38 corporate finance
On your marks, get set… too late, you are out of time
One of the hallmarks of the 2008 recession (and the current economic climate) is a reluctance on the part of lenders to take action against borrowers to recover monies owed to them. It is understandable why lenders are hesitant when the recent history of bad press, about the banks in particular, is almost constantly reported in the media
However, this delay in action carries a risk for lenders. The legal rights of lenders, as a matter of civil law, to recover monies are subject to the limitation statutes (including the Limitation Act 1980 (the Act), which sets out strict time limits in which proceedings or actions must be brought against a borrower. Failure to recover monies owed within the legal timeframe can mean that the lender will not be able to enforce its claim against the borrower.
In various cases the courts have referred to three reasons for these rules:
• “long dormant claims have more cruelty than justice in them”;
• evidence may have been lost or destroyed and memories forgotten; and
• claimants with good causes of action should pursue them with reasonable diligence.
The time limits set out in the Act do not affect the substance of a claim, but only act to prevent a claimant enforcing that claim. There are also certain circumstances under the Act in which the court might consider it unfair for a defendant to rely on these time limits. Therefore, in reality, a claim that appears to be statute barred (as it is outside the legal time limit) may still be valid and, if a defence of limitation is not specifically raised, the claim can continue to be heard by the court.
The most effective method by which a lender can halt or avoid time limits is by issuing a claim form (which will then apply further time limits under the Civil Procedure Rules).
In general, the limitation period will start to run when the monies owed are due to be paid (legally termed when the ‘cause of action accrues’). This timescale will depend on the circumstances of each case but, for a cause of action to accrue, there needs to be:
• a claimant who can sue;
• a defendant who can be sued; and
• all material facts required to prove the claimant’s case.
It should also be noted that these time limits do not apply in a bankruptcy, liquidation or administration process, as these types of proceedings are for the benefit of creditors as a whole. It is also possible for both parties to suspend the time limit by entering into an agreement under which a claimant (the lender) agrees not to sue the defendant (the borrower) for a set period of time. However once that time has started, such agreements will not prevent time running unless such provision is set out in very clear and specific terms.
Additionally, under the Act, all limitation periods can be extended or postponed where there has been:
• A disability either by way of
For lenders the most appropriate limitation periods are likely to be as follows: Breach of contract
Fraud Judgment
Mortgages: Redemption action by mortgagor
Action to recover principal monies secured by mortgage or other charge
Foreclosure in respect of land
• 6 years from the date on which the breach of contract occurred unless the contract is a deed where the period is 12 years from the date of the breach.
• 6 years from the date on which the claimant discovers the fraud. • 6 years from the date on which the judgment became enforceable.
• 12 years after the mortgagee entered into possession of the land; or
• 12 years after the mortgagee receives any sum in respect of principal or interest or the mortgagee acknowledges the mortgagor’s title or equity of redemption.
• 12 years from the date on which the right to receive the money accrued. • 12 years from the date on which the right of action accrued to the mortgagee; or
• 12 years from the date on which the person in possession of the land acknowledged the mortgagee’s title; or
• 12 years from the date on which the person responsible for the mortgage debt makes any payment of principal interest.
Action to recover arrears of interest payable in respect of any monies secured by mortgage or other charge
Action by mortgagor against mortgagee for recover of overpayment on account of mortgage interest
Credit balance in favour of the customer Contracts of loan Overdraft
www.businessmag.co.uk • 6 years from the date on which the arrears become due. • 6 years from the date of payment.
• 6 years from the date on which demand for repayment is made by the customer. • 6 years from the date on which demand for payment is made. • 6 years from the date on which demand was made.
THE BUSINESS MAGAZINE – THAMES VALLEY – DECEMBER 11/JANUARY 12
minority (ie the claimant was under 18) or by mental incapacity so that the claimant is incapable of conducting legal proceedings;
• Acknowledgment of the claim; • Part payment;
• In the case of fraud, deliberate concealment of any fact relevant to the claimant’s right of action; or
• Mistake.
In conclusion, whilst lenders may be reluctant to attract negative press coverage for claiming monies owed from borrowers, they may also be criticised by the courts for not prosecuting claims expeditiously. Whilst the media may be entitled to have its say, the court will not consider the threat of negative press coverage to be a good enough reason for delaying court proceedings. Finally, if the lender does consider it necessary to delay a claim, the grounds on which further time is given to the borrower must be set out very clearly to the borrower.
Details: Katie James
kjames@boyesturner.com 0118-9527150
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