The litigation of contractual disputes can be a tricky business: the main issue is almost always that parties disagree on what the facts of the situation are and whether or not one party did what they had been contractually obliged to do. While these are the common issues in contractual litigation, another equally important issue concerns the timing and raising of court action. In law these are sometimes described as ‘prescription’ or ‘timebar’ and they are becoming increasingly common points in courtroom litigation. In the recent case of Stewart Milne Westhill Limited v Halliday Fraser Munro (reported here), the Court of Session - Scotland's highest civil court – had to decide on whether or not a case could be allowed to be argued in view of the legal time limits that apply.
In this blog post, the team at Miller Samuel review the facts and the courts opinion of the case.
Why did this end up at the Court of Session?
Stewart Milne (the Pursuer) are developers and in 2007 they agreed a contract with Halliday Fraser Munro (the Defender), a firm of architects, for the construction of of a new office, workshop and leisure facility in Aberdeen. The contract was practically completed in September 2008 and all seemed well. However, in December of the same year water ingress had appeared in the subfloor of the south wing of the new office. A series of investigations and corrective works were carried out. Unfortunately for the Pursuer, more severe water ingress into the same subfloor was suffered in October/ November 2009 which required extensive remedial works in order to correct what was found to be defective tanking of the building. Essentially the building itself was or sufficiently waterproof, thereby allowing the water ingress.
The Pursuer raised legal proceedings against the Defender, claiming that the Defender had breached he terms of the contract they had entered into and that that either caused or materially contributed to the tanking defects in the building. The Pursuer also claimed that the water ingress of 2008 was not due to the tanking issues and, that it was not aware of this within five years of raising the action and could not with reasonable diligence have known, that it had suffered loss and damage. The Defenders disputes the allegation that they were in breach of contract and claimed the ingress was due to the tanking issues and that the Pursuer was aware of this at the time. As an alternative defence, the Defender claimed that with exercise of reads able diligence the Pursuer would have become aware that it had suffered material damage, and that their right to raise the claim had prescribed before 2 September 2009.
What is the issue of ‘prescription’?
In Scotland there are strict time limits within which it is possible to bring a claim for breach of contract. While it may seem unfair to impose time limits, it is important to highlight that these limits are designed to allow sufficient time for issues to become apparent, but not such that another party is left in ‘legal limbo’ as to whether 20 years after completing he terms of a contract that are brought to court for something they are alleged to have done/ not done.
The Prescription and Limitation (Scotland) Act 1973 is the authoritative piece of legislation in terms of the timeframes within which a contractual claim can be raised. Most claims will ‘prescribe’ or no longer be eligible to be the subject of a court action after a period of 5 years has passed. However, the courts have discretion to extend this time limit if they can be convinced, as was done in this case, that a party was not aware and could not, being reasonably diligent, have been aware that they had suffered damage within that time frame.
In this case it was clear that the defect the Pursuer was complaining about was in existence on the date of completion – 28 September 2008 – albeit that this was not apparent at the time. The action was not brought to court until September 2014. Therefor it was the case that the claim of the Pursuer would have prescribed unless it could convince the court that it was not aware, and could not have been aware on the application of reasonable diligence become aware of the damage suffered until a date less than five years before it raised legal proceedings.
What did the court decide?
The court listened to extensive argument from both parties over the course of several days. The court was satisfied that the neater ingress of 2008 was due to the tanking issues of the building which the court heard amounted to little more than “snagging” in the view of the Defender, the cost of which is understood not to have been passed onto the Pursuer. While there is no detail of this given in the courts discussion, it is assumed that the water ingress and subsequent works to correct it were carried out during the ‘Defects Liability Period’ under the contract that the Pursuer and Defender had together. The court noted that the corrective works were found to have fixed the problem. As a result, the court took the view that the Purser was not aware that it had suffered loss and damage at that point in time, nor would it have applying a deals able degree of diligence more than five years prior to this action being raised in the courts.
What is the lesson here?
It took the courts several days, and many hours of legal argument and discussion to come to the conclusion that prescription had not taken place, albeit that the Defender was found not to breach the relevant term of the contract it had with get Pursuer. While the courts retain the ability to allow cases that may have prescribed to be heard, it is vitally important that you seek legal advice from the moment when a loss may be suspected in order to avoid the risk of having a claim worth a significant sum from being barred outing to poor timing.
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At Miller Samuel we routinely advise on contractual disputes across a variety of sectors and industries. Our litigation team hosts some of the leading lawyers in the field, providing knowledgeable and commercial legal advice and representation in complex disputes. If you would like to speak to our team about a potential dispute, or are concerned about whether or not your claim is capable of being raised in the courts, contact our team today.
