Jamie Robb

In broad terms, section 6 of the Prescription and Limitation (Scotland) Act 1973 extinguishes certain claims more than five years old. Time starts to run from the date the pursuer suffers a loss. Section 11(3), however, postpones the start of that time limit until the pursuer is aware of the loss. When is a pursuer so aware?

In Gordon’s Trustees v Campbell Riddell Breeze Patterson, it was held that loss should be viewed objectively “with the benefit of hindsight”. This led to some harsh decisions in cases of latent damage. In Midlothian Council v Bracewell Stirling Architects, the pursuers discovered defects more than five years after incurring what later turned out to be wasted expenditure. Objectively speaking, the pursuers were aware of loss more than five years prior and therefore, applying hindsight, their claim time-barred before they knew there was an issue.

The latest chapter is the recent decision in WPH Developments v Young & Gault LLP (in liquidation). The case is noteworthy for its conclusion; that the decision in Midlothian was wrong.

WPH v Young & Gault

In WPH an architect prepared plans for property developers. The plans contained an error regarding the boundary of the developers’ site. The developers began work, incurring expenditure in building a housing estate. More than five years later, the developers were alerted to the encroachment into a neighbour’s land and required to demolish and relocate the wall.

The sheriff accepted that, with the benefit of hindsight, the developers suffered a loss when they incurred expenditure and that the developers were aware of this expenditure. It did not follow, however, that the developers could not rely on section 11(3) to postpone the date of commencement of the prescriptive period on the basis that they did not have knowledge of the loss. The question is how this fits with Gordon’s Trustees?

Schrödinger’s loss

In Gordon’s Trustees, Lord Hodge offered a hypothetical example. Suppose you purchase a fan but leave it in its box for a long period of time. Several years later, you take the fan out of the box and discover it is not working. When did you (a) incur the loss and (b) know of that loss?

The loss is the defective fan. The purchaser incurs loss upon paying for the fan. When does the pursuer know of the loss? Logically, not until he opens the box. Until then, the fan is both working and it is not.

The court in WPH concluded that knowledge of loss (as opposed to existence of loss) should not be viewed with the benefit of hindsight. The pursuers were aware of their expenditure. They just didn’t appreciate that that expenditure was a loss. Looking at it from their perspective, they did not know they had suffered a loss even if, objectively, they had. Thus, the characteristics of the expenditure may change depending on the pursuer knowing an additional set of facts. But, that does not change the fact that the actual loss was incurred and known.

In Gordon’s Trustees, Lord Hodge, at para 21 noted: “It is sufficient that a creditor is aware…that he or she has incurred expenditure.” In WPH, however, the court considered these comments to be obiter and to “provide an unsatisfactory basis upon which to draw conclusions of any wider application.”

Given that WPH is currently under appeal, it may be that we will need to ask the Supreme Court again for guidance on how section 11(3) should operate.

Into the unknown

The decision in Midlothian was stark. It was a decision against a particular set of facts, admissions and losses. Whilst the decision may seem harsh, it at least represented a pendulum swing in favour of certainty.

The decision in WPH will, if nothing else, throw the law of prescription back into turmoil. Whilst the 2018 Act provides ‘a road map’ as to where the law is heading, implementation of that legislation is still some way off. Until then, litigation around the issue of prescription looks like remaining an off-road adventure.

Jamie Robb is an associate at BTO LLP