Limitation Act 1980
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The basic principles of contract
The Jolly Contrarian holds forth™
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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.
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. About those, and that curious expression “simple contracts”:
Under the Limitation Act 1980 a “Simple contract” is one that is neither a “specialty”[1] nor an insurance contract[2] nor a “contract of loan” which has no fixed repayment date, where repayment is not conditional on a demand, [warning:strap yourselves in for this next bit]
“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.
See the text in the act itself for more tedious detail about what happens in the case of personal injury or death.
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].
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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.
- “Simple contracts”: what are they then?
See also
References
[[category:Template:Contract Essay]]
- ↑ A written document like a security deed that has been sealed, delivered and given as security for the payment of a specific debt.
- ↑ Perhaps not “simple” because of the implied duty of utmost good faith — who knows?
- ↑ Re Brown’s Estate [1893] 2Ch 300[1]
- ↑ knock yourself out.
- ↑ Let me Google that for you