Void claims

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Part of the time honoured boilerplate on a debt security is the “void claims” term in the terms and conditions along the following lines:

Claims against Issuer for payment under the Notes will become void unless made within five years from the due date for payment.

This ism apparently, to work around a funny in the Limitation Act 1980 which provides that a cause of action for “demand loans”, only begins to run from the point of written demand.

Is a debt security a demand loan? It doesn’t easily fit into the parameters of Section 6 of the Limitations Act:

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.

(4) In this section “promissory note” has the same meaning as in the Bills of Exchange Act 1882.

In that debt securities do provide for payment of the debt on a determinable date, and the two limbs of the definition are “conjunctive”, but that has never stopped timid legal eagles before and we don’t imagine it will start now.

Query whether, in this age of electronic clearing, there is any real need for a void claims clause — or indeed whether there was ever a need for one: if you have borrowed money, you should pay it back, should you not? — seeing as, remember, the Limitation Act does not extinguish a legal claim, but simply says one cannot launch a formal legal proceeding to recover it.