The law of prescription in Scotland, or the period beyond which a claim will prescribe or become inactionable due to the passage of time, is currently undergoing change. As a result of, amongst other things, recent decisions regarding assessment of when a loss might be considered to have been incurred by a wronged party, the Scottish Law Commission underwent consultation. The result of that is the Prescription (Scotland) Act 2018 which was given Royal Assent on 18 December 2018.

However, the relevant statutory instruments required to give effect to the terms of the 2018 Act are yet to be passed by the Scottish Parliament. To that end, The Prescription & Limitation (Scotland) Act 1973 still has effect and is the law presently in force.

It is in that context that Lord Docherty's judgement in the case of Midlothian Council v Bracewell Stirling Architects and others [2019] CSOH 29 was issued on 20 March 2019.

Background

Midlothian Council built out a social housing scheme at Gorebridge in the period between 2007 and 2009. Tenants moved in and occupied the properties, all as you might expect. That is until 2013 at which point one of the residents became unwell. It soon became apparent that dangerous levels of toxic gas were present in the houses. The tenants were decanted, the development demolished.

It transpired, on investigation, that the scheme as designed and constructed did not include any specification for or installation of any ground gas defence system. The Council had entered into a contract with Raeburn Drilling & Geotechnical Limited and Blyth & Blyth Consulting Engineers Limited to undertake ground investigations and provide advice to it in around 2005. There was no suggestion that gas was likely to be an issue. The Council averred that Raeburn Drilling and Blyth & Blyth respectively failed to carry out adequate site investigations, failed to properly interpret those, and to act upon the results.

It was said that appropriate site investigations and advice would have led to the design and installation of a ground gas defence system within or as part of the foundations of the development. In that event, there ought not to have been any toxic gas within the houses, and no demolition would have been required.

The Council sought to recover losses it had sustained in connection with the need to demolish the properties, including costs associated with rebuilding the development with ground gas defence systems, demolition costs and decant/rehousing costs incurred to or in connection with the tenants of the properties. The action was raised on 4 September 2018.

The Arguments

In response to the arguments laid against Blyth & Blyth (the Engineers), it was argued that the claim had prescribed. The Engineers said that the Council had incurred considerable expenditure in relation to the construction of the development throughout the course of the original development works and that that expenditure constituted loss for the purposes of prescription. The fact of the loss having been incurred more than five years before the raising of the action precluded the Council from recovery.

The Law

In Scotland a claim for damages timebars or becomes inactionable where it has subsisted for a continuous period of five years without a relevant claim or relevant acknowledgement having been made or given. The caveat is that where the creditor, or wronged party, was not aware and could not with reasonable diligence have been aware that it had suffered loss, injury or damage, the five year period commences when it should have been so aware.

The 2018 Act will effect a substantial change to the test of when a party ought, or ought with reasonable diligence to have been aware that a loss had been suffered but it is yet to come into force. We'll keep you posted on that in due course.

The Decision

The breach of contract, or the failure to properly undertake, assess and report on site investigations took place in around 2006. As a matter of objective fact, loss, injury or damage had occurred by June 2009. The Engineer argued that this was as a result of wasted expenditure in the development; the Council that the date of practical completion was the relevant start date.

Lord Docherty held that the loss, injury and damage had been incurred before practical completion. As soon as the Council accepted the (incorrect) advice of the Engineer there was an actionable wrong. The Council relied on that advice in the design and construction of the development. It incurred costs based on the advice. The Engineer's failures resulted in wasted expenditure in the construction costs.

Relying on section 11(3) of the 1973 Act the Council argued that it was not aware that it had suffered loss until the time when it became apparent that the development would require to be demolished.

It did not know that it had not obtained what was sought from the Engineer. However, it clearly knew that expenditure was being incurred between December 2007 and 2009 based on the Engineer's advice. It did not know that that expenditure was wasted or would fail to achieve its purpose, although it transpired that it was and it did.

The Council was, therefore, aware that it had suffered loss, injury and damage (wasted expenditure) more than five years before the action was raised on 4 September 2018. Accordingly, the claim against the Engineer has been extinguished.

Lord Docherty made a distinction between a case where loss is suffered as a result of reliance on negligent advice (as in here) as against expenditure incurred to a contractor for faulty or defective works.

The case was dismissed.

Observations

The moral of the story is, when assessing the relevant date from which to run a calculation for the purposes of the five year prescriptive period, to approach that assessment with caution. What is the earliest date when it could be said that a loss had been incurred? In this case the Council has incurred substantive costs, which would not have been incurred but for the failures of the Engineers. However its ability to recover those costs from the Engineers is lost due to the passage of time.