Private Members Bill seeks to reduce limitation period in contract claims

Wednesday, 15 March 2017

Section 11 of the Statute of Limitations Act 1957, as amended (the “Act”), sets out the time periods within which actions in tort, contract, and certain other claims must be made before they become statute barred.  

The limitation period on claims in contract (for example most claims by lending institutions, or indeed third parties who have acquired the rights of those lending institutions, against debtors) is 6 years from the date of accrual of a cause of action. 

Any judgment obtained is capable of enforcement for a period of 12 years from the date of such judgment. While not automatically fatal to a claim taken after that period, the expiration of the limitation period entitles a defendant to plead the statute as a total defence to a claim. 

The Statute of Limitations (Amendment) Bill 2017 (the “Bill”), a private members bill, was passed through First Stage without objection in a Dáil debate on 8 March 2017. The preamble to the Bill makes clear the intent of same is to curtail the time periods within which creditors may pursue judgment against defaulting creditors and to enforce any such judgments. 

The key changes to the existing legislation as proposed by the Bill are as follows:

• That the limitation period for claims in contract be shortened from 6 to 2 years from the date on which the cause of action accrues. This mirrors a recommendation made in a 2011 Law Reform Commission Report which recommended that there should be a basic limitation period of 2 years for contract claims (for example, debt-related claims).
  
  The Bill proposes to insert wording that would arguably benefit third parties who have acquired loans from lending institutions in that it proposes that the date of “knowledge” of a creditor be used as the trigger for the commencement of the two year period (as an alternative to the accrual of a cause of action, which is typically the default of a loan facility in a debtor/creditor scenario)¹. 


• Reducing the limitation period from 6 to 2 years in relation to actions upon an instrument under seal², and actions to enforce an arbitration award, where the arbitration agreement is under seal. 


• That the period for bringing an action upon a judgment³ be reduced from 12 to 2 years from the date on which the judgment becomes enforceable.


• That the period within which arrears of interest may be claimed in respect of any judgment debt be reduced from 6 to 2 years from the date on which the interest became due. 

The latter two proposed amendments, if carried, may have the effect of reducing the likelihood that creditors holding judgment against debtors will exercise forbearance in seeking to enforce such judgments, and would move to enforce same almost immediately after obtaining judgment in order to protect their position.

There is no proposed amendment to Section 36 of the Act which provides for a limitation period of 12 years for actions to recover debts secured by mortgages over land. 

The Bill now moves on to Second Stage. Much like the recently published Keeping People in their Homes Bill 2017 (our analysis of which can be read here), the debate surrounding this Bill will be closely monitored given the potentially far reaching consequences if it is enacted. 


For further information, contact John Fitzgerald from the ByrneWallace Restructuring & Insolvency team.


1 This is also in line with the Law Reform Commission Report on Limitation of Actions, published in December 2011.

2 Although Section 64 if the Land and Conveyancing Law Reform Act 2009 abolished the requirement that deeds be made under seal. 

3 It is arguable that bankruptcy proceedings do not comprise an “action brought upon a judgment” on the basis of the English Court of Appeal decision in Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] 2 All ER 304.