Gordon & Ors (Trustees of the Inter Vivos Trust) v Campbell Riddell Breeze Paterson LLP (Scotland) [2017] UKSC 75

Trustees sued their solicitors for negligently drafted notices to quit which failed to terminate agricultural leases. The Supreme Court held the claim had prescribed under the five-year short negative prescription, as time ran from when the trustees incurred expenditure, not when loss was discovered.

Facts

The appellants were trustees of an inter vivos trust which owned three fields near Killearn, acquired for their long-term residential development potential. The fields were let to a farming partnership under agricultural leases governed by the Agricultural Holdings (Scotland) Act 1991. In 2004, the respondents’ predecessor firm of solicitors served notices to quit on the tenant in respect of the 40-acre and 50-acre fields, requiring removal on 10 November 2005. The notices inaccurately described both the tenant and the relevant lease.

The tenant refused to vacate on 10 November 2005. The trustees instructed new solicitors, Anderson Strathern LLP, and applied to the Scottish Land Court on 9 February 2006 to remove the tenant. By 17 February 2006 they had incurred material expense in pursuing the applications. On 24 July 2008, the Scottish Land Court refused to give effect to the notices to quit for the two larger fields because of the inaccuracies, leaving those fields subject to agricultural tenancies and preventing development.

The trustees commenced proceedings against the solicitors on 17 May 2012, alleging breach of an implied contractual term to exercise the skill and care of a reasonably competent solicitor. The solicitors pleaded that the claim had prescribed under the Prescription and Limitation (Scotland) Act 1973.

Issues

The central issue was when the five-year short negative prescription under section 6 of the 1973 Act, read with section 11, began to run. Specifically, the court had to determine whether section 11(3) postpones the start of the prescriptive period until the creditor is aware that expenditure incurred amounts to loss or damage (i.e. that something has gone awry), or whether it is sufficient that the creditor is aware of the expenditure itself or of the failure to obtain something sought.

Arguments

Appellants (Trustees)

Mr Howie QC contended that time did not begin to run until the trustees received the decision of the Scottish Land Court on 24 July 2008, as it was only then that they knew the sums spent could not be recovered and that they had lost the development opportunity. Prior to that, they had believed the application was likely to succeed and that legal expenses would be recovered from the tenant.

Respondents (Solicitors)

The respondents argued that loss had been suffered when the defective notices were served in November 2004, or at the latest when the tenant failed to remove on 10 November 2005. The trustees had sufficient knowledge of loss when they learned the tenant would not voluntarily cede possession.

Judgment

Lord Hodge, with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Reed agreed, dismissed the appeal. The court held that the phrase “loss, injury or damage” must bear the same meaning across subsections (1), (2) and (3) of section 11. There was no scope for reading any additional meaning into those words in subsection (3).

Building on Dunlop v McGowans 1980 SC (HL) 73 and David T Morrison & Co Ltd v ICL Plastics Ltd [2014] UKSC 48, the court confirmed that section 11(3) postpones the start of the prescriptive period only where the damage is latent, requiring the creditor to have actual or constructive knowledge of the occurrence of damage or expenditure viewed as an objective fact. The creditor need not be aware that something has gone awry, that they are at a disadvantage, or that they have a head of loss. It is sufficient that the creditor is aware of having failed to obtain something sought or of having incurred expenditure.

The court acknowledged that this approach is harsh on creditors but emphasised that it offers certainty. The trustees’ alternative interpretation, requiring awareness of detriment, would create prolonged uncertainty and would involve knowledge of the factual cause of loss, which had been rejected in Morrison v ICL.

Applying this to the facts, the trustees suffered loss objectively on 10 November 2005 when they did not obtain vacant possession of the fields and could not realise their development value. The prescriptive period began under section 11(1) on that date and was not postponed by section 11(3), as the trustees were aware they had not obtained vacant possession. In any event, by 17 February 2006, they were aware that they had incurred legal expense pursuing such possession. As proceedings were not commenced until 17 May 2012, the obligation to make reparation had prescribed.

Implications

The decision confirms the strict objective approach to section 11(3) of the 1973 Act established in Morrison v ICL: the discoverability test postpones prescription only in cases of latent damage, and “awareness” relates to the objective fact of loss (including expenditure or failure to obtain something sought), not to whether the creditor appreciates that the expenditure was wasted or that something has gone wrong.

The judgment has significant practical implications for professional negligence claims in Scotland, particularly where clients rely on advice that turns out to be defective. A claimant may begin incurring legal fees or other expenditure on the basis of negligent advice and the prescriptive clock will start running even though the claimant has no reason to suspect that the expenditure is wasted. This favours certainty for defenders but creates a real risk that valid claims may prescribe before the pursuer realises the loss exists.

Lord Hodge expressly acknowledged that hard cases may be more common than previously thought and drew attention to ongoing law reform proposals. The Scottish Law Commission’s Report on Prescription (Scot Law Com No 247, July 2017) recommends amending section 11(3) so that the prescriptive period begins only when the creditor is aware (i) that loss has occurred, (ii) that it was caused by a person’s act or omission, and (iii) of the identity of that person. The First Minister announced in September 2017 the Scottish Government’s intention to bring forward reforming legislation. The decision therefore marks both an authoritative statement of the existing law and a strong signal that legislative reform is anticipated.

Verdict: Appeal dismissed. The respondents’ obligation to make reparation had prescribed under the five-year short negative prescription, the prescriptive period having begun no later than 17 February 2006 when the trustees had incurred material expense in pursuing the Scottish Land Court applications, well before proceedings were commenced on 17 May 2012.

Source: Gordon & Ors (Trustees of the Inter Vivos Trust) v Campbell Riddell Breeze Paterson LLP (Scotland) [2017] UKSC 75