The understanding of the law of prescription in Scotland was altered significantly by the decisions in Morrison v ICL Plastics [2014] UKSC 48 and more critically, reinforced in Gordon’s Trustees v. Campbell Riddell Breeze Paterson 2017 SLT 1287.
Section 11(3) is now understood to only delay the commencement of the prescriptive period until the creditor had knowledge of loss regardless of whether the creditor was aware of the negligent act which caused the loss, or even that the loss was in fact loss. The result was that section 11(3) was effectively rendered redundant.
This interpretation of the law, which was the subject of some concern and surprise within the litigation sector, produced some notoriously “harsh” cases. Midlothian Council v Blyth & Blyth & Ors [2019] CSOH 29 was perhaps the most high profile, highlighting in the implications for those involved.
This has led in turn to greater reliance on arguments in terms of section 6(4) of the Prescription and Limitation Act 1973 and a growing body of supportive case law for that provision, previously overlooked by many in favour of section 11(3).
As a consequence of the decision in Gordon’s Trustees, new legislation was drafted to address the obvious deficiency in the law of prescription.
The new Prescription and Limitation Scotland Act 2018 passed Royal Ascent in November 2018 however, the operative provisions of the 2018 Act would not be effective until commencement regulations were passed.
The section 5 of the 2018 Act amends to section 11(3) which states that the prescriptive period will not commence until the creditor is aware of the following facts:
“(3A) The facts referred to in subsection (3) are—
(a) that loss, injury or damage has occurred,
(b) that the loss, injury or damage was caused by a person’s act or omission, and
(c) the identity of that person.”
This would, in effect, restore the position in respect of section 11(3) to how it was understood prior to Morrison and Gordons Trustees.
Draft commencement regulations were released last year which stated that the operative provisions of the Act would not commence until a period of three years after the date of the commencement regulations. In a somewhat unexpected turn of events, following further consultation an exception has been included in respect of section 5 and 13 of the 2018 Act.,
The Prescription (Scotland) Act 2018 (Commencement, Saving and Transitional Provisions) Regulations 2022 have now been released and will be coming into force on 1 June 2022.
Section 2(2) of the Regulations notes that:
“The day appointed for the coming into force of section 5 (start point of prescriptive period for obligations to pay damages) and section 13 (restrictions on contracting out) of the 2018 Act is 1 June 2022.”
Section 5 coming into force in 1 June 2022 is significantly sooner than anticipated last year when in prior drafts all provisions would have come into force at the appointed day for the rest of Act, which is now 28 February 2025.
In terms of section 3 (2) of the Regulations:
(2) Section 5 of the 2018 Act has no effect in relation to any right or obligation which was extinguished before the day appointed in regulation 2(2).
In effect any claim based on a loss which was incurred after 1 June 2017 will be subject to the new discoverability tests in terms of the amendments to section 5, as these claims cannot have been prescribed prior to 1 June 2022.
There will remain arguments in respect of any losses which are sustained prior to 1 June 2017 that the claim is prescribed prior to the appointed day. The recourse of pursuers in those claims will be arguments in terms of section 6(4) of the 1973 Act.
Prescription under the current case law was undoubtedly a major obstacle to lender claims where losses are typically identified following default, possession and sale of security subjects.
These amended provisions of section 11(3) will be of considerable benefit to lenders in the pursuit of contractual claims and negligence claims and they are definitely to be welcomed.
Paul McIntosh is partner, Banking Litigation at Aberdein Considine
