Template:M intro contract Limitation Act
Not to be confused with that monstrous eulogy to Schadenfreude, the statue of limitations.
The Limitation Act 1980, known fondly as the statute of limitations, is a piece of UK legislation dealing with limitations on legal claims under contracts, tort and so on.
Different categories of claim
Torts and simple contracts
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.
Demand loans, 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[1]) 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.
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.
See the text in the act itself for more tedious detail about what happens in the case of personal injury or death.
“From when the cause of action accrued”
Compare, for torts, Section 2:
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.
For breaches of contract, Section 5:
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.
Looks similar, right? The subtlety is exactly when a cause of action accrues at tort and under contract.
A cause of action for tort is damage-focussed: because plaintiff and defendant have no explicit relationship before the damage arise, it is only when the plaintiff can reasonably say it has suffered loss and, oh, there must have been a “neighbour” relationship between us — and that will usually involve knowing about it.
A cause of action for breach of contract — a “contract” being a pre-existing sociological construct where the parties have agreed what each must do to and may expect from the other, and nothing needs to be inferred from the circumstances to impute some neighbourliness between them — the cause of action arises as at the time of breach, whether the innocent party knows it or not. Generally, it will; in the case of a misrepresentation as to, for very good example, ones title to sold goods, it will not be obvious at all. the misrepresentation may only come to light years later, when the rightful owner shows up to ask for her stolen Chris De Burgh albums back, or when those latent defects make themselves known and your house collapses in a heap.
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 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 ninjas 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 Royal Norwegian Government v Constant & Constant [1960] 2 Lloyd’s Rep 431
“Simple contracts”
This was designed to ameliorate the common law position from difficult cases like Re Brown’s Estate [1893] 2Ch 300[2], that a loan repayable on demand is treated as being repayable immediately, and the limitation period runs from the day the loan is advanced. Re Brown’s Estate [1893] 2Ch 300[3] 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[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].