Legal time bar in Scotland – allowance of standstill agreements
Prescription is the rule of law in Scotland that extinguishes certain rights and obligations after a period of time. This includes a right to recover damages for breach of contract. In Scotland, a contractual claim prescribes after five years; therefore formal proceedings, either court or arbitration, must be raised and served in order to stop the five-year period running.
On 1 June 2022, important changes to prescription become law in Scotland. These are the result of the Prescription (Scotland) Act 2018 (“the 2018 Act”) which amends the Prescription and Limitation (Scotland) Act 1973 (“the 1973 Act”).
The first change, brought about by section 5 of the 2018 Act, concerns the discoverability test, which particularly affects claims for latent defects. We addressed this in our previous article. The second change, brought about by section 13 of the 2018 Act, sees the introduction into Scots law of standstill agreements. Parties in dispute in Scotland will now be able to enter into a standstill agreement to extend the prescriptive period by up to one year.
Previously in Scotland
Under the 1973 Act, section 13 prohibited contracting out of the prescriptive period in Scotland. This contrasts with the position in England and Wales, where standstill agreements are regularly used to extend the legal time bar period.
New position in Scotland
The 2018 Act now allows a prescriptive period to be extended by agreement in Scotland, but only:
- after the period has commenced;
- by a period of no more than one year; and
- once, in relation to the same obligation.
Parties to a dispute in Scotland can delay the need for formal proceedings by signing a standstill agreement, although, unlike in England, this can be done only once and for a maximum period of a year.
Practical benefits and expected uptake
The main benefit of a standstill agreement is that it enables discussions or negotiations to continue without the need to raise formal court or arbitration proceedings. Allowing this additional time may assist parties to come to a resolution without further recourse to the court; ultimately reducing cost and avoiding the polarisation that can result from commencing formal proceedings. A downside of such an agreement is that its effectiveness will depend on how it is interpreted, however, the same is true of a court writ or Summons.
Uptake of standstill agreements in Scotland is likely to be higher amongst clients who are experienced in disputes that are subject to the law of England and Wales. However it is likely that, in time, they will become a more familiar part of the Scottish legal landscape.
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