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Latest developments in the law of prescription

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Latest developments in the law of prescription

16 November 2018

The First Division of the Inner House has unanimously rejected an appeal by the Pursuer in the case of Kennedy v The Royal Bank of Scotland plc [2018] CSIH 70 []. The Opinions of the Lord President and Lord Drummond Young provide further guidance in relation to the continuing problem of identifying when concurrence of damnum and injuria occurs so as to trigger the commencement of the prescriptive period.

In Kennedy the Pursuer alleged that the bank had acted in breach of contract by demanding repayment of term loans in circumstances where, so the Pursuer contended, the bank had no present right to demand repayment. Following proof before the Sheriff at Edinburgh Sheriff Court the bank’s prescription plea had been upheld and decree of absolvitor granted.

Before the Inner House, the Pursuer argued that the Sheriff had erred in finding that there had been concurrence of damnum and injuria before the Pursuer had incurred an “actual loss”, in the form of the sale (below value) of secured properties to repay his indebtedness to the bank.

In his Opinion, the Lord President observed that “where loss is inevitable, as a matter of law, in almost all cases, loss will already have occurred. It is, put simply, quantifiable future loss. This is illustrated by Dunlop v McGowans…” Importantly, the Lord President then went on to state:

“No matter what the liquidity of the pursuer might have been, the termination of his credit facilities amounted to a loss of a quantifiable benefit which enabled the pursuer to conduct his businesses…This termination resulted in future loss in the sense that the ‘inevitable’ need to re-finance the business was capable of quantification, albeit in an uncertain manner, as at the date of termination.”

Lord Drummond Young, in his Opinion, highlighted three matters which he considered to be of importance:

“Three features of this claim are in my opinion of importance in determining when [the pursuer] suffered damnum, or loss, for the purpose of the short negative prescription. First, the alleged breach of contract takes the form of non-performance – a refusal to perform – rather than misperformance – for example negligent performance of a contract to provide services, or the supply of defective goods. Secondly, the denial of continued banking facilities is alleged to have caused the pursuer financial loss, through his need to obtain alternative sources of finance. Thirdly, quite apart from the losses caused by the need to find alternative sources of finance, the denial of banking facilities in breach of contract of itself causes damnum to the bank’s customer. The customer is deprived of what will usually be an important source of liquid funds. Liquidity is essential if a business is to be carried on properly, and the loss of liquidity by itself in my opinion amounts to damnum for the purposes of the short negative prescription.”

The law of prescription has of course been undergoing significant development in recent years, following the judgments of the Supreme Court in David T Morison & Co Ltd v ICL Plastics Limited 2014 SC (UKSC) 222 and Gordon’s Trs v Campbell Riddell Breeze Paterson LLP 2017 SLT 1287. The further guidance provided by the Inner House in Kennedy continues that development and provides important guidance to practitioners.

David Thomson QC, of Axiom Advocates, appeared for the successful respondent, the Royal Bank of Scotland plc, along with Stuart Murdoch, of Burness Paull LLP.