottish parliament to decide whether they agree [that] the Scottish Law Commission's recommendation for the reform of the discoverability test achieves a fair balance between the interests of the creditor and the debtor in the obligation to make reparation," he said.