Michael Collins

Five years. That’s how long a party has to make a claim for damages under the Scottish law of prescription (time bar). But when, exactly, does that clock start ticking?

The simple rule is that the clock starts when the party suffers a loss due to someone’s breach of duty.  But in reality, the law is anything but simple.  And, given a recent ruling by the Scottish appeal court, project managers need to be on the front foot when working on Scottish projects, given the significant differences between Scottish and English law when it comes to time bar.

First, some background. The relevant legislation (the Prescription & Limitation (Scotland) Act 1973) specifies important exceptions:

• Section 11(3) allows the beginning of the time bar period to be postponed where the claimant doesn’t know, and couldn’t with reasonable diligence have been expected to discover, that it had suffered a loss. 
• Section 6(4) provides that a period when the claimant was induced not to bring a claim is to be discounted from the five-year period.

Whether, and to what extent, these exceptions can save a claim in which the loss was incurred more than five years before proceedings were raised is an area where the law has been developing at pace over the last decade.  

Many of the leading cases have been in construction disputes, and the latest is the appeal decision in Tilbury Douglas Construction Ltd v Ove Arup & Partners Scotland Ltd.  

In this case, the court decided that TD’s multi-million-pound claim for losses allegedly caused by negligent design WAS time barred – providing a stark warning for claimants who take too long to raise proceedings.

The parties’ positions on time bar

Time bar, by its very nature, is raised by a defender who is looking to ‘knock out’ a claim.

Arup argued on two points; that the five-year clock began to run in March/April 2014, and no later than 24 June 2014 -  the date the subcontractor asked for a further payment of £100K in respect of repairs; and that by raising the claim in July 2019, TD was out of time.

TD accepted that it had incurred a loss when it entered the fixed price contract in November 2013 because, in doing so, TD was in a position where the cost and delays of the inevitable redesign would fall upon it.

In other words, the contract was, at the point of entry, already worth less to TD than it would have been had Arup provided a competent design.

However, TD argued that their claim could not be time barred on the basis of the following:

• Section 11(3) meant the beginning of the time bar period had to be postponed because TD didn’t know, and couldn’t with reasonable diligence have been expected to discover, that it had suffered a loss in November 2013 or March/April 2014 or June 2014; or, alternatively, 
• Section 6(4) meant the prescriptive period was extended during the period when TD was induced by Arup not to bring a claim. 

In both cases, the key date from which the prescriptive clock began to tick was November 2014, meaning TD’s July 2019 court proceedings were – seemingly – raised in good time.

The appeal court’s decision

The appeal court made it clear that the burden in respect of the postponement or extension of the prescriptive period lies with the party who wants to rely on that, in this case, TD.

TD therefore had to persuade the court that either of the above sections applied, and in doing so had to present sufficient evidence to the court. Key points are:

• Section 11(3)

The court highlighted that the harshness of the law under the 1973 Act has now been addressed by the new Scottish prescription legislation (the Prescription (Scotland) Act 2018); however, these particular circumstances were governed by the 1973 Act. On that basis, the five-year prescriptive clock began ticking for TD in November 2013, because that’s when TD entered a fixed price contract based upon Arup’s defective design.

It also decided there was no scope for Section 11(3) to postpone the start of the time bar period because the date of entry to the contract was when TD was first aware of objective facts which constituted its loss, even though the value of the claim couldn’t be quantified at that stage.

The appeal court was persuaded Arup was correct in its assertions that when the case was first heard, the commercial judge had wrongly become involved in what Arup described as ‘salami slicing’ of TD’s global claim.  In other words, the appeal court was satisfied this situation wasn’t one where there were several different breaches by Arup across a number of different dates, which led to a range of different potential time bar dates. Rather, there was one, key event from which TD’s loss flowed; the fixed price contract based on Arup’s flawed design. That date was November 2013.

The appeal court was clear that the Section 11(3) argument must fail in these circumstances, and therefore the summons had been served five years, eight months and three days after the prescriptive clock began to tick; only Section 6(4) was available to TD to keep the action against Arup alive.

• Section 6(4)

For this section to operate, TD needed to evidence three things:  that there was a period of time when TD was acting in error which meant they did not make a claim against Arup; the start and end dates of that period; and that Arup had caused TD’s error.

TD’s position was that Arup’s design was wrong from the outset, but that Arup sought to assure TD that their design was appropriate and did not require significant amendment, despite the ongoing additional works. TD’s position was that they were acting under error caused by those assurances from Arup until TD were told that that the north tunnel was going to require full grouting.

However, the appeal court was not satisfied that TD had presented evidence that showed that Arup had done - or not done - anything that had caused TD to believe they had no opportunity claim against Arup.

The appeal court took the view that the original judge had taken Arup’s assurances on which TD had relied and decided not to claim, and then combined those with the above three requirements for Section 6(4) to apply.  There was no evidence to support a conclusion that TD had been convinced by Arup that TD had no opportunity to claim against them.  Instead, the evidence pointed to the fact that TD was waiting to see how the various investigations and repairs progressed, in the hope that Arup’s assertions in respect of its designs were correct.

Key takeaways for project managers and inhouse counsel

• Re Section 11(3), it’s important to consider what caused the loss, and whether there are several small breaches or whether there is really one key breach or event from which this loss flows.  An artificial argument or an attempt to ‘salami slice’ a global claim is not going to be persuasive in court.
• For Section 6(4), it’s important to ask yourself:  were you relying on assurances that the other party was offering and hoping those were correct, or were you being induced by the other party to believe you had no claim against them?  To claim interruption of the time bar period, you need to have evidence to present to a court that the other party, by words or conduct, led you into error as to your legal remedies. This is a high bar for claimants to clear.  
• It’s also vital to note that this case was decided under the ‘old’ Scottish prescription regime.  We now have a ‘new’ regime, an Act dated 2018, which sets out that, from 1 June 2022, a party seeking reparation must be aware of three facts before the prescriptive clock begins to run:

1. that loss, injury or damage has occurred
2. that the loss, injury or damage was caused by a person’s act or omission
3. the identity of that person.

• Important: the ‘new’ regime only applies to claims which had not already time barred by 1 June 2022, therefore we are going to keep seeing decisions under the previous regime for a while, as the TD case demonstrates.  
• Section 6(4) is also set to be amended, but those changes have yet to come into force. 

Whether the time bar clock can be postponed or stopped is rarely straightforward in construction disputes.  As soon as issues with a project arise, project managers and inhouse counsel are advised to take legal advice to ensure that time bar can properly analysed, and key dates diarised.

Michael Collins is partner at Anderson Strathern