Prescription: When will the clock start ticking? (Scotland) April 2017

Ailie McGowan Solicitor, BLM T +44 (0)141 307 6728 E [email protected] Prescription: When will the clock start ticking? (Scotland)

The UK Supreme Court ruling, in David T Morrison & Co Ltd v ICL Plastics Ltd ([2014] UKSC 48, 2014 SC (UKSC) 222) in which HBM Sayers (now BLM) represented the Appellant, came as a surprise to many. The Justices determined that the 5 year negative prescription period, in Scots law, within which a Pursuer requires to raise an action started as soon as there was awareness of loss (actual or constructive, with reference to the “reasonable diligence” test).

The decision in Morrison has resulted in a number of what might arguably be described as “hard cases”.

In Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP [2015] CSOH 31. The pursuers claimed damages from their former solicitors in respect of the negligent drafting of notices to quit in relation to agricultural tenancies. One of the heads of claim related to legal expenses incurred by the claimants. It was established that these legal costs had been incurred more than five years prior to the raising of the action. Lord Jones found that such legal expenditure constituted a loss for purposes of identifying the relevant prescriptive period and that it did not matter that the claimants did not at the time consider the incurring of such costs to represent loss. The decision was upheld on appeal to the Inner House of the Court of Session.

Heather Capital Limited (In liquidation) and Paul Duffy v Burness Paull & Williamsons LLP [2015] CSOH 150 involved allegations of negligence, breach of trust and fraud. In that case at paragraph [30] Lord Tyre stated:

“Thirdly, when, if different, could the pursuer with reasonable diligence have become aware that loss had occurred? Or, putting the question in the context of the case, has the pursuer averred circumstances in which it could not, with reasonable diligence, have become aware, more than five years before November 2014 that funds had been paid to accounts in the name of Mr Levene and Mathon and not to the four SPV’s? In my opinion, it has not. As was pointed out by Lord Justice Millett in Paragon Finance plc v DB Thakerer & Co [1999]1 All ER400 at page 418, a case concerning an English limitation statute, the question is not whether the pursuer should have become aware sooner but whether they could with reasonable diligence have done so. By the end of 2007 all of the directors of the pursuer were in possession of information from its auditors – and, indeed, from Mr King himself – that a fraud had, at the very least, been attempted. The auditors had issued a qualified opinion and indicated that further investigations would take place. The pursuers’ averment that “all avenues of enquiry were considered to have been pursued by [the pursuer’s] board of directors” does not address the question of whether the loss could, with reasonable diligence, have been discovered. It is not averred that the information obtained from Mr Wilson in 2012 could not or would not have been obtained earlier if he had been asked for it earlier. No explanation is offered for why this could not have been done by the company or, latterly, by the liquidator within five years after the transfers of funds in 2006. I conclude that the pursuer has failed to aver circumstances in which it could not, with reasonable diligence, have become aware of the loss until a date less than five years before the present action was raised.”

A draft Bill has recently been published, proposing to amend The Prescription and Limitation (Scotland) Act 1973 (the “1973 Act”). The Bill in its current form proposes to amend Section 11(3) of the 1973 Act, by deleting the words in italics and replacing them with the words in bold, as follows:

“3. In relation to a case where on the date referred to in subsection (1) above (or, as the case may be, that subsection as modified by subsection (2) above) the creditor was not aware, and could not with reasonable

Prescription: When will the clock start ticking? (Scotland) diligence have been aware, [that loss, injury or damage caused as aforesaid had occurred] “of each of the facts mentioned in subsection (3A)”

“(3A) The facts referred to in subsection (3) are—

(a) the occurrence of the loss, injury or damage,

(b) the act or omission that caused the loss, injury or damage, and

(c) the identity of the debtor in the obligation to pay damages for the loss, injury or damage.””

Should this Bill become an Act of the Scottish Parliament it would mean that the clock on the 5 year prescriptive period would not start ticking until there was awareness of all three elements contained within draft section 3A noted above. It should however be stated that this Bill is currently in its early stages and is yet to be presented to the Scottish Parliament.

The Scottish Law Commission (“SLC”) is currently consulting on the draft Bill and aim to publish a final draft of the Bill alongside a report this summer. The SLC is accepting comments on the draft Bill until 31 March 2017.

The draft bill is accessible at: https://www.scotlawcom.gov.uk/files/2914/8829/5225/Consultation_Draft_March_2017_A06.pdf

Prescription: When will the clock start ticking? (Scotland)