Limitation in debt claims: the importance in getting the timing right
As a starting point, unless an exception under the Limitation Act 1980 applies, the period in which a party may make a claim for recovery of money (breach of contract) is six years from the date of the breach.
With the above in mind, one can assume that the breach does not occur until a party fails to pay an invoice by the specified due date as until the due date has passed, the payment would not be classed as overdue and the creditor would be barred from taking any enforcement action to recover such payment.
However, in Consulting Concepts International Inc v Consumer Protection Association (Saudi Arabia)  EWCA Civ 1699, the Court of Appeal held that the time (for limitation purposes) started to run from the date the services were provided and not the due date for payment, unless there were agreed contractual terms to the contrary.
In the case of Consulting Concepts, the Claimant’s invoice terms were that they were to be paid within 90 days of the date of each invoice and they argued that the cause of action did not accrue until those 90 days had passed. However, the court ruled that unless there was a clear term in the contract to the contrary, a cause of action for payment of services accrued when the work was completed and would not be deferred until an invoice is raised or the due date for payment has passed. This decision resulted in a claim for over £40 million being struck out on the basis that it was time barred.
This decision highlights the importance of ensuring that your contractual terms are explicit as to when the right to payment arises. Unless clearly agreed in the terms, the cause of action will accrue when the services have been completed and therefore, even if an invoice is not raised, or does not become due until a specified time in the future, the six-year limitation period for creditors to bring a claim for recovery of outstanding sums due starts running from the date the work (services) have been completed. Creditors should regularly review their contractual terms and take early action to recover any unpaid invoices in order to avoid the risk of the claim being time barred.
Notwithstanding the above, creditors do have further protection under section 29(5) of the Limitation Act 1980 if a debtor acknowledges a debt or makes a part-payment. In those circumstances, the six-year limitation period renews from the date of acknowledgment or part-payment. This should provide comfort for creditors that if they engage in early dialogue with their debtors and accept payment plans, then the limitation period can be extended even further, thus minimising the risk of falling foul of limitation in subsequent court action.
If you believe you have a vaild debt claim, we recommend that you seek urgent legal advice. Get in touch with one of our specialist commercial litigation solicitors by sending us an email, completing our online enquiry form or calling us on 020 3797 4706.
Articles are intended as an introduction to the topic and do not constitute legal advice.