This article was written by a solicitor from Burness, one of the top Scottish law firms:

 

Scottish law articles in association with Burness

Prescription and limitation in contract

The terms prescription and limitation are often used synonymously but do in fact refer to two distinct principles, explains senior projects solicitor Adrian Huett. Prescription is a rule of substantive law whereby certain rights and obligations are created (positive prescription) or extinguished (negative prescription) after a specified period of time. Limitation is a rule of procedure – and so must therefore be raised by the defendant in proceedings – whereby certain rights and obligations (while remaining in existence) become legally unenforceable after a specified period of time.

 

Scottish law

The current law is found in the Prescription and Limitation (Scotland) Act 1973 (as amended). The provisions on negative prescription set out when contractual rights and obligations are extinguished. There are two time periods: the short five-year period and the 20-year long-stop period. Both run from the date on which the obligation became enforceable and this will vary depending upon the nature of the obligation.

 

For example, the date upon which a claim under a contract (eg a claim for loss and expense under a building contract) becomes enforceable will depend upon the terms of the contract and will always be a question of fact and circumstance. However, it will usually be when the dispute crystallises, ie when a claim has been made by one party and rejected by the other. Thereafter, the pursuer has five years from this date in which to make a claim otherwise their right – and the defender’s obligation – will be extinguished.

 

In contrast, a claim for breach of contract generally becomes enforceable when there is a concurrence of liability (ie the breach) and actual loss. Again, the pursuer then has five years to make a claim. However, given that a pursuer may not realise that they have suffered a loss until some time after the breach (eg where there is a latent defect in a building), the five-year period will not start until the pursuer becomes aware, or could with reasonable diligence have become aware, of that loss. This qualification is subject to the 20-year long-stop which applies irrespective of the pursuer’s knowledge.

 

Accordingly, if an owner discovers a defect in their building three years after completion then, provided that defect could not reasonably have been discovered earlier, they have until year eight to make a claim against the contractor for breach of the building contract. However, if the same defect is discovered 18 years after completion then the owner has only two years to make a claim before their right is extinguished.

 

It follows that correctly identifying the nature of the obligation is key to understanding when the prescriptive periods apply and, consequently, when rights and obligations will be extinguished under Scottish law.

 

English law

The current law is principally found in the Limitation Act 1980 (as amended). This sets out when contractual rights and obligations become unenforceable. There are two time periods since English law divides contracts into two categories: there is a six-year limitation period for simple contracts, and a 12-year limitation period for contracts executed as deeds.

Only one limitation period will apply to any contract and that will run from the date on which the cause of action accrued. In a claim under a contract, this will be when the dispute crystallises. The claimant will then have either 6 or 12 years in which to make a claim otherwise their remedy will be time-barred.

 

In a claim for breach of contract, this will be when the breach occurred and again the claimant will have either 6 or 12 years in which to make a claim. It should be noted that, unlike Scottish law, time will run from the date of the breach and not from the date of any resulting loss. Moreover, the start of the limitation period will not be deferred merely because the claimant was unaware of the breach. As a result, a claimant’s remedy may become time-barred before they realise they have suffered a loss or even before such loss has materialised. In order to address this injustice, the English Law Commission has published proposals which allow claims for breach of contract to be made within three years from the date of discoverability, subject to a ten-year long-stop. The proposals largely mirror the provisions of the Latent Defects Act 1986 which allows claims for negligence (other than actions involving personal injuries) to be brought outside the usual six-year limitation period but within three years from the date of discoverability, subject to a 15-year long-stop. The proposals are unlikely to be on the statute book for a number of years, however.

 

Conclusion

Whether prescription or limitation applies will depend upon whether the contract is governed by Scots law or English law. In either case, once the solicitor has established the relevant time period and has decided to proceed with the claim, he must then be sure to stop the clock by raising either court proceedings or arbitration proceedings.

 

Source: Burness May 2003

wow, this is interesting.

I used to have a account with Lloyds which was closed 3 yrs ago. They were a sharp thorn in my side for a number of years prior to that. Here was me thinking I would only be able to get them for a couple of years.

If I'm reading this right, can we really go back as far as 20 yrs in bonnie Scotland?

It says what it says.

The author is a partner at Burness

- they're one of the top Scottish law firms (with one of the poshest offices too).

I'd be very surprised indeed if it was incorrect.

Unfortunately,

I haven't managed to get my hands on a copy of the Prescription and Limitation (Scotland) Act 1973 (as amended) yet for total verification.

I used to be successful in the early 90's in getting back bank charges through my contcts with the bank manager. Then the systems changed and despite following the same procedures, I was singularly unsuccessful in getting back abnk charges. This article givesus much comfort, but does the bank need to admit that thye do indeed hold records of customers accounts for last 20 years or five?

This article givesus much comfort, but does the bank need to admit that thye do indeed hold records of customers accounts for last 20 years

No. It just states that you can claim back up to 20 years.

The bank may or may not hold details going back this far.

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There are plenty of people out there (my Mother for one) who routinely save all their bank statements, and have a nice archive going back through the mists of time. Those people could potentially clobber their banks for a fortune if they added the contractual rate of interest. The problem with that of course is that there is still a £750 small claims limit in Scotland, so it might take a while.

interesting indeed.I mistakingly got 6 years back statements so maybes no harm in

trying,

the bank in question are finding it hard to belive that ive already made a second claim.

sending me false statements for dates I never claimed and trying to fob me off with

another 50 nicker,stating that will be the end of that the bliters.

mikeb

For clarification:

20 year prescription applies only in relation to certain obligations. Regardless of how you quantify the obligation to repay bank charges (if there is indeed an obligation, which legally remains to be determined) it will not be one to which the 20 year period applies.

As to the question of when the party becomes "aware" that they have a claim, it is necessary for individuals to exercise reasonable diligence in protection of their rights. The banks have been pretty clear in their terms and conditions as to what charges will apply on default and so it is not possible to argue that the banks have in some way "concealed" the charges which they are to apply. The law in relation to unfair contract terms has been in place since 1999 and the law on penalty charges has been clear for decades. As a consumer you could easily have sought advice on the lawfulness of the bank charges by consulting a legal adviser or citizens' advice bureau. This is what is meant by using "reasonable diligence". If you have failed to do that, the courts will not entertain an argument that you did not know until other people started to claim or the OFT report came out. Individuals must look out for themselves.

Fact is, any claim you make in relation to bank charges in the Scottish courts, whatever its legal basis, can only be made from a date 5 years prior to the date you claim.

Hope that clears matters up.

Thanks for your input Advocate.

There are a couple of things however which I think need to be clarified:

As to the question of when the party becomes "aware" that they have a claim, it is necessary for individuals to exercise reasonable diligence in protection of their rights. The banks have been pretty clear in their terms and conditions as to what charges will apply on default and so it is not possible to argue that the banks have in some way "concealed" the charges which they are to apply.

The law in relation to unfair contract terms has been in place since 1999 and the law on penalty charges has been clear for decades. As a consumer you could easily have sought advice on the lawfulness of the bank charges by consulting a legal adviser or citizens' advice bureau.

I don't think that a consumer with no legal training could in any be expected to be familiar with the UTCCR1999, or the law as it relates to penalty charges, and I so I think it's perfectly reasonable that when it's pointed out to them today that they've been getting ripped of by their bank , the Prescription & Limitation (Scotland) Act allows them to seek proper redress.

As a consumer you could easily have sought advice on the lawfulness of the bank charges by consulting a legal adviser or citizens' advice bureau.

1 year ago, any, and I mean ANY solicitor consulted on penalty charges would have patronised an "ordinary" consumer right out of his office. As for the CAB, they STILL to date do not advise to reclaim charges, and instead advise to "enter into a dialogue with the bank" or to go to the Ombudsman.

My apologies. Post deleted as the response does not apply to the Scottish legal system.

I think the first point must be that while I appreciate the comments that people make regarding my argument, it is based on an understanding of the law of prescription as it applies in SCOTLAND. The law in England and Wales and Northern Ireland for that matter is different. s.32 of the Limitation Act 1980 therefore has no application in the Scottish courts and the concepts used in that Act are different as a matter of law and principle. A consumer making an argument based on the 1980 Act in the Scottish courts would be unsuccessful. it is not OUR law.

To understand my argument it is important to remember that the law has not been clarified in any way by the OFT report. It content does not give a determination of the law in question, rather an opinion by a public body of what they believe the law to be. Only the courts can decide what the law is on any given point.

If the charges are penalty charges, they have been so since they were first applied. The law on penalty charges has been very clear for years. While it may seem unfair to require the ordinary consumer to enquire into a complicated legal point, that is what lawyers are for I am afraid. The fact that it may cost people or that people may find it difficult to understand has little bearing on the question of whether they could "with reasonable diligence have become aware" of their right to make a claim. The fact that you are a consumer does not mean that you have no access to law. If the law excused people on account of their ignorance, then does this not justify people seeking to remain ignorant? The floodgates would be opened and the policy of the law would be seriously undermined in this area if this were indeed the legal position, which it is not.

The fact that the OFT report may have raised awareness of the argument that bank charges may be unfair or penalty charges is not denied, but ignorance of the law is not enough to postpone the start of the 5 year prescriptive period. There requires to be something else which would justify the claimant's ignorance.

Bookworm says:

"1 year ago, any, and I mean ANY solicitor consulted on penalty charges would have patronised an "ordinary" consumer right out of his office. As for the CAB, they STILL to date do not advise to reclaim charges, and instead advise to "enter into a dialogue with the bank" or to go to the Ombudsman"

This is just nonsense and deeply patronising to the legal professions involved. It I am afraid it also panders to easy stereotypes and portrays a naivety about the nature of advising clients on legal problems.

If the charges are penalty charges, they have been so since they were first applied.

I really don't think that the issue is whether or not you could "with reasonable diligence have become aware" that penalties are unlawful has much bearing. The real issue is whether or not you could have known that your banks charges are penalties, and that's something which is much trickier, since they don't publish details of their income from chrges, and they vehemently deny that they make any profi from them.

This is just nonsense and deeply patronising to the legal professions involved.

Great legal argument there.

Happy to be proven wrong, any cases you can quote to support this?

Because, as far as I am aware, the people who have brought the penalty charges to the public eye are, amongst others: Laura Saunders v Yorkshire Bank, with the help of Bankchargeshell. Stephen Hone, of Penaltycharges, Dave Smith of this forum, and a few others. Incidentally, the only case LOST so far was Henry v NatWest, where he had a barrister to represent him, and, by Henry's own account, he felt that "his barrister had lost interest by that point".

I am afraid it also panders to easy stereotypes and portrays a naivety about the nature of advising clients on legal problems.

Well, I have won 4 claims relating to penalty charges so far, one of them in court. How many have you?

Deeply patronising to your profession it may be, in your opinion anyway. It doesn't make it false. ;-)

Sorry, Robert, I have said my piece now, I'll leave you to it.

Robert you say:

in doing so I believe you have misunderstood my point. I am not suggesting that bank charges have always been "penalty charges" as that term is understood at law and I agree that it is perhaps possible that they have only become so as technology has allows the process to become as cheap as you siggest. Rather, I am saying that bank charges people are seeking to claim back as discussed in these fora, if they are penalty charges, they have been so since the date they were applied to the consumer's account. They did not become so simply as a result of the OFT report.

It follows that, as the law on penalty charges has been clear for years, the Scottish courts will not entertain the suggestion that a pursuer has only now become aware that they are penalty charges, as these same people have access to lawyers (this despite the cost!) to advise on these legal questions. This is what is meant by exercising reasonable diligence.

Bookworm,

There is not a great deal one can say to your incisive and deductive argument.

So would someone in Scotland be able to claim charges from a bank with two sets of headquarters, from the one in Scotland five years of back charges, then claim from the english headquarters for the sixth year?

So would someone in Scotland be able to claim charges from a bank with two sets of headquarters, from the one in Scotland five years of back charges, then claim from the english headquarters for the sixth year?

I don't see the advantage with this - why not just claim through the English system?

living in scotalnd makes it intrinsinctly easier to pop along to your loacl sheriff court. Using the English system, then you must be prepared to travel down for possible court appearance and must aslo have english correspondence address. RThere is the advantage(HUGE) about claims being up to £5000 in england. But would it be legal to initially claim in Scotland, win those and then proceed with claim in england?

Why do you think you need an English Address to claim in England? You only need that if you're using moneyclaim. All you need to do is use the N1 form from the county court instead, which is very similar to the Scottish small claim form. True, you might have to go to England for a hearing, but judging by the number of people who've got their money back so far, that seems to be a remote possibility.

There are questions about abuse of process here. Generally you are require to bring all your claims arising from the same cause in the one action. However, I understand from these fora that people in Scotland are raising multiple actions to circumvent the low limits in the small claims/summary cause procedure (£750 and £1500 respectively). I am unsure if the point has been raised by the banks. However, I would If I were them, as once you go above £1500, you are into ordinary cause procedure which allows those with good lawyers greater procedural mechanisms to fight claims.

It follows that, as the law on penalty charges has been clear for years, the Scottish courts will not entertain the suggestion that a pursuer has only now become aware that they are penalty charges, as these same people have access to lawyers (this despite the cost!) to advise on these legal questions. This is what is meant by exercising reasonable diligence.

This was my argument(OFT statement using it as discovery rule) when RBOS qouted the limitations act to me and i went to court seemed like sheriff was egging me on to continue but there is the problem of it getting taken out of small claims and then into summary cause or possibly ordinary cause which i would have been liable for the banks expenses. i bailed out......soz this would be better tested by a individual on legal aid.

also i can bring this action again as no evidence was heard.

So, in summary, even though there is a 20 - year limit on claims in certain circumstances, because I have paid the penalty charge and was aware of this fact, I would have had to have lodged a claim very soon afterwards to try to recover the penalty charge?

I'm specifically thinking about when I was a student in the dim and distant mid - nineties and going overdrawn by £10 or so from time to time wasn't unknown. The penalty charges sometimes (unfortunately) incurred would make it just that wee bit harder to get back on to an even keel and it becomes an ever decreasing circle.

To cut a long story short, I have found the boxes in which all my BoS statements are kept and there's probably a few hundred pounds in there that I would feel justified in lodging a claim, more through anger than anything else . However, if the time limit is five years back from the date of claim then I can't do anything about it?

Incidentally i don't bank with BoS any more as they managed to make a mess of tax on savings interest for me, resulting in 3 years of tax claims, where I had to pay inland revenue the princely sum of about £8 one year, £12 the next, and I got back a cheque for some pence on the third year!

So, in summary, even though there is a 20 - year limit on claims in certain circumstances, because I have paid the penalty charge and was aware of this fact, I would have had to have lodged a claim very soon afterwards to try to recover the penalty charge?