Prescription: the only constant is change
The law of prescription has changed on 1 June 2022, when Sections 5 and 13 of the Prescription (Scotland) Act 2018 finally come into force.
Background on prescription
The law of prescription in Scotland governs the time limits for legal claims, including claims for damages.
The current law of prescription is set out in the Prescription and Limitation (Scotland) Act 1973. It differs from the English law of limitation in a number of ways. Most notably, the standard prescriptive period is five years in Scotland, as opposed to six years in England, and standstill agreements have historically had no effect in Scotland.
The starting point for the five-year prescriptive period has been the subject of no small amount of controversy in Scotland in recent years. It’s given rise to two Supreme Court appeals (Morrison & Co Limited t/a Gael Home Interiors v ICL Plastics  and Gordon's Trustees v Campbell Riddell Breeze Paterson LLP ), numerous other court judgments, a Scottish Law Commission report in July 2017 and, ultimately, the Prescription (Scotland) Act 2018.
Underlying this controversy, there has been a perception that the current law is too harsh on claimants, because it allows for the five-year prescriptive period to start running as soon as a claimant learns of the fact or circumstances that constitutes loss or damage, even if they do not yet know that it amounted to loss or damage. This left open the possibility that the five-year period could begin to run (and could actually elapse) before a claimant discovers that they have a competent claim or have even suffered a loss.
This difficulty is, in part, what the 2018 Act was intended to address.
S.5 of the 2018 Act: a new discoverability test
The 2018 Act introduces a new three-part ‘discoverability test’ to determine when the five-year prescriptive period will begin to run.
In short, after 1 June 2022, the five-year period will not start until the claimant knows (or could “with reasonable diligence” learn):
- That loss, injury or damage has occurred.
- That the loss, injury or damage was caused by a person's act or omission.
- The identity of that person.
This new test swings the balance of parties' interests back towards claimants in response to the perceived harshness of the current law.
S.13 of the 2018 Act: standstill agreements
Standstill agreements are another innovation of the 2018 Act, although anyone practising south of the border will already be familiar with the idea.
The 1973 Act prohibited parties from contracting out of five-year negative prescription. However, the 2018 Act will give parties the option to extend this period where:
- The applicable prescriptive period has already commenced.
- The extension is for a period of no more than one year.
- No prior extensions have been agreed.
The rationale for this new rule is that it will give parties more time to resolve disputes extra-judicially and limit the need for proceedings to be raised protectively, to pre-empt a prescription defence.
The practical implications of these developments will be wide-ranging:
- Claimants will have more time to investigate claims and to raise proceedings. By the same token, the risk of litigation for a potential defendant will persist for that much longer before it can be discounted on prescription grounds.
- For a time, the current and old law will overlap. The new discoverability test will not apply to claims that prescribe under the current law before 1 June 2022. It follows that, in some cases, defendants will continue to argue that claims have prescribed on the basis of the current law, even after the new law has come into force.
- There are likely to be teething problems. The Scottish Government’s stated aim in passing the 2018 Act was to “increase clarity, certainty and fairness” but it is hard to see how these developments will increase clarity or certainty about the law in the immediate future. The 2018 Act replaces the old law with new language and new concepts. At least until there is a settled body of commentary and case law confirming its meaning and implications, there is still going to be some uncertainty about how the law applies in practice.
- Standstill agreements may not be compatible with commercial insurance arrangements. Insurance policies often contain an exclusion for liability resulting from agreements that extend policy holders’ potential liability beyond what it would be at common law. Arguably, a standstill agreement would do exactly that, so insured businesses should be careful to consult with their insurers before agreeing to any proposed extensions. For the same reason, insurers should advise policy holders facing potential claims that agreeing extensions without their consent may have implications for their policy cover and any indemnity ultimately paid out by their insurers.