| Date | 20 February 2002 |
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| Judgment | Scottish Equitable plc -v- Miller Construction Limited, Inner House Court of Session 31 August 2001 |
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| The Issue | The application of limitation or prescription periods in claims for breach of contract. |
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| Implication |
Where a claim is for monies due under a contract, the limitation period will not normally begin to run until the last interim payment certificate has been issued. |
printAs a matter of public policy, statute provide certain limitations of time within which claims for damages must be brought. Where the action is commenced in relation to a breach of contract, the limitation period will be six years for a simple contract and twelve years if the contract is executed as a deed. If defects are concealed by a contractor, this may result in an extension of the limitation period. Section 32 of the Limitation Act 1980 provides that where an action is based upon the fraud of the defendant, or any fact relevant to the plaintiff's right of action has been deliberately concealed by the defendant, the period of limitation does not begin to run until the plaintiff has discovered the fraud or concealment, or could with reasonable diligence have discovered it. Where the cause of action is brought in negligence, the limitation period will be either six years or, under certain circumstances, three years from the date that the plaintiff acquired knowledge of the relevant damage. An issue which often arises concerns the determination of the point at which the limitation period will begin to run. In the case of building and civil engineering contracts, a cause of action for failure to construct the works in accordance with the contract normally arises at practical completion. Where the complaint is for failure to comply with defects liability obligations, the cause of action will normally arise at such later date after practical completion as the contract describes for carrying out those obligations. In Scotland, limitation is called "prescription", but its effect is essentially the same. A right of action will be extinguished upon the expiry of the relevant prescriptive period. By way of example, Section 6(1) of the Prescription and Limitation (Scotland) Act 1973 provides for what is termed the "short negative prescription" of five years. If no relevant claim is made within that period of five years, then the obligation to which the claim applied will be extinguished. In the case of Scottish Equitable -v- Miller Construction, the court had to determine when the period for limitation or "prescription" would commence, where the claim concerned a failure to pay monies in accordance with the terms of the contract. Scottish Equitable had engaged Miller Construction for the demolition of premises in Edinburgh and the construction of a new office block. The contract had been made in March 1989 incorporating the JCT 1980 standard conditions. It was not until May 1997 that disputes which had arisen out of that contract were eventually referred to an arbitrator. One of those disputes concerned Miller's entitlement for payment of approximately £2,000,000 in connection with alleged direct loss and expense. Scottish Equitable argued that the claim for loss and expense had been extinguished by prescription. According to Scottish Equitable, time started running from the point at which Miller was first able to enforce its rights during the course of the construction of the works to have the correct amount of loss and expense ascertained and added to the contract sum. Under the terms of the contract, Miller had a right to have that loss and expense ascertained and added to the sum stated as due in a certificate of payment. Five years had elapsed from the date that that right had first occurred, before the arbitration proceedings had commenced. Accordingly, argued Scottish Equitable, the claim has been extinguished by the passage of time. Miller did not accept this interpretation. In its view, obtaining an ascertainment of loss and expense during the course of the works was purely provisional in nature. Interim certificates were to be treated as successive re-statements of what was due under the contract. Accordingly, the ascertained sum reflected in any one certificate may effectively be lost when a subsequent certificate is issued. No final certificates had been issued and the last interim certificate was dated 18 June 1992. Miller contended that the contractual machinery for assessing the final sum due in respect of loss and expense arising from Clause 26 events was therefore still in place at least until the last interim certificate had been issued. According to Miller, the obligation to make full payment in respect of loss and expense had not been finally determined and therefore had not become enforceable prior to June 1992. On that basis, the period of prescription did not run out at its earliest until five years later. By that date, June 1997, the matter had been submitted to arbitration. The arbitrator held that this was the proper interpretation. He noted that claims for reimbursement of direct loss and expense are often notified by contractors during the execution of the works. These are usually not pursued, either by arbitration or litigation, until the end or near the end of the architect's certification process. The court agreed. Each interim certificate supersedes its predecessor and effectively constitutes a revaluation of the full work carried out. Accordingly, any failure in relation to one interim certificate will leave unaffected the right of a claimant to challenge the valuation of the full works executed in the next or any subsequent certificate. The period of limitation within which a contractor must make a claim for monies due under a contract will not begin to run until the issue of the final certificate or, in certain circumstances, at the earliest, the issue of the last interim payment certificate.
CJ-0207
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