Agreement’s wording meant default alone didn’t start the clock under the Limitations Act say David Farnell and Dan Saunders

The Limitation Act 1980 limits the time in which a lessor may bring a claim to court. Generally, the lessor must ensure the court issues the claim within six years of the cause of action accruing, failing which the claim is statute-barred and the defendant has a defence.

Go deeper with GlobalData

Data Insights

The gold standard of business intelligence.

Find out more

Access deeper industry intelligence

Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.

Find out more

For example, under an unregulated hire purchase agreement providing for payment of the full balance on termination, the lessor’s cause of action accrues on that date. In every case the limitation period starts running a day after the cause of action has accrued.

BMW Financial Services UK entered into a hire purchase agreement which was not regulated by the Consumer Credit Act 1974 (CCA). In July and August 1999, Mr Hart missed two payments (it was an essential condition of the agreement that he made payments punctually). By letter dated 26 August 1999, BMW FS accepted his repudiation and terminated the agreement. Mr Hart then left the UK without settling the balance.

On 26 August 2005, BMW FS sued Mr Hart and obtained a default judgment. Returning to the UK in 2011, Mr Hart learned of the judgment and applied successfully to set it aside. Following Reeves v Butcher [1891] 2 Q.B. 509, Judge Halbert found that the limitation period had started when Mr Hart failed to pay the July 1999 instalment, therefore rendering the claim statute-barred.

The Court of Appeal found that Judge Halbert had misinterpreted the agreement. Unlike Reeves (where the agreement provided for termination 21 days after default), it found the agreement’s terms required BMW FS to accept Mr Hart’s repudiatory breach and serve a termination notice before being entitled to payment of the agreement balance. Mr Hart’s default alone did not oblige him to pay that balance.

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

The Court of Appeal’s decision confirms that lessors pursuing typical hire purchase shortfall claims have six years from the
date of termination in which to sue their
customers.

To avoid claims being statute-barred, it is worth remembering the following points:

  • The type of agreement and claim, not to mention the wording of the terms and conditions, can affect when the time starts to run for limitation purposes;
  • In Hart the agreement was not regulated by the CCA, but had it been regulated the court would also have had to consider whether BMW FS had terminated the agreement properly;
  • With a hire purchase agreement (where you may need to terminate in order to recover your asset and, if the agreement is regulated, you might risk exposing yourself to a debtor termination under the Half Rule) it is invariably desirable to terminate promptly;
  • Each case must, of course, be considered on its merits, but always make sure that your systems enable reviews to take place quickly so that limitation issues are avoided if at all possible;
  • If in doubt, seek advice because if one claim is statute-barred, an alternative claim may be available to you.

 

David Farnell is a managing associate specialising in asset finance disputes. Dan Saunders is a paralegal, both at Addleshaw Goddard