Whilst being head of a successful Debt Recovery Team is fun and fast moving, it often means that the opportunity to argue novel points of law in court are rare.
Our clients instruct us to recover their money, quickly. They don’t like paying for us to prepare for and argue novel legal points of law in court.
That being said, I have recently been involved in an action for a longstanding client in which we were successful both at first instance in the Sheriff Court and in the Sheriff Appeal Court. The case raised an interesting point with regards to the five year negative prescription rule in Scotland, a point which I thought I would share with you.
Put simply, my clients faced legal proceedings brought against them by their previous Accountant. He alleged that my clients had not paid numerous invoices that had been issued by him to my clients during a period from December 2011 through to June 2021. The action had not been raised and served on my clients until 30th January 2024. It struck me that this was a clear case where Section 6 of the Prescription and Limitation (Scotland) Act 1973 applied to the majority of the invoices sued for. That is, that the majority of the invoices had subsisted for a period in excess of five years without any relevant claim having been made upon them.
Defences were lodged on that basis. The Accountant did not accept that though. He sought to rely on a rarely used exception to the rule on negative prescription, contained in Schedule 2 of the 1973 Act.
Schedule 2 provides that where there is an obligation to pay money in respect of services rendered in a series of transactions between the same parties which are charged on a continuing account, the appropriate date for prescription purposes is the date on which payment for the services last rendered became due. The accountant claimed that this was the position in this case; that he had been acting in a series of transactions with my clients, that he had been charging on a continuing account, and on the basis that the last invoice rendered by him was in June 2021, his claim for payment had not prescribed.
I have to admit this was the first occasion in my legal career where I had encountered this argument. I researched the relevant authorities of which there were surprisingly few. The authorities that I did find were very helpful though. They stated that not only was there a requirement for there to be a series of transactions between the same parties, but also that there had to be some evidence that the transactions had been charged on a continuing account. That is, there had to be something before the court to suggest that the accountant was keeping a tally during their relationship (whether by way of a journal or spreadsheet or, dare I say it, an account) of the sums that were falling due for payment.
My clients were successful at Proof. Evidence had been extracted from the accountant that he had issued his invoices and had expected payment of them “in due course”. The Statement of Account that the accountant had lodged in court had contained a “due date” of payment for each of the unpaid invoices; that date being a month after the date of each invoice. Importantly, no evidence had been lodged or produced by the accountant to suggest that he had been keeping a journal or any other form of accounting of the sums that were accruing to him. The Sheriff that heard the case had no hesitation in deciding that these invoices had indeed prescribed, and that the attempt by the accountant to rely on Schedule 2 had not been successful.
The Accountant did not take the Sheriff’s decision well. He took steps to appeal the decision on this novel point of law to the Sheriff Appeal Court, and a Hearing recently took place in front of three Appeal Court Sheriffs. Thankfully, the Appeal Court Sheriffs agreed with the Sheriff’s interpretation of the legislation and dismissed the Appeal.
Just another day at the office? Not quite.
Find out more about our Debt Recovery services here.