Introduction and Background

Lord Tyre’s judgment in the case of Royal Bank of Scotland PLC v Halcrow Waterman Limited provides some timely reminders as to the effect of prescription.

The defenders were structural engineers for the refurbishment of a property in St Andrew’s Square, Edinburgh which achieved Practical Completion in 2000 where the pursuers (RBS) became tenants under an FRI lease. In 2003 RBS were aware of some issues with their partitions and concrete slab, in relation to which they engaged a consultant to carry out a report. However this investigation fizzled out without any material actions being undertaken. In 2008 further investigations were carried out and an action was raised against the defenders in 2010 under the terms of a collateral warranty from the Halcrow Waterman Limited in favour of RBS. The defenders argued that RBS ought reasonably to have known of the defects in 2003, and therefore statutory prescription barred the action. The court rejected this argument.

Prescription

Whilst the rights under the collateral warranty had not expired under the terms of any limitation clause (typically 12 years) contained in the collateral warranty, rights to bring an action in Scotland can also prescribe under statute.  The legislation governing prescription in Scotland provides that unless a relevant claim has been made by a party (or a relevant acknowledgement of breach has been made by the party at fault) the right to bring an action will be extinguished after 5 years. The key here is when this five year period begins to run. Usually this will be from the date when the loss, injury or damage occurs to a party. If however  the party was not aware and could not with reasonable diligence have been aware of the loss, injury or damage then the clock will not start ticking until the date from when they became, or should have become so aware.

RBS therefore had to demonstrate that their action had not prescribed and so in this case that five years had not elapsed from when they became, or should have become aware of the damage..  At first glance it may be reasonable to assume that the rights of RBS had prescribed given the initial investigations were undertaken in 2003.

Whilst RBS had engaged a consultant to examine the slab and partitions in 2003, but these investigations were not concluded and so the judge found that they had not acted with reasonable diligence and so they could have been aware of the defects at this stage.  However, evidence was led from the consultant engaged in 2003 confirming they were very unlikely to have concluded that there were major structural defects in the slab at this stage. Therefore even if RBS had concluded the investigations they would still not have been aware of the damage that later became apparent.

The judge therefore concluded that the action had not prescribed but was brought within the time limits from when RBS ought reasonably to have discovered the defect.

Conclusion

This case shows that investigations may not in every case start the clock of prescription running if the party still could not reasonably have been aware of the loss or damage.

However, it is also a useful reminder that if investigations are carried out in relation to a defect then they should be closed off and followed up properly as otherwise the rights to bring a claim may indeed prescribe. If in doubt, speak to your lawyers about what you could do to raise a relevant claim and preserve your rights.