PAUL McINTOSH explains how a new ‘discoverability test’ should give businesses a greater opportunity to explore and pursue damages claims
This month has seen a major change to an area of law which may appear inconsequential to most people. The change affects the law of prescription, which may sound somewhat dry and technical. However, it will be potentially significant for those businesses in dispute with another party and which may involve contractual claims for damages.
The change came into effect on 1 June and introduces a new ‘discoverability test’ designed to help businesses pursuing claims.
Some important context to the change will reveal why it is critical to everyday business life.
In short, prescription imposes time limits on parties’ abilities to raise claims for damages and some other specific remedies. If claims are not pursued within those limits they are extinguished.
The legislation governing this law is the Prescription and Limitation Scotland Act 1973 which imposes a prescriptive period of five years for claims for damages which commences on the date of concurrence of loss and the negligent act or breach causing the loss.
This means, effectively, if you have a claim for damages arising from negligence for instance, you would have five years to pursue that claim from date of concurrence of loss and the injurious act.
This five year period can only be extended by two provisions within the Act. Section 11(3) was previously understood to delay the commencement of the prescriptive period until the pursuer(claimant), using reasonable diligence, was aware, or could have reasonably been aware, of the loss and the injurious act which caused it. This was known as the discoverability test. Common sense.
A groundbreaking Supreme Court decision in 2015 meant Section 11(3) would only delay the commencement of the prescriptive period until the pursuer was aware of the loss.
However, subsequent cases showed that the time to make a claim could very well have run out before you even knew you had one. It was accepted by the court that this could produce “harsh cases” and that there was real need for legislative reform. Not exactly ideal, you might say.
Amendments in the Prescription Scotland Act 2018 mean that Section 11(3) will now delay the commencement of the prescriptive period until the pursuer is aware of the following three points:
- That loss, injury or damage has occurred;
- That the loss, injury or damage was caused by a person’s act or omission; and
- The identity of that person.
This means the time to make a claim will be delayed until the point at which you were aware of these three points or reasonably could have been aware of those three points. The new discoverability test. Much better, and it should, in general, afford businesses a greater opportunity to explore and pursue their claims.
It is worth noting that any claims which have been extinguished by the old law prior to 1 June 2022 are not “saved” by the new provisions. No zombie claims are permitted.
In this time of economic uncertainty, with businesses endeavouring to recover and rebuild there will inevitably be circumstances in which disputes arise – in fact it’s not a stretch to say that it’s a fact of business life.
Prescription is undoubtedly a complex area of law which is subject to many considerations – indeed every question of prescription turns on the individual facts and circumstances of each case.
This change in the law may seem technical but it has real life implications for the health of your business – getting some legal advice could be the best prescription.
Paul McIntosh is a partner at Aberdein Considine
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