Background
The Pursuers, Tilbury, were the principal contractors in relation to enabling works required to prepare a former railway yard for development. The Defenders, Arup, were subcontracted to provide civil and structural engineering services to the Pursuers, including the preparation of the design for the enabling works.
Work began onsite in January 2014. During construction, it became apparent that the brickwork in one of the railway tunnels was softer than anticipated, and that there was a significant amount of voiding between the brickwork lining and the bedrock beneath it. The Defenders design required to be redone in order to address these problems.
The Pursuers contend that, in producing the original design for the works, the Defenders proceeded on the basis of erroneous and overly optimistic assumptions about the strength and stiffness of the tunnel brickwork, and failed to take account of the likely presence of voids within and behind the lining of the tunnel and the need for annular grouting to address that problem. The Pursuers claim that the Defenders were in breach of their contractual duty of care by failing to exercise the skill, care and diligence expected of a competent civil and structural engineer. They claim damages of £5,951,533.99 from the Defenders for losses they say that they suffered as a result of delays and additional costs to the project. The Pursuers raised Court proceedings on 30 July 2019.
Preliminary proof on prescription – Outer House of the Court of Session
The Defenders argue that the claim against them has prescribed (time barred) in terms of Section 11(1) of the Prescription and Limitation (Scotland) Act 1973 ("the 1973 Act"). The Pursuers dispute this with reference to Sections 11(3) and 6(4) of the 1973 Act. Lord Harrower heard a Preliminary Proof limited to the question of prescription.
The Defenders argued that the five year prescription period had started to run in March or April of 2014, but certainly no later than 24 June 2014. The Defenders contend that, by May 2014, the Pursuers had become aware that the differences between the original design and the situation on the ground were such that additional work would be required, with consequent delay. As the Summons was not served until 30 July 2019, any obligation which the Defenders had to make reparation had been extinguished under section 11(1) of the 1973 Act.
The Pursuers argued that although they suffered loss when the contract for the enabling works was made in November 2013, the five-year prescription period had been suspended by virtue of Section 11(3), or alternatively extended by Section 6(4) until November 2014. This was because it was not until that stage that the Defenders made them aware that a redesign was required.
Lord Harrower agreed with the Pursuers' position and held that the prescriptive period had commenced in November 2014. For the purposes of Section 11(3), time started to run from when the enabling works were delayed, making May/June 2014 the date the Pursuers were aware of the loss from the breach of duty alleged. In relation to Pursuers' Section 6(4) argument, the period up until the end of November 2014 was discounted as the Defenders continued to assure the Pursuers that the design remained valid. Lord Harrower considered that the Pursuers were relying upon the Defenders for specialist engineering services and as they continued to provide assurances, the Pursuers could be said to have been induced to refrain from raising proceedings, as a result of error caused by the Defenders.
Appeal to the Inner House of the Court Of Session
The Defenders were successful on appeal and the First Division of the Inner House overturned the Outer House's decision.
Lord Malcolm held that the Pursuers sustained loss and damage on 27 November 2013 when, in reliance on the Defender's defective design, it entered into a fixed price contract. The contract was worth less to it than it would have been had the Defenders provided a competent design. Accordingly, in terms of Section 11(3), the five year prescriptive period started in November 2013 when the contract for the enabling works was made. This meant that only Section 6(4) could prevent any obligation on the Defenders from being extinguished by the operation of prescription.
The Summons was served 5 years, 8 months and 3 days after the prescriptive period commenced, thus the Pursuers needed to prove that it was interrupted by virtue of Section 6(4) for at least 8 months and 3 days. Lord Malcolm confirmed that this required evidence:
(1) that there was a period when the Pursuers laboured under an error which meant that they did not make a claim against the Defenders;
(2) when that period began and ended; and
(3) that the error was caused by the Defenders.
The Pursuers founded on the preparation and presentation of the design; the claim for payment; the absence of any warning that the design was not competent or that material changes would be required; and ongoing assurances from the Defenders as to its design from its issue until around September 2014. The Pursuers say that the error ended in December 2014 when the Defenders advised that a redesign was required.
In his judgement, Lord Malcolm set out the test for Section 6(4), highlighting that:
"…Section 6(4) requires words or conduct on the part of Arup which led Tilbury into an error as to their remedies which meant that they did not make a relevant claim against Arup. Once problems were discovered, the issue of fraud or error operating on the mind of the company might arise. However it is doubtful whether the subsection is aimed at conduct as everyday as providing services and accepting payment therefor. If merely tendering a design or sending an invoice in respect of what turns out to be defective work is sufficient for the purposes of Section 6(4), not many prescriptive periods will commence…
As to the assurances, Arup were expressing confidence in their design. It is not suggested that there was any bad faith concealment or misrepresentations. It was up to Tilbury to accept those assurances, or at least not question them. It was not in their interests to do otherwise. That they decided to "back up" Arup is not the kind of erroneous mental state envisaged by Section 6(4) as an induced error which causes a party not to make a claim."
Lord Malcolm held that the Pursuers had failed to prove that the Defenders caused an error on their part which induced them to refrain from making a relevant claim. Accordingly, the claim had prescribed. On disposal Lord Malcolm allowed the reclaiming motion, recalled the Outer House's interlocutor, sustained the Defenders' plea of prescription and granted Decree of Absolvitor.
Comment
The Court's interpretation of Section 6(4) is potentially helpful to Defenders facing professional negligence claims. Lord Malcolm's comments indicate that a professional's acceptance of instructions, provision of services and acceptance of payment should not be enough to meet the test of inducing error. Pursuers will need to go further to establish that Defenders have caused an error which induced them to refrain from making a relevant claim. Continued reliance on a professional's services and advice may not be enough.
It remains to be seen whether the Pursuers will take steps to appeal the Inner House decision to the UK Supreme Court. We will be keeping a watchful eye on how matters progress in the Courts.
Authors: Andrew McConnell & Victoria Hayward
