Thu 09 Feb 2023

Construction: Changes To The Scots Law Of Prescription And Latent Defects

Julie discusses the recent changes to the law of prescription and their impact on latent defects in construction projects.


Historic position

The expiry of claims for damages in Scotland is regulated by the Prescription & Limitation (Scotland) Act 1973 ("the 1973 Act"). Section 6 of the 1973 Act provides that claims for damages prescribe after 5 years if a relevant claim has not been made and it has not been relevantly acknowledged. 

Prior to the changes introduced by the new legislation, section 11(1) of the 1973 Act provided that such a claim became enforceable "on the date when the loss, injury or damage occurred". Section11(3) provided that the five-year period can be delayed when the injured party "was not aware, and could not with reasonable diligence have been aware, that loss, injury or damage caused as aforesaid had occurred."

Identifying when the prescriptive clock starts has been the subject of several court decisions, culminating in the 2017 Supreme Court decision, Gordon's Trustees v Campbell Riddell Breeze Paterson LLP [2017] UKSC 75The Court said that where heads of loss include expenditure (e.g. consultant's fees), the clock starts running when that expenditure was incurred.

In Gordon's Trustees, the trustees had instructed their solicitor to serve notices to quit to recover possession of three fields. The tenants did not remove so proceedings were raised at the Land Court. Two of the notices were held to be ineffective by the Court.  The Supreme Court considered that the trustees were aware of having suffered a loss when they didn’t recover the fields at the date set out in the notices to quit thereby starting the prescriptive clock. 

Changes to the law of prescription

The Prescription (Scotland) Act 2018 ("the 2018 Act") partially came into force in June 2022, making changes to sections 11 and 13 of the 1973 Act.  The remainder of the provisions will come into force in February 2025. 

Section 5 of the 2018 Act amends section 11(3) of the 1973 Act so that the prescriptive period does not now begin until the injured party is aware or could with reasonable diligence have been aware of certain facts, provided in section 11(3A), these being:

  1. Loss, injury or damage had occurred;
  2. That the loss, injury or damage was caused by another party's act or omission, and;
  3. The identity of that party.

The changes to section 11 do not apply to obligations which had expired prior to 1 June 2022 but otherwise apply retrospectively.  The purpose of this amendment is to balance the rights of parties following the string of court decisions restricting parties' ability to claim for loss or damage which was initially latent. 

English lawyers will be familiar with "standstill agreements". The changes introduced by section 13 of the 2018 Act mean that parties can now agree to extend the prescriptive period, on one occasion, by up to one year, after the clock has started.

The Building Safety Act 2022 ("the 2022 Act") introduces changes to the prescriptive period and extends liability for certain damages. Where a party has failed to comply with product requirements, made misleading statements to market the product or has produced an inherently defective product ("Condition A") they are liable to a claim, if further specific conditions are met, namely:

  1. In relation to construction products:
    1. they are used in the course of the construction of, or otherwise in relation to, the building;
    2. after completion, the building is unfit for habitation, and;
    3. that the unfitness is caused in whole or part by Condition A or the use of the product.
  2. In respect of cladding products:
    1. After Condition A is met, the cladding product is attached to, or included in, the external wall of a relevant building in the course of the construction of, or otherwise in relation to, the building.
    2. When those works are completed the building is unfit for habitation, AND
    3. that the unfitness is caused in whole or part by Condition A or the use of the product.

The 2022 Act allows claims for personal injury, damage to property or economic loss in relation to defective construction and cladding products to be made within 15 years or, if the right of action arose before the 2022 Act was in effect, the period for defective cladding product claims is 30 years.

The effect

It is possible that cases such as Midlothian Council v Raeburn Drilling & Geotechnical Ltd [2019] CSOH 29 would be decided differently as a result of the 2018 Act.  Midlothian Council sued Raeburn for failing to advise them that a gas defence system was needed for a 64-house development on top of old coal workings. Raeburn were appointed in 2004. The development was completed in June 2009. The failure to install the system eventually rendered the properties uninhabitable but this was not discovered until 2013. The Council didn’t sue Raeburn until 2016 at which time they were held to be out of time to make a claim, despite not knowing when they paid Raeburn that they were paying for ineffective advice. 

Under the 2018 Act, the prescriptive period arguably did not commence when Raeburn were paid. Rather, the clock started in 2013 when Midlothian discovered that (1) the properties needed and did not have the gas defence system and (2) that this was due to Raeburn's failure to properly advise Midlothian.

The 2022 Act goes further; it imposes both a lengthy prescriptive period and introduces a wide scope of liability, meaning that claims may be brought where there is no contract between the injured party and the party being sued.  

The impact of the changes introduced by the 2018 and 2022 Acts remains to be seen. A sensible approach for parties who manufacture construction and cladding products will be to keep records for longer and ensure regular performance testing. A concern for contractors and manufacturers alike will be that buildings completed for many years could now be subject to claims. Contractors may also require greater oversight of their supply chain to ensure that quality control is being maintained and that specified products are being used.

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