Time-bar law review could widen long-term risks

Florinda Soldani

Florinda Soldani, an Aberdeen-based senior associate in Dentons’ Dispute Resolution team, tells Project Scotland of the potential implications for the construction industry if changes to the law on prescription are implemented

PROPOSED changes to the law on prescription – the ’time bar’ for civil damages claims – could see businesses in the construction sector facing legal action in cases where claims would be time-barred under the current rules.

Currently, parties looking to claim damages in a civil dispute generally have five years to do so – but the strict interpretation of this rule has led to its review. Of course, disputes in the construction sector can often be resolved by the mechanism provided in the Housing Grants, Construction and Regeneration Act 1996, which gives parties to qualifying contracts various rights and remedies, including the right to refer a dispute to adjudication.

Nevertheless, it is important to remember that bringing a claim in the civil courts is the default remedy for resolving legal disputes.

Given the time span of construction projects and the difficulties establishing who is responsible when something goes wrong, the proposed changes are highly relevant to the sector.

The current position is that claims for damages for breach of contract, negligence or fault (other than for personal injury) are time-barred if a civil claim is not commenced within five years of the date on which “the loss, injury or damage occurred”. While at first glance this may appear straightforward, a number of recent decisions have highlighted the need for reform.

The first such case was that of David T Morrison & Co Limited v ICL Plastics, a claim for damages arising out of the ICL Stockline explosion in May 2004. Morrison owned a shop near to the ICL site which was damaged in the explosion and a claim for damages was raised in August 2009 – five years and three months after the explosion. Morrison’s lawyers argued that the exact cause of the damage, and thus the identity of the liable party, was not known until the public inquiry into the explosion published its report in July 2009 – but the Supreme Court held that the claim was time-barred.

Previously it had been thought that the prescriptive clock would not start running until the claimant was, or at least should have been, aware both that loss or damage had been suffered and that the loss was legally actionable. The Morrison case has since been applied in a manner which Lord Hodge, one of the Scottish judges of the Supreme Court, acknowledged could be “harsh” in certain cases.

In another case, a trust which owned farmland claimed damages for negligence against the firm of solicitors it had instructed to bring the tenancies of the farmland to an end so that the land could be developed. The firm of solicitors served “notices to quit” which had certain technical errors and the tenants refused to leave. Lands Tribunal proceedings were then commenced to remove the tenants. When the Lands Tribunal claim was unsuccessful, the trust brought a civil claim for negligence against the solicitor.

The trust argued that the time-bar clock only started running when the Lands Tribunal gave its judgment in 2008 (which is when they knew the true extent of their loss) but the Supreme Court held that the countdown had started to run in 2005 when the trustees were aware that the tenant would not give up possession (and certainly no later than February 2006 when the trust incurred expense in raising the Lands Tribunal claim).

The Prescription (Scotland) Bill proposes the introduction of a new three-part “discoverability test” so that the clock will not start running unless and until the claimant is, or could reasonably be, aware of each of following facts:

(a) that loss, injury or damage has occurred,

(b) that the loss, injury or damage was caused by a person’s fault, and

(c) the identity of that person.

This new test will, at least potentially, give claimants more scope for making claims outwith the five year period – and this could be particularly relevant where technical investigations are required to identify the cause of a problem in a complex construction project. The flip side, of course, is that the new test removes an element of certainty for businesses wishing to put potential liabilities behind them.

It is important to remember that while adjudication is an excellent alternative to civil litigation, exercising the right to adjudicate does not stop the time clock for a civil claim from running. If adjudication is the preferred method of dispute resolution, it is therefore important to take advice as to how the two regimes interact – and to begin adjudication proceedings well in advance of the end of the prescriptive period, so as to preserve the right to bring a civil claim should that prove necessary.