The Prescription and Limitation (Scotland) Act 1973 provides that obligations to pay damages arising from breach of contract and/or breach of delictual (tortious) duty of care are extinguished if they have existed for 5 years without a relevant claim having been made.  Practically, such issues are akin to questions of limitation in England and Wales. 

In Scotland, the prescriptive period starts to run when obligations become enforceable. With respect to professional indemnity claims, obligations “shall be regarded…as having become enforceable on the date when the loss, injury or damage occurred”.  A number of provisions in the 1973 Act can potentially delay the 5 year prescriptive period, including S 11(3), which deals with the situation where a creditor had suffered loss, injury or damage but “was not aware, and could not with reasonable diligence have been aware, that loss, injury or damage caused as aforesaid had occurred”.  If this applies, the start of the prescriptive period is delayed until the creditor became, or could with reasonable diligence have become, aware of having suffered loss, injury or damage.

Historically, it was thought that section 11(3) delayed the start of the prescriptive period until creditors had at least some knowledge that their loss was actionable, i.e. that it had been caused by another party’s breach of duty. However, that interpretation has, over the last 10 years, been turned on its head in courts in decisions such as, the now infamous, Morrison v ICL Plastics (2014); Gordon’s Trustees v Campbell Riddell Breeze Paterson (2017); and Midlothian Council v Blyth & Blyth (2019) where a strict interpretation of the statute was applied that did not require “knowledge”. 

In both Gordons and Midlothian, the court recognised that the decision might be thought to be unfair on the pursuer, moving the prescription trigger point steadily back to a time where the fact that something had gone wrong was far from coming to anyone’s minds, e.g. to the point when an engineer raises his first (ultimately wasted) invoice.  However, each expressed the view that any reform was a matter for parliament.  Meantime, the courts had to apply the current law which has led to court actions being raised against a scattergun of project parties, with proceedings often being served and left in abeyance for a year (the maximum period allowed in the Court of Session) whilst a pursuer gets their house in order.

Cue the Prescription (Scotland) Act 2018 to try and restore the balance.

The majority of the new Act will come into force on 28 February 2025.  However, sections 5 and 13 came into force in June this year, earlier than the industry thought would be the case.  S5 addresses the concerns by amending the test for starting the prescription clock.  It amends Section 11 of the 1973 Act so that the prescription period will not commence until the date the pursuer is aware of:

• The loss; and
• The act of omission that caused the loss; and
• The identity of the person who caused the loss.

S13 allows parties to agree an extension of the prescriptive period of up to one year by agreement, i.e. akin to a standstill agreement. 

The new rules seek to be more favourable to the pursuer. However, until they bed in and we get some clarity from the courts on its application as to whether it does tip things back in favour of a pursuer, a cautious approach will likely continue to be taken when it comes to prescription in construction claims in Scotland.