Falling between the cracks?

Midlothian Council’s claim

The action was raised in respect of a social housing development in Gorebridge, which was built between 2007 and 2009. On 7 September 2013, one of the tenants at the development became ill. The Council claim that subsequent investigations revealed that all homes in the development were uninhabitable due to the levels of certain gases (from former mine workings) entering the properties and breaching health & safety standards. Based on the Council’s findings they vacated their tenants and chose to demolish the development, in full.

The Council raised a £12million claim against four companies. The court released the architects (Bracewell Stirling for whom CMS acted – see here) from the action in 2017 and RPS (peer reviewer) in 2018. In September 2018 the Council brought Blyth & Blyth (consulting engineers) into the action as fourth defender. The Council claimed that Blyth & Blyth should have advised the Council to install a ground gas defence system and that their failure to do so had caused the loss. Blyth & Blyth argued that the claim against them was time barred, the five year period having expired prior to the Council becoming aware of the problem in September 2013.

In making this argument, Blyth & Blyth relied on two recent Supreme Court cases (David T Morrison & Co v ICL Plastics [2014] UKSC 48 and Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP [2016] UKSC 75) which had overturned the approach of the Scottish courts to cases where a claimant was not immediately aware that “loss, injury or damage caused as aforesaid had occurred” (per section 11 of the Prescription & Limitation (Scotland) Act 1973).

The Scottish courts had interpreted section 11 of the 1973 Act as requiring awareness (subject to a “reasonable diligence” qualification) of both fault and loss before the five year period would start running. However, the Supreme Court said the legislation had been wrongly interpreted and that once the creditor was, as a matter of fact, aware of the “loss, injury or damage” (e.g. because he had incurred costs in reliance on advice received) the five years began to run, even if the party only discovered the loss had been caused by another party’s fault at a later date.

On this basis, Blyth & Blyth argued that the Council’s right to seek damages against them had been extinguished by time bar. The Council had incurred expenditure constructing the development based on Blyth & Blyth’s (allegedly) negligent design. The construction costs constituted “loss, injury and damage” for the purpose of triggering the five year period. Accordingly the five years had, at the latest, started running upon completion of the development in June 2009.

The Council sought to differentiate their position from that of the claimant in Gordon’s Trustees case, pointing out that their damages claim was not based on recovery of the costs of construction of the development but on the later incurred costs of demolition and rebuilding, which they argued would delay time running until the demolition of the properties in 2015.

The Decision

The Court agreed with Blyth & Blyth that the action against them was time barred. In reaching this decision, Lord Doherty accepted that the Council had been unaware until 2013 that there was a problem with the development. However, following Gordon’s Trustees, this did not mean they were unaware that they had suffered “loss, injury and damage” in terms of the 1973 Act. Lord Doherty also noted in his decision that when the Prescription (Scotland) Act 2018 comes into force, this will “effect substantial amendment” to the law, however, he noted that “this case has to be decided on the basis of the current law.”

Changes on the Horizon

Under the 2018 Act, the five year period will not be triggered until the creditor has (or with reasonable diligence could have) become aware:

• that loss, injury or damage has occurred;
• that said loss was caused by a person’s act or omission; and
• the identity of that said person

These changes will, in effect, return the law to what it was understood to be prior to the two Supreme Court decisions. However, until the Act comes into force (and possibly afterwards, depending on the precise content of the transitional provisions) certain claimants will continue to fall foul of the current time bar rules and their opponents will have a limited window of opportunity to take such arguments against them.