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Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP [2017] UKSC 75

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Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP [2017] UKSC 75

16 November 2017

A recurring problem in claims for damages is when the prescriptive period begins in relation to a claim for loss or damage that was initially latent. In building contracts loss or damage may first emerge many years after construction work was completed. The same is true of other professional services, such as provision of legal or accounting advice. Section 11(3) of the Prescription and Limitation (Scotland) Act 1973 postpones the start of the prescriptive period in cases of this kind until the pursuer is (or should be) aware of certain facts. Since the 1973 Act came into force, the courts have been faced with numerous cases raising the question: which facts? Since the decision of the UK Supreme Court in Morrison v ICL [2014] UKSC 48 it has been clear that the prescriptive period starts to run under section 11(3) once the pursuer is aware of the occurrence of loss or damage and nothing more. Morrison was a case of physical damage to property.

The present case was concerned with economic loss flowing from alleged breach of contract by the pursuers’ solicitors. In 2004 the solicitors had served notices to quit on behalf of the pursuers in an attempt to regain vacant possession of three areas of land. The tenant did not remove, and in 2008 the Scottish Land Court held that the notices to quit were ineffective in relation to two out of the three areas of land. In 2012 the pursuers raised proceedings against their former solicitors, the present defenders. The pursuers knew that the tenant had failed to remove in 2005. They also knew that they had incurred legal expenses, but at the time they did so they did not regard them as a ‘loss’. The pursuers maintained that they were not aware that they had sustained loss until the decision of the Scottish Land Court; and that they had raised proceedings within five years of that decision.

The UK Supreme Court held that the loss had occurred when the tenants failed to remove, one year after service of the notices to quit. The pursuers knew about that loss. In paragraph [21] the court said: ‘Section 11(3) does not postpone the start of the prescriptive period until a creditor of an obligation is aware actually or constructively that he or she has suffered a detriment in the sense that something has gone awry rendering the creditor poorer or otherwise at a disadvantage.’

The decision clarifies the law in economic loss cases: if the pursuer is aware of having incurred expenditure (for instance, in the form of legal expenses), it does not matter whether he or she is aware that that expenditure constitutes loss (because it flows from a breach of duty) or thinks that it is simply payment for services rendered.

The court noted that this approach may work harshly in the case of a pursuer who is aware of having incurred expenditure but not aware that it amounts to loss. But it regarded the alternative approach as being both too uncertain and inconsistent with Morrison (paragraph [22]). The court also noted that the recent Report of the Scottish Law Commission (No. 247, 2017) had addressed this issue, and that the First Minister had announced that reform of the law of prescription would form part of the Scottish government’s current legislative programme.

David Johnston QC of Axiom Advocates acted for the solicitors.