On 5th September, the First Minister of Scotland delivered her Programme for Government 2017/18 and set out the key legislation which will be introduced to parliament in the coming year.
Included in that Programme is the implementation of the Scottish Law Commission's recommendations for the reform of the law on extinction of claims under Scot law (known as "prescription"). We examine here what those recommendations are and what effect it may have.
The Scottish Law Commission's ('SLC') Report on Prescription was delivered to Ministers on 3rd July 2017. By the SLC's own admission, the Report was not an attempt to review the law on prescription wholesale, but merely to address certain issues which have caused difficulty or uncertainty in practice. Put shortly, those issues were:
- The scope of the five-year and 20-year prescriptive periods, and how those periods interplay with statutory provisions in certain areas;
- The discoverability test - i.e. the state of knowledge which a creditor must have before the time period starts to run;
- The 'long-stop' prescriptive periods, and whether it should be possible to interrupt the 20-year period;
- Whether the prescriptive period can be contracted out of;
- The burden of proof in establishing whether a claim has prescribed;
- The effect of fraud, concealment and error in the computation of the prescriptive period; and
- The definition of a 'relevant claim' for the purposes of determining when the prescriptive period has been interrupted.
Taking each of those in turn:-
Scope of five-year and 20-year prescriptive periods and their relationship with statute
The SLC recognised that a number of statutes specify different time limits for bringing claims from those mentioned in the Prescription & Limitation (Scotland) Act 1973. A one-year limit applies to claims for loss and damage to goods carried at sea, for example, and other limits apply to breaches of planning control, copyright or performing rights.
This can lead to confusion, as the 1973 Act does not state that it is not to apply where another enactment sets out a different time limit. This can lead to questions as to which statutory provision is to prevail. The SLC recommend that the question should be put beyond doubt, and that the 1973 Act should not apply where another enactment specifies a different time limit in relation to a particular kind of claim.
Equally, the SLC recommend that all other statutory obligations should be covered by the five-year prescriptive period unless expressly excluded, and suggest that exclusions should include taxes and duties, child support, and council tax or non-domestic rates.
Finally, the SLC recommended adding to the list of grounds of claim which are covered by the five-year period in order to put certain claims beyond doubt. In particular they recommend including liability arising from pre-contractual negotiations and any obligation relating to the validity of a contract.
The discoverability test
At present the law states that, in general, the time limit starts to run from the date of the act giving rise to liability. That period can be postponed, however, in certain circumstances.
Until 2014 the prevailing view was that in a reparation claim the period would start to run when the claimant knew or ought to have known (a) that they had sustained a loss, injury or damage; and (b) that the loss had been caused by fault or negligence (whether or not the claimant knew the identity of those who had been at fault). In 2014 a Supreme Court decision fundamentally altered this interpretation by removing limb (b). In other words, it was only necessary that the claimant knew that they had suffered loss injury or damage for the clock to start running. It did not matter if they were aware that someone was at fault for that loss.
The SLC recommend replacing the current test with a formulation whereby the prescriptive period begins to run from the date that a claimant became aware as a matter of fact that (a) they had incurred loss injury or damage; (b) the loss injury or damage was caused by a person's act or omission; and (c) the identity of that person.
The addition of the third limb is significant. In cases where a negligent act was undertaken by a complex corporate structure or under various layers of contract and sub-contract it can take time to determine who was at fault. This may extend the time limits considerably.
Tempering this slightly, the SLC also recommended that a proviso should be put into the statute to make clear that actual knowledge that any act or omission is or is not actionable should be irrelevant. They also rejected the suggestion that the time limit should only start to run where the loss injury or damage was 'material', thus meaning that even knowledge of a trivial loss might start the prescriptive period running. They also recommended no change to the existing 'reasonable diligence' test whereby the period runs from the time when a claimant was aware or could 'with reasonable diligence' have become aware of the fact that they had suffered loss.
At present, there is a long stop period of 20-years. However that period often runs from the same date as the usual five-year period, and in many cases it is subject to the same interruptions. The SLC's recommendations are aimed at making the 20-year period a true 'long stop' date, not susceptible to interruption in the same way as the five year period. In the majority of cases, therefore the absolute limit for bringing a successful claim will be 20 years.
Contracting out of the prescriptive period
Contractual arrangements seeking to extend or shorten the prescriptive period are currently ineffective, albeit the SLC point out that the statutory provision in this regard could usefully be clarified. In general the only ways to extend the prescriptive period at present are either to make a relevant claim (usually by raising court proceedings) or by having the debtor make a 'relevant acknowledgment', such as payment towards a debt or a written acknowledgement that the debt exists. In both cases this would start the five year period over again from that date.
The SLC recommend that the law be changed in order to allow extension of the five year period through agreement between the parties. Such an extension would be for no more than one year, and the period could only be extended on one occasion. In terms of the draft bill, this would only be competent where the prescriptive period had started to run, but had not yet come to an end. Only one such extension would be permitted.
The SLC did not, however, recommend that agreements to disapply or shorten the prescriptive period should have effect, and so the law in this regard would remain unchanged.
Burden of proof
At present the 1973 Act does not stipulate who must prove that a claim or debt has prescribed. It is generally thought that, where prescription is raised, the burden rests with the party seeking to establish the claim to show that it has not prescribed. The SLC recommend putting this beyond doubt and enshrining it within the legislation.
Fraud, concealment and error
As presently enacted, the law prevents the running of the prescriptive period during 'any period during which, by reason of (i) fraud on the part of the debtor or any person acting on his behalf, or (ii) error induced by words or conduct of the debtor. the creditor was induced to refrain from making a relevant claim'.
The current provisions have been subject to criticism. In particular it was not clear the extent to which the debtor's words or actions must have knowingly induced the claimant not to act, nor the extent to which a creditor must have known that they had a claim but been induced not to pursue it.
The SLC recommend that the matter be put beyond doubt such that the five-year prescriptive period shall be suspended in relation to any creditor who has been caused by the debtor, innocently or otherwise, not to raise proceedings. This is achieved by adding wording to the 1973 Act making clear that the intentions of the debtor are immaterial.
A number of respondents to the SLC's consultation exercise had raised questions surrounding the definition of a 'relevant claim' for the purposes of the interruption of prescription.
In light of those responses, the SLC make a recommendation in relation to the question of when prescription starts to run from again once a 'relevant claim' has been made. In the case of court proceedings, this could be interpreted as being either the date upon which the proceedings are served, or the date upon which they are finally disposed of. While most court proceedings are dealt with in a relatively short timescale, some can run for a number of years, and so the question can be important.
The SLC favoured the latter interpretation and recommend clarifying the law so that the prescriptive period will start to run again only once the relevant claim has been finally disposed of.
The SLC's report was not intended to be a radical departure from the pre-existing law on prescription and limitation on Scotland. It instead concentrated on a small number of key areas where clarity is to be welcomed.
In the main the impact will be felt in delictual claims where the rules around the discoverability test are a regular battleground, however there is much here for those involved in other types of claim to be aware of, particularly the proposal that the prescriptive period may be extended for a further year by agreement which will aid negotiation and may facilitate settlement without the need for court proceedings.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.