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Claims time barred despite builders' lack of knowledge of negligence, Court of Session rules


A claim for negligence brought against an accountancy firm was time barred, despite the fact that the two builders making the claim had not initially been aware of their accountants' negligence, the Court of Session in Scotland has ruled.

Lord Tyre in the Outer House was compelled to conclude that the five-year statutory prescriptive period had passed, based on the Supreme Court's recent conclusion that this period starts running from the moment that claimant knew, or ought to have known, of the fact of the loss.

The previously accepted view on prescription, based on established case law, had been that the five-year period could only begin when a claimant knew, or should have known, both that loss had been sustained and that this loss had been caused by the actions of another, according to litigation expert Jim Cormack of Pinsent Masons, the law firm behind Out-Law.com.

"The Supreme Court, in the 2014 Morrison decision, changed this, deciding that time started running from the moment the claimant knew, or ought to have known, of the loss," he said. "The fact that the claimant does not know why, how or at whose hand was said to be completely irrelevant."

"The Scottish case, Gordon's Trustees, followed last year with a similar decision. Both decisions sent shock waves across the commercial world and caused sleepless nights for litigators and their clients alike. This case has done little to appease, and despite valiant attempts to distinguish the Morrison and Gordon's Trustees cases, Lord Tyre decided that the decision of the Supreme Court and Extra Division must be followed," he said.

The 1973 Prescription and Limitation (Scotland) Act sets a five-year time period from the date of the action giving rise to the claim within which a claim must be brought. In 2014, by a majority of three to two, the Supreme Court ruled that this time period began at the point that the person making the claim became aware that they had suffered loss, whether or not they were aware that it was caused by a breach of legal duty by another. Anything else "runs contrary to the legal certainty which is the objective of prescription", the court ruled.

In this case, builder James Clark and his brother William claimed that James' now-dissolved chartered accountant, MFPT, had provided him with negligent advice about the potential tax consequences of a property transfer. The property transfer took place in February 2008, but the tax consequences did not become clear until 21 May 2009. The Clark brothers began legal action on 13 May 2014.

In his decision, Lord Tyre said that the effect of the Morrison and Gordon decisions meant that the prescriptive period began running "when marketing and conveyancing costs were incurred, admittedly to the pursuers' knowledge, at a time when they were not aware and could not with reasonable diligence have been aware that anything had 'gone wrong'".

"I can detect nothing in the opinion of Lord Reed in [the Morrison case] to suggest that the ratio is restricted to cases where awareness that a loss has been sustained implies awareness that something has gone wrong," he said. "On the contrary, actionability as a relevant element is expressly rejected."

"I also consider that it is not part of the ratio of [the Gordon case] that the prescription period does not begin to run without awareness on the part of the creditor that 'something has gone wrong'. There is no suggestion of such a requirement in the opinion of Lord Malcolm, with which [the other judges] expressly agreed," he said.

Jim Cormack of Pinsent Masons said that the case was a reminder that "parties should not underestimate the importance of prescription".

"The date expense is incurred can be crucial, and getting it wrong can have fatal - and often expensive - consequences for an action," he said.

"Specialist legal advice should be sought as soon as it becomes apparent that loss has been or may be suffered, if there is any thought at all that proceedings against a responsible party might be a possibility. The clock may have been ticking for some time," he said.

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