Where potential legal claims arise between parties, one of the critical barriers to raising a claim is the application of statutory or contractual limitation periods, which bar any claims made after the expiry date. Depending on the cause of action of the claim, different statutory limits will prevent a claim being brought upon their expiry.
Where time is short for bringing a claim, difficulty can follow due to pre-action Practice Direction protocols, which mandate that parties first exhaust Alternative Dispute Resolution (ADR) methods, before starting court proceedings. The most common ADR proceedings are mediation and arbitration.
What statutory limitations exist for claims?
In England & Wales, the Limitation Act 1980 (as amended) prescribes time limits within which proceedings must be brought, which depend on the subject matter of the claim.
- Tort claims (asides from personal injury) must be brought within six years from the date upon which the cause of action arose, principally when the damage occurs.
- Contractual claims must be brought within six years from the date of the alleged breach.
- Fraud claims must be brought within six years; however, the time limit will toll to begin from the point where the claimant discovered the fraud, or with reasonable diligence could have.
- Claims regarding formal deeds must be brought within 12 years of the alleged defect. A formal deed does not refer solely to land transactions, rather, it denotes one with higher degrees of complexity, such as one signed by directors acting on behalf of a company.
Parties can agree via contract to shorter limitation periods for claims to be brought than those prescribed by law. In construction contracts, for example, it is common to include a “defects liability period” of around 1 to 2 years post completion of projects. Shorter limitation periods agreed by contract are subject to a test for reasonableness, which can be challenged in court, but there must be a considerable imbalance of bargaining power between the contracting parties.
Are there any exceptions to the statutory limits?
There exist exceptions for tort claims, for example where the underlying factual basis of the tort claim is unknown until a later date. In such circumstances, a time limit of three years applies from the point the underlying facts become known to the claimant. However, this is in turn subject to an overarching 15-year limitation on claims from the date the cause of action originally arose.
In contract claims, exceptions include where a party to a contract deliberately conceals a fact relevant to a potential right of action of the other party. The party in breach must have been aware of the breach of contractual provision or duty.
Where the contractual relationship is between a corporate debtor in insolvency and a creditor, the statutory limitation will cease from the point that the winding up of the company is ordered, or from the point of the company enters voluntary liquidation.
Where the claimant seeks a remedy, such as an injunction, the doctrine of laches applies. The defence of laches provides that if a claimant has left an unreasonable delay in bringing a claim, so that the claim is almost time-barred, the claimant will be denied relief.
How can contractual and statutory limitations on claims be bypassed to allow for ADR?
If a statutory or contractual limitation period is soon approaching and the parties are in the middle of ADR proceedings, there are two routes a potential claimant can make.
- With statutory limitations, the parties can reach an agreement that the defendant waives the right to raise an expired statute of limitations as a defence, and continue with ADR proceedings.
- With regards contractual limitations, if the parties have agreed to a shorter limitation period, they can subsequently agree to extend the period pending the outcome of the ADR proceedings.
The Practice Direction on Protocols provide that ADR should be exhausted prior to bringing court proceedings, or parties may face sanctions such as adverse cost orders. However, if the defendant does not agree to waive or extend statutory or contractual limitations and the claimant is forced to commence court proceedings to preserve their claim, the Practice Direction identifies this as a special circumstance and does not impose penalties. A court may then order a stay of proceedings until ADR is exhausted in compliance with the Protocols.
Is the position different for ADR in cross-border transactions?
For cross-border transactions, the EU Mediation Directive may apply. If a dispute arose on or after 20 May 2011, statutory limitations are ignored and instead the parties have eight weeks after conclusion of mediation to bring a claim in court.
Are there time limits for the enforceability of court judgments?
Where a judgement is awarded in favour of a party, for example a judgement in favour of a creditor against a debtor, the Limitation Act imposes a six-year limitation on the right to bring an action on a judgement.
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It is vital that a party bringing a claim has a full grasp of any statutory or contractual limitations on their claims, which vary depending on the nature of the action.
Lewis Nedas Law holds over 35 years of corporate litigation experience with both domestic and international clients in a broad range of matters, including ADR mechanisms as a means of reaching out-of-court settlement. For expert advice from our Dispute Resolution Solicitors, please call us on 020 7387 2032 or complete our online enquiry form.