5. Time limits
Court action to recover debts must be taken within certain time limits. These are mainly contained in the Limitation Act 1980, although some debts have their own time limit – eg, council tax. These time limits are known as ‘limitation periods’.
Most limitation periods run from the date the ‘cause of action accrued’.1Reeves v Butcher [1891] 2 QB 509. See also C Wilkinson, ‘Consultancy Corner: default dates for debt limitation purposes’, Adviser 173 The date the cause of action accrued is ignored. For example, if a client defaulted on 30 November 2000, a six-year limitation period would have ended on 30 November 2006.
Note: if a debt (eg, an overdraft) is repayable ‘on demand’, until the demand is made there is no cause of action and the time limit does not begin to run.2Goldsmith v Chittell (Adviser 179 abstracts) If the only thing preventing a creditor from taking court action is the need to comply with a procedural requirement, the time limit accrues regardless.3Swansea County Council v Glass [1992] 2 All ER 680 However, a default notice – which is needed before a creditor under a regulated credit agreement can take certain specified steps (see here) – is not regarded as a procedural requirement. The service and expiry of a default notice (where required) which has not been remedied by the client is, therefore, necessary to begin the limitation period in such cases. This, in theory, allows the creditor to defer the start of the limitation period indefinitely, allowing court proceedings to be started a significant time after the date the client last made a payment under the agreement – ie, the date of actual default.4Doyle v PRA Group [2019] EWCA Civ 12 (Adviser 188 abstracts). See also R Rosenberg, ‘Legal Round-up’, Quarterly Account 52, IMA and C Bott, ‘Limitations after Doyle’, Quarterly Account 54, IMA. Note: service of a default notice is not required to recover sums which have already accrued due under a consumer credit agreement – eg, a claim for arrears only when the limitation period would run from the date the missed payment(s) should have been made under the terms of the agreement. Where a client has been made the subject of a bankruptcy order, the limitation period continues to run for any debts outside of the bankruptcy, but, for debts included in the bankruptcy, the limitation period ceases to run after the making of the bankruptcy order because these debts will be dealt with by the trustee in bankruptcy. However, where a bankruptcy order is subsequently annulled, the effect is that the bankruptcy is ‘wiped away’ and so the limitation period continues to run in all cases putting all creditors in the same position (see here).5Khan v Singh-Sall [2022] EWHC 1913 (Ch) paras 151 - 172 Common limitation periods
Unsecured regulated credit agreement: six years from the date of expiry of a default notice (where required) which has not been remedied. See below for cases where, under the terms of the agreement, a further notice is required to terminate the agreement before the creditor can take action to recover the outstanding balance.
Other unsecured borrowing: six years from default unless repayable ’on demand’ when the time period does not start until the date of the demand or unless, under the terms of the agreement, termination of the agreement by the creditor is a pre-condition of court action to recover the outstanding balance. In this case, the period starts from when the agreement is terminated.6For example, as in BMW Financial Services v Hart [2012] EWCA Civ 1959 (Arian 43, caselaw update) Interest: six years from default in payment. Each amount of interest charged to an account has its own six-year limitation period. Once the capital is statute barred, so is any claim for interest, even if that interest was added to the account less than six years ago.
Fuel debt: six years from the date of the bill.
Telephone charges: six years from the date of the bill.
Water charges: six years from the date of the bill.
Council tax: six years from the date of the bill (demand notice).
National insurance contributions: six years from the date payment was due.
Rent arrears: six years from the date the rent became due. Each amount of rent due has its own six-year limitation period.
Possession of land: 12 years from default in payment.
Mortgage shortfall: six years for arrears of interest from the date the interest became due; 12 years for the outstanding capital from the date the right to receive the money accrued (usually after default in payment of one or more contractual instalments). See here. Once the relevant limitation period has expired, a debt is said to be ‘statute-barred’.7For a discussion of tactics when dealing with statute-barred debts, see C Wilkinson, ‘Consultancy Corner’, Adviser 109, including a suggested response letter to a demand for payment The effect of a debt being statute-barred is that it prevents court action. However, the debt still legally exists and can be recovered by any other lawful method.8But note FCA Handbook, CONC 7.15.4 and 7.15.8, which restrict a creditor’s right to attempt recovery of statute-barred debts This means that statute-barred benefits and tax credit overpayments can be recovered – eg, by deductions from benefit because that does not involve court proceedings. However, the Consumer Credit Sourcebook states that a creditor must not attempt to recover a statute-barred debt if it has not been in contact with the client during the limitation period nor after the client has stated that s/he will not be paying the debt because it is statute-barred. Pursuing a complaint could be considered in appropriate cases.9CONC 7.15.4R and 7.15.8R Limitation periods are only relevant to when the creditor must take the initial court proceedings. The time limit ceases to run once court proceedings are issued. If the creditor obtains a judgment, the limitation period does not apply to the enforcement of that judgment.
A limitation period that has already started can be repeatedly restarted by an ‘acknowledgement’ or ‘part payment’.
If a client receives a claim form for a debt which is statute-barred or partly statute-barred (eg, in the case of rent or interest), and s/he wishes to avoid a judgment being made against her/him, s/he must defend the claim on the ground that the debt is statute-barred.10CPR PD 16, para 13.1 Once s/he has done so, the onus switches to the creditor to prove that the claim is not statute-barred. Where relevant, you should advise clients who are considering raising limitation defences in relation to regulated credit agreements who cannot recall if, and/or when, they received a default notice and/or are unable to provide you with a copy, but have received a ‘letter before claim’, to query when the default notice was served when responding to the ‘letter of claim’ and also ask for a copy.