The law must balance the interests of both parties in these situations, such as a creditor and debtor. The Prescription and Limitation (Scotland) Act 1973 provides the current rules for when the law extinguishes such rights.
The justification for a negative prescription is obvious: over time the available evidence deteriorates, the quality of justice is compromised, disputes should be resolved as soon as possible, and the affairs of those with legal rights should be organised.
The 1973 Act sets out which obligations are subject to a five-year prescriptive period. After that period, unless an action has been raised or the obligation acknowledged, those obligations are extinguished.
There are, of course, specified exceptions. Any obligation not subject to the five-year period or the specified exceptions is covered by the long negative prescription period of twenty years.
The running of prescription can be interrupted by (1) raising a court action or other relevant claim, or (2) it being formally acknowledged by the person owing the obligation.
The short prescriptive period
Recently there has been a major change relating to the start of the prescriptive period. The 1973 Act provides for a delay in starting the prescriptive period based on the person’s knowledge, protecting them in cases of latent damage. For many years it was considered the prescriptive clock did not start running until the victim was both aware that he or she had incurred loss and that the loss was caused by an act, neglect or default.
However, a recent decision of the Supreme Court (and subsequent cases) in Morrison v ICL Plastics took a restrictive approach as to the application of this test. In that case, a factory explosion caused damage to a nearby shop. Whilst the shop was damaged by the explosion, it was not immediately clear to the owners what the cause of that was. However, the Supreme Court took the view it was sufficient to start the clock that the owner knew he has incurred a loss. Awareness of loss was the important factor, nothing else. The decision has been criticised as being harsh and unfair when applied to claims involving latent damage.
The Scottish Parliament now seeks to address this issue with the Prescription (Scotland) Bill. The Bill proposes a new test to deliver a fairer result. For an obligation to pay damages, the five-year period will begin to run when a person knows (or should know) (i) that loss, injury or damage has occurred; (ii) that the loss, injury or damage was caused by a person‘s act or omission; and (iii) the identity of that person.
Other proposed amendments
The Bill proposes extending the short prescriptive period to types of obligations falling under contract and delict. Obligations to make payment (or repayment) are also subject to change. There are, however, some exceptions for obligations relating to taxes, duties, rates, benefit overpayments or child maintenance.
It is also proposed to change the rules relating to long prescription. Instead of the long prescriptive period being interrupted by raising an action or acknowledgement of a claim, it is proposed that twenty years be a long-stop period not subject to interruption. There will be certain circumstances where this can be extended such as a court action being concluded after the end of the period.
On a more practical level, the Bill clarifies that raising a claim will interrupt the prescriptive period until that claim is finally disposed of and a fresh prescriptive period will start. Parties are also able to agree on a one-time extension to the short-term period of no more than one year.
Importantly the Bill proposes that, where there is a question about prescription, it is for the holder of the legal right to prove the obligation has not extinguished.
The Bill is currently at Stage 1 and the Lead Committee is currently taking evidence in relation to it. It is possible that there will be further changes as the Bill progresses through the Scottish Parliament.
Irrespective of how the Bill progresses, the proposed changes will be important for litigation across Scotland. Whilst the various changes proposed by the Bill will ease the hardening line taken on prescription in recent times, it should be remembered that issues of prescription are complex and carry risks. They can usually be avoided altogether by pro-actively investigating and taking early legal advice on your options.
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.