Changes to prescription law in Scotland

Upcoming regulations will bring into force the provisions of the Prescription (Scotland) Act 2018 (the new Act).                                                

The majority of the new Act will come into force on 28 February 2025.  However, sections 5 and 13 will come into force earlier than expected on 1 June 2022.  This is an important and welcome development in prescription law, particularly for pursuers, as it provides clarity following the decision in Morrison v ICL Plastics [2014] UKSC 48 and introduces the possibility of standstill agreements for Scottish claims.

The current prescription rules are set out in the Prescription and Limitation (Scotland) Act 1973 (the 1973 Act) which was made following the Scottish Law Commission’s (SLC) 1970 report calling for reform of the law relating to prescription and limitation.  In 1989, the SLC recommended further reforms in relation to prescription laws but these were not implemented.  However, the UK Supreme Court judgment in Morrison brought concerns about prescription, in particular in relation to latent damage claims, back into focus.

Section 11(3) of the 1973 Act allows the start of the prescription period to be postponed based on the pursuer’s date of knowledge of key information relating to their claim.  The Morrison decision narrowed the application of this postponement, stating that claims should be brought within the prescription period of 5 years from the date the pursuer became aware (or should with reasonable diligence have been aware) that they had suffered a loss, regardless of whether at that time they knew that the loss was caused by a breach of contract or negligence by another.

The Morrison judgment and its application in subsequent cases, resulted in some arguably harsh decisions for pursuers.  Midlothian Council v Blyth & Blyth & Ors [2019] CSOH is a high-profile example where a £12m claim was deemed out of time based on the prescription period beginning from the date of loss (the date it had incurred expenditure), even though at that time the Council was unaware that anything had gone wrong.  The perceived unfairness of this case led to a further SLC review of prescription and ultimately the new Act being made.

Although the new Act received Royal Assent in 2018, it was stated as not coming into force until commencement regulations were passed.  The SLC also recommended allowing a transition period of three years from the commencement regulations before the provisions took effect.

Changes coming this year

The Regulations were laid before the Scottish Parliament on 28 February 2022 and set a commencement date for the new Act of 28 February 2025.  However, sections 5 and 13 of the new Act were excluded from this start date and these provisions will come into force on the earlier date of 1 June 2022.

Section 5 of the new Act addresses the concerns about the Morrison decision by amending the test for starting the prescription clock.  Under the new Act, section 11 of the 1973 Act is amended 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.

Section 13 repeals the previous prohibition on contracting out and allows parties to agree an extension of the prescriptive period of up to one year.  The agreements will be similar in nature to standstill agreements, which are currently available to litigants in England and Wales.

What does it mean for you?

These changes are highly anticipated and will be welcomed by all those with an interest in Scottish negligence claims, especially lender pursuers.  The SLC has acknowledged that the amendments go further than the 1973 Act and are favourable to pursuers, without going so far as to prejudice defenders.  For lenders in particular the changes to the test for starting the prescription clock assist to postpone the prescription start date for claims where losses may not be identified until after loans have been enforced by possession and marketing/sale of the security subjects.  The introduction of standstill agreements also allows parties additional time to explore the possibility of settlement whist avoiding incurring the costs of raising and serving a court action to preserve the claim.

Nevertheless, given the serious consequences if a claim prescribes we recommend that litigants continue to adopt a cautious approach.  Potential claims should be proactively investigated and, as soon as they are identified, prescription periods should be diarised and consideration given as to whether it may be necessary to take additional steps to protect the claim.

The Regulations can be found here, and the Act here.