Scots law position on prescription continues to be ‘in flux’ following Outer House ruling

Graham Horsman of Pinsent Masons said prescription - the countdown on the time limit for a claim to be raised – continues to be “an area of Scots law in flux” following Lord Braid’s ruling. He added that while the decision “attempts to tackle part of the uncertainty” around the law, “in doing so it emphasises other uncertainties.”

The dispute arose in September 2016, when a slurry tank on a large area of level ground at a farm in Townhead, Dumfries, was damaged by a circle slip of a nearby embankment. C&L Mair Ltd, which operates the farm, alleged that the slip caused sufficient damage to the tank that it had to be demolished and rebuilt at a different location.

C&L made a claim for breach of contract against Mike Dewis Farm Systems Ltd, which installed the tank in February 2012, arguing that the company had failed to give any consideration to the risks posed by the embankment. Mike Dewis denied the breach, and also argued that any obligation it had to C&L had already been extinguished by prescription.

Mike Dewis argued that loss always occurred when wasted expenditure was incurred, claiming that C&L’s loss therefore occurred by February 2012 at the latest – because that was when the farm incurred what turned out to be wasted expenditure. But C&L argued that no loss occurred until the time of the slip in 2016. It said the slip had not been certain to occur and that a hypothetical loss, which might or might not be suffered, was not sufficient to commence the prescriptive period.

Handing down his decision (13 pages / 494KB PDF), Lord Braid rejected Mike Dewis’ argument that C&L Mair first suffered loss because it incurred expenditure in 2012 – more than four years before the slip occurred. He said the argument was not applying hindsight to the situation so much as looking at matters through “the prism of a hypothetical crystal ball”.

Lord Braid added: “It was simply not known whether or not a slip would occur. [C&L] would have been unable to raise an action against [Mike Dewis] before the slip occurred. The situation is to be contrasted with that which would have existed if (unknown to anyone at the time) the slip had already occurred but had not yet caused the slurry tank to suffer damage; or a chain of events had been set in motion whereby it was inevitable that the embankment would slip.”

The court found that C&L’s loss was “purely contingent” until the slip occurred in 2016. “Until then, it could not be said that [C&L] had suffered any loss; there was merely a risk that it might,” Lord Braid said. He concluded that the loss did not occur until 2016, and that C&L’s claim against Mike Dewis had not prescribed.

Mitchell Abbott of Pinsent Masons said: “This decision is an important one for pursuers and claimants in Scotland. In holding that a breach giving rise to the risk of a future loss does not, in certain cases, start the prescriptive clock running, the court has given certain pursuers more opportunity to bring their claims in time. The court draws a distinction between claims which are immediately less valuable – such as a transaction where a legal document is missing key provisions – and ones where loss was merely contingent.”

“Time begins to run upon acquisition in the former, despite the pursuer potentially being unaware it had suffered a loss, and only upon realisation of the loss in the latter. As the court recognises, that distinction is not always easy to draw in practice,” Abbott said.

He added: “Importantly, the court also re-emphasised that where future damage is ‘inevitable’, the prescriptive clock will likely begin to run at the date of acquisition of the thing that will be the inevitable cause of the loss. Parties may seek to argue that the damage is inevitable or contingent in appropriate cases going forward, but despite the merits in this decision, there is residual uncertainty which is an undesirable way in which to leave the law on this issue.”

Horsman said: “We are already regularly dealing with the introduction of the standstill and discoverability provisions of the Prescription (Scotland) Act 2018 on 1 June 2022 in our ongoing work. We expect to see the law continue to develop over the coming months and years, and the developments are something that those operating under Scots law will require to be aware of.”