All lawyers know that any claim must be issued before the limitation period expires. Calculating limitation periods isn’t always straightforward and calculating them correctly can be a nerve-racking time for disputes lawyers pursuing a claim. If a claim is issued after the expiry of the limitation period, the claim will be time-barred and the defendant has a complete defence to the claim; the claimant may be left with nothing except a negligence claim against their lawyer. A couple of recent cases are a reminder of the limitation rules, and a particularly useful one if you’ve received a partial payment on a debt.
Limitation periods – service providers
A service provider looking to claim for unpaid fees would usually bring a breach of contract claim. As with other breach of contract claims, the default limitation period is six years from the date on which the cause of action accrues (i.e. when the service provider became entitled to payment, did not receive it and the breach of contract took place). This comes from the Limitation Act 1980; however, parties are generally free to amend the limitation period by expressly providing for it in their contract.
When does the right to be paid arise?
The Court of Appeal has recently given some guidance of interest to service providers claiming for unpaid invoices in the case of Consulting Concepts International Inc v Consumer Protection Association (Saudi Arabia).
The claimant, a consultancy business, agreed to provide services to the defendant and to submit invoices which were to be "paid within 90 days if funds of stakeholders are available ... to a bank account designated by [the claimant]". They did the work and issued three invoices in 2013, the last of which was dated 17 December 2013. The invoices were expressed to be “due immediately”; however, none were paid.
The claimant sued for payment, initially overseas, before issuing a claim in England and Wales on 27 December 2019. The defendant argued that the cause of action accrued when the work was completed, i.e. more than six years previously, the limitation period had expired, so the claim was time-barred and should be struck out. The claimant argued that the cause of action only accrued once an invoice had been issued and 90 days had elapsed. This would mean the limitation period had not expired.
The defendant was successful, both at first instance and in the Court of Appeal, and the claim was struck out. Importantly for service providers, the court found that where a service is provided, the starting point is that the service provider is entitled to payment as soon as the work is completed unless the contract contains a term that says otherwise. Such a term would have to mean that the service provider's right to be paid arose at some later time, or on the fulfilment of a condition such as certification by a third party.
A distinction was drawn between terms which were conditions that needed to be met before the right to payment arose and those which required certain conditions to be met before the service provider could bring a claim for unpaid fees. For example, a contract that provides for an invoice to be sent before payment is made or for payment on a particular date will not have the effect of delaying when the right to be paid arises. In the Consulting Concepts case, the parties had agreed all invoices would be paid within 90 days, not that payment would not fall due until the 90th day. The Claimant had essentially agreed to give the defendant longer to pay, rather than delay the right to payment.
The Court of Appeal’s view was that the claimant’s argument created an uncommercial interpretation. If the cause of action only accrued on the deadline for payment, they could indefinitely postpone the limitation period by not submitting an invoice.
It is evidently crucial that a service provider is aware of exactly when it became entitled to payment. As the claimant discovered, failure to do so may mean that the service provider is left empty handed, in this case they were reportedly short of some £50m.
Renewal of the limitation period
However, all is not lost for service providers who have been too slow to act. Under certain circumstances, it is possible that a claim for unpaid invoices may not be time-barred even though six years (or other period as agreed in the contract) has passed since the services were performed. The limitation period may have started to run again where the defendant has made some acknowledgement or part payment in respect of the fees owed, pursuant to Sections 29 to 31 Limitation Act 1980.
Section 29(5) provides that, where a right of action has accrued to recover a debt or other specified sum of money, the limitation period begins to run from the date on which the debtor "acknowledges the claim or makes any payment in respect of it". The practical effect of this is, in circumstances where:
- a party is owed a specified sum of money
- the debtor makes a partial payment towards it and/or acknowledges that this sum is due in writing which is
- signed by the debtor or their agent
- made to the creditor
the limitation period may begin to run again from the date of the acknowledgement or part payment.
However, any acknowledgement or part payment of a debt will not rescue a claim if it occurs after the expiry of the original limitation period; any subsequent acknowledgement or part-payment does not extend the limitation period if the period has already expired (s29(7) LA).
Comment
The Consulting Concepts case highlights the need for service providers, and creditors in general and those advising them, to be aware of the point at which they became entitled to payment, and as a result when the limitation period began to run. The starting point is that the service provider will need to bring a claim within six years (or other period as agreed in the contract) of the services being completed; clear words within the contract will be required to displace this position. Failing to bring a claim for unpaid fees within this period may leave the service provider with nothing, unless they can show that the limitation period began to run again because of an acknowledgement or part payment of the debt.
Catherine Penny