We continue to receive a steady stream of instructions where the defects in dispute have (or may soon) be time barred.
The law in this area is currently under review, with the draft Prescription (Scotland) Bill having received Royal Assent on 18 December 2018. However, it remains unclear how this new legislation will be implemented and in particular how it will apply to existing defects (whether patent or not). In the meantime the existing law remains fertile ground for disputes.
The decision of Lord Clark in Agro Invest Overseas Limited v Stewart Milne Group Limited in which Brodies acted for the pursuer AIO therefore serves as both a welcome reminder of the status quo, as well as providing clarity on the effect of ‘practical completion’ on arguments of time bar.
The actions in question (which are three related actions being heard together) relate to the design and construction of works at Ben Alder Estate, Dalwhinnie. Stewart Milne Group Limited (SMG) was the main contractor; the other actions being directed against the structural engineer (Morgan Associates) and architect (Trembath Associates). All three actions were raised by the pursuer less than five years after the date of practical completion of the works.
Section 11 of the Prescription and Limitation (Scotland) Act 1973 provides that where a pursuer is aware (or with reasonable diligence should have been aware) of an act, neglect or default (in this case resulting in a defect), the five year ”time bar” clock for raising an action begins to run.
The defenders argued that the defects complained of predated practical completion; were over five years old; and that the wording of the 1973 Act was sufficiently clear that practical completion could not be relied on to delay commencement of the five year period. The defenders’ position was that the claims were time barred.
Lord Clark disagreed. In a substantial judgement, Lord Clark observed that for the purposes of the 1973 Act, the act, neglect or default takes place when a breach of contract occurs, with the nature of that breach being determined by the wording of the underlying obligation in the contract that is alleged to have been breached.
In this case the defenders were under obligation to “carry out and complete” the works in accordance with the contract. Because this is a dual obligation – both to carry out and complete – in accordance with the contract, failure to do so as at the date of practical completion is a breach of contract. Thus, regardless of whether a defect may have also caused any other, earlier, breach of the contract, (e.g to ‘carry out’) “completion is a point in time at which breach can occur”. The date of practical completion was therefore “directly relevant to the date of the alleged breach of contract by SMG.”
While AIO was ultimately successful in repelling the arguments advanced regarding time bar, the case nonetheless serves as a reminder to employers to act promptly to investigate defects and, where a dispute might occur, seek legal advice on how best to protect their rights at the earliest opportunity.