Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION
	[2014] CSOH 17
A532/11	OPINION OF LADY SCOTT in the cause HIGHLANDS AND ISLANDS AIRPORTS LTD Pursuer; against SHETLAND ISLANDS COUNCIL Defender: ________________

Pursuer: Reid QC, Duthie; Burness Paull LLP

Defender: Dean of Faculty (Keen QC), G MacColl; Brodies LLP

4 February 2014

Background

[1] The pursuer is a Scottish Government company and is the operator of Sumburgh Airport, Shetland. In 2004 it engaged the services of the defender in relation to a proposed runway extension to one of the runways. The parties entered into a contract in 2005 where the defender was to provide various engineering works and services to the pursuer . A dispute arose as to whether the defender had fulfilled its obligations under the contract, in particular to act to the contractually required standard . The pursuer avers that breach of contractual and delictual duties by the defender has given rise to loss, injury and damage to the pursuer. As a result the pursuer claims the defender is under a contractual obligation to pay damages or make contractual payment to the pursuer for the various costs assessed.

[2] The pursuer raised proceedings on 1 November 2011 in a summons containing two conclusions for declarator. Namely -

"(1) For declarator that the defender is in breach of its contract with the pursuer entered into in or about January 2005 for the provision by the former to the latter of professional services relative to the extension of runway 09/27 at Sumburgh Airport, Shetland, et separatim is in breach of its duty of care to the pursuer in relation to the provision of those services and that it is accordingly liable to the pursuer in damages et separatim in reparation for the loss suffered by the pursuer as a result of those breaches or either of them;

(2) For declarator that, in the provision of services by the defender to the pursuer under the contract for the provision of professional services by the former to the latter in connection with the extension of runway 09/27 at Sumburgh Airport, Shetland entered into between them in or about January 2005, 'defects' within the meaning of clause 41 of that contract have arisen, and that the defender having failed to correct the same, it has become liable to pay the pursuer the cost of repairing the same pursuant to that clause."

[3] The pursuer submitted that the reason the action was raised with only these conclusions for declarator, was because the scope of loss was uncertain and apparently incapable of properly pled quantification. The second conclusion of declarator arose in respect of the claim of a contractual obligation on the defender to remedy defects and if they did not do so by the time of completion as defined in the contract, the pursuer was entitled to assess the cost of doing so, have the work corrected by others and require the defender to pay the assessed cost.

[4] Subsequently the pursuer sought by way of amendment to introduce a third conclusion seeking payment from the defender of the sum of £14,210,000.

[5] The defender claimed that any conclusion for payment was extinguished by the operation of prescription under s6(1) and s9 of the Prescription and Limitations (Scotland) Act 1973 (the 1973 Act).

The Issue

[6] The issue before me was whether the action raised, containing only conclusions for declarator, interrupted the running of short negative prescription in terms of s6 and s9 of the 1973 Act. Absent any such interruption, the defender submitted the conclusion for payment now sought by the pursuer comes too late, being introduced more than 5 years after any such obligation had become enforceable.

[7] This is essentially a matter of statutory interpretation and concerns interpretation of the relevant claim under s6 of the 1973 Act, as defined in s9 as "a claim made by or on behalf of the creditor for implement or part-implement of the obligation".

The Statutory Provisions

[8] The relevant statutory provisions within the 1973 Act are :

"s4 Judicial interruption of periods of possession for purposes of sections 1, 2 and 3.

(1) In sections 1, 2 and 3 of this Act references to a judicial interruption, in relation to possession, are references to the making in appropriate proceedings, by any person having a proper interest to do so, of a claim which challenges the possession in question.

(2) In this section 'appropriate proceedings' means-

(a) any proceedings in a court of competent jurisdiction in Scotland or elsewhere, except proceedings in the Court of Session initiated by a summons which is not subsequently called;

(b) any arbitration in Scotland;

(c) any arbitration in a country other than Scotland, being an arbitration an award in which would be enforceable in Scotland.

(3) The date of a judicial interruption shall be taken to be-

(a) where the claim has been made in an arbitration and the nature of the claim has been stated in a preliminary notice relating to that arbitration, the date when the preliminary notice was served;

(b) in any other case, the date when the claim was made.

(4) The foregoing subsection 'preliminary notice' in relation to an arbitration means a notice served by one party to the arbitration on the other party or parties requiring him or them to appoint an arbiter or to agree to the appointment of an arbiter, or, where the arbitration agreement or any relevant enactment provides that the reference shall be to a person therein named or designated, a notice requiring him or them to submit the dispute to the person so named or designated.

s6 Extinction of obligations by prescriptive periods of five years.

(1) If, after the appropriate date, an obligation to which this section applies has subsisted for a continuous period of five years-

(a) without any relevant claim having been made in relation to the obligation, and

(b) without the subsistence of the obligation having been relevantly acknowledged,

then as from the expiration of that period the obligation shall be extinguished:

Provided that in its application to an obligation under a bill of exchange or a promissory note this subsection shall have effect as if paragraph (b) thereof were omitted.

s9 Definition of 'relevant claim' for purposes of sections 6, 7 and 8.

(1) In sections 6 [7 and 8A] of this Act the expression 'relevant claim', in relation to an obligation, means a claim made by or on behalf of the creditor for implement or part-implement of the obligation, being a claim made-

(a) in appropriate proceedings; or

(b) by the presentation of, or the concurring in, a petition for sequestration or by the submission of a claim under section 22 or 48 of the Bankruptcy (Scotland) Act 1985 ...; or

(c) by a creditor to the trustee acting under a trust deed as defined in section 5(2)(c) of the Bankruptcy (Scotland) Act 1985; or

(d) by the presentation of, or the concurring in, a petition for the winding up of a company or by the submission of a claim in a liquidation in accordance with rules made under section 411 of the Insolvency Act 1986;

and for the purposes of the said sections 6 [7 and 8A] the execution by or on behalf of the creditor in an obligation of any form of diligence directed to the enforcement of the obligation shall be deemed to be a relevant claim in relation to the obligation."

Summary of the Defender's Submissions

[9] The short point for the defender was that the simple interpretation of the text of the relevant statutory provisions led to the conclusion that this action raised with only conclusions of declarator was insufficient to interrupt prescription. Accordingly any obligation to make payment was extinguished by prescription.

[10] At the outset the defender emphasised that prescription was properly a creature of statute and the 1973 Act made new provisions which replaced the old. The 1973 Act was not consolidation statute and made new provision. This was supported by the long title of the 1973 Act which makes reference to making "new provision" in the law of Scotland. Support for the long title as an aid to interpretation was found in the observations of Lord Simon in Black-Clawson International Limited v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591 at 647.

[11] In this context the defender argued the prior statutory provisions and the preceding common law, which was largely directed to interpretation of the earlier statutes, was of no assistance to interpretation. The court required to concentrate simply on the terms of s6(1) and s(9).

[12] In consideration of s6(1)(a) it was agreed between parties that this provision applied to this obligation and these were "appropriate proceedings". The issue here was whether a "relevant claim" was established and in terms of s9 this is defined as a claim "for implement or part-implement of the obligation".

[13] The defender referred to the Oxford English Dictionary definition of "implement" as "fulfilment" or "full performance" and submitted the conclusions for declarator here, could not properly be construed as claims for implementation of an obligation. The statutory definition assumes an obligation exists and the requirement is for a claim for implementation of same. So, declarator of an obligation was not enough. Straightforward construction of s9 shows that any relevant claim must be in respect of fulfilment or performance of an obligation and here this would require a claim or conclusion for payment.

[14] In support of his submissions the defender relied upon Wylie v Avon Insurance Co Limited and another 1988 SCLR 570. Wylie concerned a claim against insurers (first defenders) and insurance brokers (second defenders) in respect of an oral contract to insure premises for costs, including reinstatement costs and also for reduction of a subsequent policy. The action had a declaratory conclusion that the second defenders had contracted with the first defender to insure the premises; that said contract was a valid and subsisting agreement and that the first defender was bound to implement same. This was resisted in part on the basis that such a conclusion of declarator did not amount to a relevant claim for the interruption of prescription under the 1973 Act. In his opinion the Lord Ordinary accepted that the first defender came under an obligation, but decided that the action with this conclusion of declarator did not constitute a relevant claim on the basis that -

"It seeks a declaration which in the circumstances can properly be described as an abstract or academic conclusion. Were the pursuer ever to seek indemnification in respect of a particular incident giving rise to a claim under the policy, he would have either to amend the present action to include a conclusion to that effect or raise a fresh action. That clearly demonstrates that there has yet not been made a claim in appropriate proceedings for implement of the relevant obligation."

[15] The defender submitted this showed that a conclusion for declarator that the defender was bound to indemnify was not sufficient. It did not secure a right of payment under the policy and as such there was no claim to implement the obligation as required for a relevant claim to interrupt prescription under the 1973 Act. This was akin to the position here where declarator that the defender had an obligation and was liable for any defects under that contractual obligation, was not sufficient to secure payment of damages arising from that obligation. That being so it was not a claim for implementation of the obligation under s9 of the 1973 Act. Hence the need for the pursuer to amend the action and seek payment.

[16] The defender characterised the pleadings in the present action as amounting to no more than an expression of intent. Giving notice that someone is going to sue for negligence and/or contractual failure does not interrupt prescription.

Summary of the Pursuer's Submissions

[17] The pursuer argued that the summons containing the two declarators was a relevant claim for part-implement of the defender's contractual and delictual obligations within the meaning of s9 of the 1973 Act.

[18] The pursuer submitted that this was supported by the history and underlying principles of the law of prescription, by a purposive interpretation of the statute and pre and post 1973 case law.

[19] The provisions in the 1973 Act followed the Scottish Law Commission Report (Scottish Law Commission Report No 15, 1970 (Reform of the Law relating to Prescription and Limitation of Actions). Overall reading of the report supports the view that the 1973 Act incorporates the recognised purpose and principles in the existing law. The report recommended that short prescription should be interrupted by founding on the right or document in any competent judicial process, even if that process was not completed or pursued to an effective conclusion (at paragraph 89). Further the report recognised preceding law and practice incorporated certain equitable principles which prevented the running of various negative prescriptive periods. For example where the creditor was induced by the action of the debtor not to pursue the claim, or where the debtor acknowledged the existence of the debt (SLC report at para 93; Napier Vol 2, p673-4;). Such equitable principles are replicated within the 1973 Act at s6(4) and s10.

[20] The pursuer submitted that a purposive approach to statutory interpretation should be taken. The object of all interpretation is to discover the intention of parliament deduced from the language used (Stair Memorial Encyclopaedia of the Laws of Scotland vol 12 paragraph 1102). Here the pursuer emphasised the general language used in the 1973 Act when specifying the start or stop of the time running or when time does not run.

[21] Further where the meaning of any enactment is unclear or obscure, the court is bound to construe it and as far as it can make it available for carrying out the objects of the legislature, and for doing justice between the parties (Stair at paragraph 1114) . The underlying purpose of prescription is to prevent the immortality of claims. The presumption is that the tardy claimant who carelessly sleeps on his rights too long loses them. (Napier The Laws of Prescription in Scotland volume 1 (1839) p15; volume 2(1984) p657-658). The presumption of such dereliction was displaced by the raising of an action so that the debtor knew that the creditor was pursuing his claim.

[22] In this context a practical not a technical approach should be taken to statutory interpretation and this was supported by the case law- see Devos Gebroeder (NV) v Sunderland Sportswear Ltd 1990 SLT 473 at 477I adopted by Lord Eassie in Thomas Menzies (Builders) Ltd v Anderson & Menzies 1998 SLT 794 at 798C-D. In taking a practical approach these cases recognised the requirement as one of giving fair notice to the debtor and any claim which puts in issue the implement, in whole or in part, of an obligation, is sufficient to constitute judicial interruption.

[23] This was coherent with the preceding law and practice which did not restrict any specific form of a relevant claim. (Napier The Law of Prescription in Scotland volume 2 p663; Bell's Principles 10^th ed paragraphs 618-620; Gloag on Contract 2^nd ed p740). For example in MRS Hamilton Ltd v Baxter 1998 SLT 1075 Lord Hamilton sitting in the Outer House found any claim which competently put in issue the validity of a defender's possession of an in interest in land was apt to constitute judicial interruption under the 1973 Act. Notwithstanding the defender's argument that reduction was insufficient and a rectification claim was needed to have any real effect on title. The pursuer pointed out there was no suggestion in the 1973 Act of any restriction of a claim, far less one requiring a claim of payment.

[24] Further, case law recognised an action of declarator as an effective means of interruption of prescription and in particular as a means of protection against the risk of prejudice to a pursuer. Here the pursuer relied upon Central SMT Co Ltd v Lanarkshire CC 1949 SC 450 which demonstrated that an action for declarator may be raised to safeguard a pursuer against a plea of prescription. The court was concerned in this context with the risk of prejudice to the pursuers (at p459) and found that declarator was an expedient means of protecting rights. It was submitted that this pre-existing recognition of the expediency of declaratory as a safeguard was not interfered with in any way in the 1973 Act and that here the action for declarator achieves the same result as that in Central SMT.

[25] This approach was approved in the House of Lords decision in Esso Petroleum Co Ltd v Hall Russell & Co Ltd 1988 SLT 874. In respect of an issue raised by the defenders that a conclusion for declarator was premature and framed too wide, the House expressed a concern that if the declarator was struck down on either on the basis of prescription or from the practice which prevents a further claim of damages in a second action, there would be prejudice. Lord Jauncey stated at p886 G-H and J‑K that :

"However although I consider that Esso's statutory liability is a good head of damage it is not necessary at this stage to reach a concluded view on the matter. It is sufficient to entitle Esso to a declaratory conclusion that they 'have a plain interest to protect themselves against a possibility of prejudice which is by no means fanciful or unreal'(Central S.M.T Co Ltd v Lanark County Council 1949 SLT at p313 per Lord President Cooper). For the reasons which I have already stated there could be substantial prejudice to Esso if they were disabled from pursuing their claim to what is at least prima facie a good head of damage"

[26] It was submitted that this decision was binding and in any event this court should be slow to interpret a statute as removing a recognised protection against prejudice.

[27] This approach and these principles underpin the 1973 Act and the restrictive and technical interpretation of the definition of a relevant claim under s9 of the 1973 Act submitted by the defender, was inconsistent with same.

[28] All s9 requires is any form of claim for implement or part-implement of the obligation involved. Implementation of an obligation incorporates various steps - of which declarator of liability is the first. The taking of one such essential step, such as the establishment of liability, would found a claim for part implement.

[29] This step by step approach was consistent with the decision in Union Electric Co Ltd v Holman & Co 1913 SC 954 which did not concern prescription, but concerned an action for delivery of goods or damages. The argument was about whether, this being an action ad factum praestandum, the sheriff had jurisdiction. The observations of the Lord President at p957-958 relied upon were

"But I think it is really a mistake to call the decree that is asked for in this action, an ordinary action founded upon breach of contract, a decree ad factum praestandum at all. There is no difficulty at all in working out this judgement in money. The point between the parties, upon the merits, is whether there is a contract ... Accordingly it seems to me that a demand for declarator is a first stage of every action whether declarator is expressly concluded for not ... The truth is that a person who comes and asks for decree of this sort is not asking for specific performance at all. He is saying 'There is a contract between us, you have broken it; I am content with your giving me either what I am entitled to under the contract or, if not, paying damages'."

And this approach was followed without comment in Lancashire Textiles v Thomson Shepherd 1985 SC 135.

[30] The pursuer submitted that this "step by step" view provides content to the term "part implement" in the statutory definition which was not provided by the defender. In contrast there is no basis for the restrictive interpretation of part payment suggested by the defender.

[31] Finally the pursuer placed before me a case at first instance before the court in South Africa (Peter Taylor & Associates v Bell Estates & Anr (558/12) [2013] ZASCA 94) concerning prescription which it was suggested was similar to the position presented here. It was submitted I should follow the approach of the first instance judge here. Whilst I found this case had obvious parallels, it involved a different statutory regime and it did not in my view add anything to the pursuer's argument based on Scots law and I did not rely upon it.

Discussion

[32] I preferred the pursuer's argument both in respect of the approach to be taken to interpretation of the relevant statutory provisions and the characterisation of this action as a relevant claim which interrupted the statutory prescription.

Statutory Interpretation

[33] In considering the defender's argument to have regard simply to the terms of s6 and s9 of the 1973 Act, I am not convinced in doing so they read as narrowly as the defender suggested. A claim for implement - or fulfilment - of the obligation does not necessarily imply a claim which covers all that is required for full enforcement . All the more so when account is taken of the inclusion of the words "or part-implement". There is no obvious justification that in respect of a delictual or contractual obligation seeking damages, this term should be reduced to meaning "part payment". Read more broadly "part implement" can suggest a claim constituting a step in the process of implementation of the claim. This broader interpretation fits with the context of the statute as a whole, which employs broad or general terms.

[34] I am satisfied that in order to make sense of these provisions it is appropriate to adopt a purposive interpretation rather than the "black letter lawyer" submissions of the defender (Lord Steyn Attorney General's Reference (No 5 of 2002) [2004] UKHL 40 at paragraph 31). In particular I do not accept the defender's submission that this being a "new" statute, as opposed to a consolidation statute, the substantial principles and case law lying behind it are irrelevant. I do not consider that the long title reference to making "new provision" assists as it states nothing more than what is obvious. What is "new" in respect of short negative prescription is the identification of the starting point and the length of the period of prescription. There is nothing to suggest the recognised principles and purpose of prescription are departed from. Indeed that they are intended to be incorporated is supported by the recommendations and approach of the Scottish Law Commission which lie behind the 1973 Act. The Commission's proposals were intended to "clarify, co-ordinate and modernise" the law of prescription (at paragraph 1) not to introduce "new" law or signify a change from the underlying principles or common law. The recommendations in the Report cited by the pursuer support this (paragraphs 89 and 93).

[35] Accordingly, I am satisfied in interpreting the definition of a relevant claim under the 1973 Act it is necessary to consider the purpose of the provisions, the mischief sought to be addressed and the underlying principles of prescription. It is clear, as submitted by the pursuer, the purpose of prescription is to prevent immortality of claims and it establishes the presumption that the tardy claimant who carelessly sleeps on his rights loses them. Prevention of this mischief involves a curtailment of rights and as such any such presumption or statutory provision for prescription falls to be construed in a way which minimises that effect.

[36] The pre and post 1973 Act case law rehearsed by the pursuer firstly, demonstrates a broad approach which did not restrict the form of any relevant claim and which suggests the presumption is displaced by action which gives the debtor fair notice of a claim. And this can include actions which as pled could not form full enforcement or implementation of the claim - seen for example in MRS Hamilton supra. In the same way recognition of the acknowledgement of the debtor is broadly interpreted and is achieved by general admission in any form.

[37] Secondly the case law shows an emphasis on safeguarding rights - as shown in Central SMT - as approved in Esso. These authorities support the raising of an action of declarator as a means of achieving protection against prejudice. I do not accept the defender's submissions that the terms of the declarators in Esso distinguish the case or that Lord Jauncey's speech would not have been made without the part seeking payment. The point of principle being made was the need for an approach to protect against prejudice, which is clearly apt here. It is an approach which is in any event in accordance with basic principles of justice.

[38] Accordingly I am satisfied that the relevant statutory provisions here require to be interpreted in a broad and purposive way coherent with the protection of rights.

Application to this Action

[39] This action sets out in some detail the claimed contractual and delictual liability of the defender. It specifically sets out a claim for the resulting loss and damage sustained, including the contractual liability for costs incurred to make good the defects in repairs made by others. It is only the quantification of that loss in a demand for a sum of money which is absent.

[40] As such I consider this action can be distinguished from the circumstances in Wylie supra which was relied upon by the defender. In Wylie the declarator only sought to establish the existence of a contract of insurance which the defenders were "bound to implement", without further specification. The real problem for the Lord Ordinary was that he considered the obligation in question was properly one of indemnification, which was not addressed in the conclusion. The obligation erroneously identified could have no real effect unlike indemnification. It was in the context of this concern that he considered the declaratory conclusions "abstract or academic" and insufficient to constitute a relevant claim.

[41] In any event even if the defender is correct in its submission that a declarator of the mere existence of an obligation is not sufficient to establish a relevant claim, that is not what we have here. In its written note of argument at 4.1 the defender states the present action "is in truth an action by which the pursuer seeks to enforce purported obligations." I agree. This action goes further in stating a claim of breach of duty and contract and it specifies the resulting loss and damage, albeit said loss is not quantified.

[42] I consider a fair reading of this summons is commensurate with a relevant claim under s9 of the 1973 Act in that these averments constitute "part implement" of the contractual and delictual obligations specified. The clear aim of this action is to proceed toward recovery of the loss. It is common sense that proceedings such as these involve different stages or steps - at the least from breach of a duty and establishing the obligation, to establishing loss and damage and finally quantification of that loss. And this is consistent with the approach in Union Electric Company and Lancashire Textiles supra.

[43] The terms of the action raised also gives fair notice of the claim to the defender and I can see no basis for any prejudice or disadvantage arising to the defender. At the same time the action serves justice in the protection of rights.

[44] The action was raised with the conclusions for declarator for the purpose of interrupting prescription and in accordance with the principles of prescription. To uphold the defender's motion seems to me to be inconsistent with the purpose of prescription underpinning the statutory provisions.

[45] Finally it is worth noting that the reason why payment was not quantified here was because it could not be properly assessed within the prescriptive period. This accords with good practice that pleadings should only be made where there exists a proper evidential basis for same. If the defender's submissions were correct then the consequences are not attractive. A different claim may require to be pursued in respect of the legal conduct of the action. It would encourage the pleading of global sums which may be unjustified and would conflict with proper practice.

Decision

[46] For the reasons given above I decide to

(i) repel answer 34.1, exclude the averments contained within answer 34.1 from probation and sustain the pursuer's fifth plea in law to that extent;

(ii) repel the defender's fourth and fifth pleas in law; and

(iii) allow a proof before answer.

I reserve meantime all questions of expenses.