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{{freeessay|contract|Limitation Act|{{image|rhubarb|png|Mrs. Boycott}} }}''Not to be confused with that monstrous eulogy to Schadenfreude, the [[statue of limitations]].''
{{essay|contract|Limitation Act|{{image|rhubarb|jpg|Mrs. Boycott}}{{small|80}}{{subtable|'''Section 6 in a nutshell''':
The [[Limitation Act 1980]], known fondly as the [[statute of limitations]], is a piece of UK legislation dealing with limitations on legal claims under {{tag|contract}}s, {{tag|tort}} and so on.
{{S6 Limitation Act 1980 nutshell}}}}
{{subtable|'''Section 6 in all its glory''':
*'''Tort''': An action founded on tort shall not be brought after the expiration of '''six years''' from the date on which the cause of action accrued: Section 2.
{{S6 Limitation Act 1980}}}}</div> }}
*'''Contract''': Claims on a [[simple contract]] are limited to '''six years''' from the date the [[cause of action]] accrued: Section 5. Where — Section 6 — it was a [[contract of loan]] without a defined repayment date — for example, we think, a [[deposit]] — then (contrary to popular wisdom and ancient cases<ref>{{cite1|Re Brown’s Estate|1893|2Ch|300}}</ref>) the cause of action does not accrue immediately upon deposit, but only upon a demand in writing for your money back. Hence the problem banks have with “gone away” clients to whom it still owes money. This money can be trapped indefinitely on the balance sheet, since there is no one there to demand it, so a limitation period never begins to run. Hence the [[Dormant Bank and Building Society Accounts Act 2008]] regime where banks can transfer the cash (and associated liability) away to charitable purposes.
*'''Defamation and malicious falsehood''': no such action shall be brought after the expiration of '''one year''' from the date on which the cause of action accrued.
See the [http://www.legislation.gov.uk/ukpga/1980/58 text in the act itself] for more [[tedious]] detail about what happens in the case of personal injury or death.
===It extinguishes the right to take legal action, not the debt===
Of particular interest to regulated financial services firms. The expiry of a limitation period takes away a claimant’s right to [[Litigation|litigate]]; it does not extinguish a [[debt]] in itself. Primarily, this means a would-be plaintiff loses the right to ''argue'' that it is owed money. If you are definitely owed money, and you know this, and so does your debtor, and six years after you were entitled to be paid that money you still haven’t got round to putting your foot down and insisting it is paid to you then, more fool you for being asleep at your own switch for so long that you’ve lost a big stick with which to threaten your debtor, but the debtor does, in the abstract, still owe you the money. He can’t write it off his balance sheet altogether. If your debtor happens to be a regulated financial services provider — you know, a [[bank]] — its obligations to treat its customers fairly, which will be policed not by the Queen’s Bench Division but the [[Financial Conduct Authority]]. The FCA would look very dimly on an institution that reneged on a debt just because its customer no longer was entitled to go to the court to enforce it. It also rather cuts the nose off the cheese vis-a-vis the [[commercial imperative]] and the [[JC]]’s favourite sage savoury: ''[[non mentula esse]]''.
===[[Set-off]], Geoffrey Boycott’s grandmother and ''Der fliegende Holländer''===
Curious coda: The [[Limitation Act]]’s limitation period may deprive you of your right to take ''legal action'' to recover a [[debt]], but doesn’t ''extinguish'' the debt itself. The limitation is on the ''remedy'' not the ''asset''.
:''An action founded on [[simple contract]] shall not be brought after the expiration of six years from the date on which the [[cause of action]] accrued.''
The debt still exists, like a damned old Dutch sea-captain, constrained to roam the endless seas for all eternity, carrying that asset but never able to bring it ashore, except by sleight of hand or cool trickery. If you can compel your debtor to acknowledge it — or to forget to notice the limitation — somehow, all is not lost. A debtor that pays in ignorance that the claim has become time-barred cannot reclaim its money.
Now, you might say a promise a fellow ''has'', but about which he can’t put himself at the mercy of Her Majesty’s Courts isn’t much use when you are dealing with the kind of [[ISDA ninja|ninja]]s we see in the financial markets — Sir Geoffrey Boycott’s dear grandmother facing down the West Indies’ pace attack with a stick of rhubarb comes to mind — but there are a few pieces of legal conjuring that might yet avail you: in particular, the [[negligence]] of your opponent’s counsel, should they fail to plead the [[Limitation Act]], and, even better than that, ''[[set-off]]''.
For Her Majesty’s judiciary are not needed to effect a [[set-off]]: it is a self-help remedy you can mend and make do on your own. Should you owe the same debtor some money under a live obligation, you might seek to set that off against your dead one. Authority for this — though it is hard to find a copy online — is {{cite|Royal Norwegian Government|Constant & Constant|1960|2Lloyd’sRep|431}}
===“[[Simple contract]]s”===
Of course, what we finance types care about are claims under ''{{t|contract}}s''. About those, and that curious expression “[[simple contract]]s”:
{{simplecontract}}
This was designed to ameliorate the [[common law]] position from difficult cases like {{cite1|Re Brown’s Estate|1893|2Ch|300}}, that a [[loan]] repayable on demand is treated as being repayable immediately, and the [[limitation period]] runs from the day the loan is advanced. {{cite1|Re Brown’s Estate|1893|2Ch|300}} was an utterly bonkers decision, by the way: it means if you ask for your deposit to be repaid five years and 364 days after you placed it — being the day before the limitation period expires — you must immediately launch court proceedings to recover your money, or lose it altogether.
Anyway, all fixed now: If you don’t have an obligation to repay the money at a particular time, absent a demand, the [[limitation period]] only starts to run from the date of demand.
===Reform===
Lots of good fun, particularly in the area of latent defects in the construction of houses, for forensic examination of precisely when a cause of action accrues, of course. The [[Limitation Act 1980]] was the subject of a 320 page law commission monograph in 2015<ref>[http://www.lawcom.gov.uk/app/uploads/2015/03/lc270_Limitation_of_Actions.pdf knock yourself out].</ref> so clearly ''someone'' sees the opportunity to change the law. But at least it is better than it was after {{cite1|Re Brown’s Estate|1893|2Ch|300}}.
{{sa}}
*[http://www.legislation.gov.uk/ukpga/1980/58 Text of the Limitation Act]
*[http://www.lawcom.gov.uk/app/uploads/2015/03/lc270_Limitation_of_Actions.pdf Law Commission bunker-buster from 2015]
(1) The limitation period for simple contracts as set out in Section 5 will not apply to “demand loans”. Instead, the cause of action on a demand loan will accrue, and the limitation period will begin to run as if it were a simple contract, from the date on which a creditor first demands repayment in writing.
(2) A “demand loan” is a loan with no defined repayment date and that is repayable on demand, except where the borrower entered into a collateral obligation to repay it (e.g., by delivering a promissory note as security) on terms that, if they applied directly to the loan would mean it was not a demand loan).
Section 6 in all its glory:
6. Special time limit for actions in respect of certain loans.
(1) Subject to subsection (3) below, section 5 of this Act shall not bar the right of action on a contract of loan to which this section applies.
(2) This section applies to any contract of loan which—
(a) does not provide for repayment of the debt on or before a fixed or determinable date; and
(b) does not effectively (whether or not it purports to do so) make the obligation to repay the debt conditional on a demand for repayment made by or on behalf of the creditor or on any other matter;
except where in connection with taking the loan the debtor enters into any collateral obligation to pay the amount of the debt or any part of it (as, for example, by delivering a promissory note as security for the debt) on terms which would exclude the application of this section to the contract of loan if they applied directly to repayment of the debt.
(3) Where a demand in writing for repayment of the debt under a contract of loan to which this section applies is made by or on behalf of the creditor (or, where there are joint creditors, by or on behalf of any one of them) section 5 of this Act shall thereupon apply as if the cause of action to recover the debt had accrued on the date on which the demand was made.
The limitation period for torts and simple contracts (those that are not specialities, of insurance contracts, demand loans and so on) is six years. But see below as to the significance of the accrual of the cause of action. It is different between torts and contracts. About those, and that curious expression “simple contracts”:
“except where, in connection with taking the loan, the debtor enters into any collateral obligation to pay the amount of the debt or any part of it (as, for example, by delivering a promissory note as security for the debt) on terms which would exclude the application of this section to the contract of loan if they applied directly to repayment of the debt.”
We quote that last bit in full because, for a short extract, it is bloody hard to decipher. There are no explanatory notes to the Limitation Act 1980, but for help we have that Law Commission bunker buster which says:
“Section 6 does not apply where the debtor enters into a collateral obligation to pay the amount of the debt or any part of it on a fixed or determinable date or conditional on a demand for repayment (or other condition).”
So if the promissory note itself is a demand loan, but it is pledged as collateral for another debt which isn’t, then it counts as having a payment date. That’s the best I can do.
Note: “repayment on a stated maturity date, conditional upon demand by the creditor”, sounds a lot like the process for redeeming a bond — at least when held in physical, definitive form. Thus, definitive debt securities are not simple contracts.
Whether this is true of electronically cleared debt securities — that is, ahhh — all of them, these days — is a an interesting question, as these are paid out automatically to account holders in clearing systems.
Demand loans, notes, deposits etc
Where — Section 6 — the contract is a loan without a defined repayment date — for example, we think, a deposit — then (contrary to popular wisdom and ancient cases[3]) the cause of action does not accrue immediately upon deposit, but only upon a demand in writing for repayment.
Hence, banks have a perennial problem with “gone away” clients to whom they still owe money. The limitation period on a deposit account never starts to run if the depositor never tries to withdraw the money. If the depositor is whereabouts unknown, this money can be trapped indefinitely on the balance sheet, since there is no one there to demand it. Hence the Dormant Bank and Building Society Accounts Act 2008 regime where banks can transfer the cash (and associated liability) away to charitable purposes.
This is theoretically a problem for bearer notes, too — hence the time-honoured void claims provision.
Defamation and malicious falsehood
For what it is worth, no action can be brought after the expiration of one year from the date on which the cause of action accrued.
Lots of good fun, particularly in the area of latent defects in the construction of houses, for forensic examination of precisely when a cause of action accrues, of course. The Limitation Act 1980 was the subject of a 320 page law commission monograph in 2015[4] so clearly someone sees the opportunity to change the law. But at least it is better than it was after Re Brown’s Estate [1893] 2Ch 300[5].
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“From when the cause of action accrued”: how that differs between contract and tort. It is important: especially if you are a homeowner, or you buy and sell emissions allowances.
It extinguishes the right to take legal action, not the debt: the implications of this, especially for regulated organisations and those with fiduciary obligations.
A section entitled “Set-off, Geoffrey Boycott’s grandmother and Der fliegende Holländer” — which should be reason enough to read it — and how one might enforce a contractual claim even though it has become time-barred.
