This week: Doug Blyth takes a look at "Standstill" agreements in Scotland

Life's greatest learning opportunities often come from things that go wrong. Only businesses that are properly vested in learning from mistakes are truly positioned to maximise their potential.

The aviation industry has this down to a fine art. When things go wrong, the black box flight recorder ensures that their errors are "data rich". That industry's ability to learn from its mistakes has taken it from one of the most dangerous forms of transport to one of the safest.

The law is no different. As part of the world's largest law firm, our disputes team is also "data rich": so here we use our knowledge of why things go wrong to help you to either avoid disputes in the first place, or to identify opportunities for fighting your client's corner.

"Standstill" agreements in Scotland

Under the Prescription and Limitation (Scotland) Act 1973, parties to disputes in Scotland have traditionally been prohibited from entering into any kind of "standstill" agreement (similar to the sorts of agreements frequently encountered in England and Wales) to contract out of time bar.

A limited relaxation to that prohibition took effect from 1 June (in addition to several other long-awaited changes) when the Prescription (Scotland) Act 2018 came into force.

However, it is important that businesses and their advisers in Scotland are aware that peculiarities in the drafting of the Scottish legislation give rise to a number of risk issues that effectively limit the range of circumstances in which entering into an agreement to extend the prescriptive period is advisable.

In overview, section 13 of the Prescription (Scotland) Act 2018 allows the prescriptive period to be extended by agreement, after it has commenced and before it has expired, for a period of up to one year (and one time only). Any other attempts to extend the prescriptive period will remain invalid.

There are two main risk issues:

• Firstly, agreements in terms of section 13 of the 2018 Act are conceptually different from English standstill agreements. Section 13 only permits agreements which extend the prescriptive period. With the English approach, time is usually deemed to "stand still" (i.e. be discounted from the calculation of the limitation period). Following the English approach on a Scottish matter, or relying on an English style, may result in an agreement being declared invalid and unenforceable, and the loss of a potential claim.
• Secondly, in many Scottish cases there is uncertainty over when the prescriptive period commenced due to a series of recent cases where the courts have approached the task of identifying the occurrence of the relevant loss with the benefit of hindsight. This has resulted in findings that the clock started ticking on a claim long before a claimant was even aware that it had suffered a loss. On close inspection, the language of the 2018 Act appears to address some but not all scenarios where lack of awareness of loss is an issue and significant uncertainty remains (particularly in connection with latent defects). Attempting to extend a period with an unknown start date gives rise to additional challenges. Therefore, entering into a section 13 extension agreement will rarely be appropriate in situations where there is uncertainty over when the prescriptive period commenced.

Commencing protective proceedings will often remain the safest course of action.

These issues are explored in more detail in a client webinar Doug Blyth and Fiona Caldow delivered to Scottish in-house lawyers last week. The recording is available here.