Gordon and others, as the Trustees of the Inter Vivos Trust of the late William Strathdee Gordon v Campbell Riddell Breeze Paterson LLP

For the five-year short negative prescription governing obligations to make reparation, loss occurs as an objective fact. Under section 11(3) of the Prescription and Limitation (Scotland) Act 1973, the creditor need know only that the loss, injury or damage has occurred. The creditor need not recognise it as a detriment, know that expenditure has been wasted, or know its factual cause.

Accordingly, prescription may begin when a person fails to obtain an intended benefit or knowingly incurs expenditure, although that person reasonably believes the position will later be remedied. The rule promotes certainty but may operate harshly where negligent professional advice causes financial loss that is not immediately recognisable as such.

The trustees owned three fields with potential for residential development. Their solicitors served notices to quit two agricultural tenants which inaccurately described the tenant and the relevant leases. When the tenant remained in possession, the trustees incurred legal expense seeking removal. The Scottish Land Court later refused to give effect to the defective notices, leaving the fields subject to agricultural leases.

The trustees commenced proceedings against the solicitors on 17 May 2012. Lord Jones held that the claim had prescribed because material legal expense had been incurred by 17 February 2006: [2015] CSOH 31. The Inner House refused the trustees’ appeal, holding that knowledge of the expenditure was sufficient although the trustees did not know their application would fail: [2016] CSIH 16; 2016 SC 548.

The issue before the Supreme Court was whether section 11(3) of the Prescription and Limitation (Scotland) Act 1973 starts time when a creditor knows that money has been spent but does not know that the expenditure will be ineffective.

1. Appeal dismissed unanimously. Lord Hodge delivered the judgment, with which Lord Neuberger, Lord Mance, Lord Sumption and Lord Reed agreed. The respondents’ obligation to make reparation had been extinguished by prescription.

2. Section 11(1) of the Prescription and Limitation (Scotland) Act 1973 establishes the general rule that an obligation to make reparation becomes enforceable when loss, injury or damage occurs. Sections 11(2) and 11(3) modify that rule in their specified circumstances. The identical expression “loss, injury or damage” bears the same meaning throughout section 11. It denotes physical damage or financial loss as an objective fact, rather than the creditor’s appreciation of its legal or economic significance.

3. Section 11(3) postpones prescription until the creditor is actually or constructively aware that the loss, injury or damage has occurred. It does not require awareness that something has gone awry, that the creditor has suffered a disadvantage, or that expenditure constitutes a head of loss. Nor does it require knowledge of the factual cause of the loss. Awareness that the creditor has failed to obtain an intended benefit or has incurred expenditure is sufficient.

4. This construction accords with Dunlop v McGowans, where the obligation to make reparation was treated as single and indivisible and enforceable upon the concurrence of a legal wrong and resulting loss. It also accords with Morrison v ICL [2014] UKSC 48, which established that awareness of the occurrence of damage, rather than its cause, is required. Morrison had not, however, decided whether a creditor must recognise expenditure as detrimental.

5. On an objective assessment, the trustees suffered loss on 10 November 2005 when they failed to obtain vacant possession and could not realise the fields’ development value. They knew on that date that possession had not been obtained. In any event, by 17 February 2006 they knew or could with reasonable diligence have known that legal expense had been incurred. Their belief that the tenant’s resistance was unjustified, that the proceedings would succeed, or that their expenditure would be recovered was irrelevant.

6. As proceedings were not commenced until 17 May 2012, the five-year period had expired. The court acknowledged that this construction could produce hardship, particularly where expenditure made in reliance on professional advice only later proves wasted. Any alteration of the discoverability test was a matter for legislation.

1. United Kingdom Supreme Court: Dismissed the trustees’ appeal unanimously and affirmed that the respondents’ obligation to make reparation had prescribed: [2017] UKSC 75.
2. Inner House of the Court of Session: Refused the trustees’ appeal, holding that prescription ran from the incurring of legal expense although the trustees did not then know that their application would fail: [2016] CSIH 16; 2016 SC 548.
3. Outer House of the Court of Session: Lord Jones upheld the plea of prescription and absolved the respondents, holding that time began when the trustees knowingly incurred legal fees and outlays in pursuing vacant possession: [2015] CSOH 31.