The limitation period in Consumer Credit Act cases started to run after the expiry of the default notice served on the borrower.
Summary
The Court of Appeal set the precedent for when the limitation period should start running in Consumer Credit Act cases. It decided that in relation to claims for debts due under a credit card agreement, the limitation period starts to run after the expiry of the time specified in a default notice served on the borrower pursuant to section 87 of the Consumer Credit Act 1974 (CCA).
Background
Doyle (D) entered into a CCA regulated credit card agreement in 1997 with MBNA Europe Bank Ltd (MBNA). They encountered payment difficulties and MBNA served on them a default notice under section 87(1) of the CCA. In order to remedy the breach in the agreement, D had to pay the sum of £4,296.34 by 21 December 2009. The total balance owing was £26,570.20. D was informed that failure to pay the £4,296.34 by the given date could result in the agreement being terminated and the total balance becoming due.
PRA Group (UK) Ltd (PRA) who were later assigned the debt served a claim for all sums outstanding on 31 October 2015.
D defended the claim on the basis that the issue of a default notice was procedural as per the terms and conditions of the agreement and that the claim was statute barred since the last payment was made around April 2009. D relied on section 5 of the Limitation Act 1980 (LA 1980) which states that ‘An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued’.
The County Court agreed with D. PRA appealed.
The court's decision
The Court of Appeal was asked to decide the preliminary issue of whether the cause of action for PRA’s claim accrued when D first defaulted in their payments or only when they failed to comply with the default notice.
The classic definition of cause of action was given by Lord Esher MR in Read v Brown (1888) 22 QBD 128 as “every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgement of the Court”.
That definition was approved and followed by the Court of Appeal in Coburn v Colledge (1897) 1 QB 702. Its substance was summarised by Lord Guest in Central Electricity Board v Halifax Corporation (1963) AC 785 at para 806:
“The date when a cause of action accrues may be said to be the date on which the plaintiff would be able to issue a statement of claim capable of stating every existing fact which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to judgment.”
The court dismissed D’s argument and found that service of a default notice was more than just a procedural requirement for recovery; it was necessary in order to find the cause of action and also to be able to take court action. Absence of a valid default notice gave the debtor a complete defence. Section 87 of the CCA provided that without a default notice there was no right to demand accelerated payment of the balance.
D argued that using default notices pursuant to section 87(1) to recover old stale debts would allow lenders to artificially extend the six year limitation period sidestepping the protections given by the LA 1980. The court did not consider the relevant policy arguments to be carrying any material weight. The court acknowledged that the County Court's interpretation of section 87(1) means the debtor is potentially exposed to a long-delayed claim for sums outstanding under the credit agreement; however, that it is no different from the case of a loan repayable on demand.
In such a case, the creditor’s cause of action only arises if and when the creditor makes a demand. That is implicitly recognised in section 6 of the LA 1980. The court in this regard also agreed with the original judge that sections 140A and 140B of the CCA enable the court to remedy any abusive conduct by the creditor in artificially extending the limitation period by delaying service of the default notice. Accordingly, it stated that it is not necessary artificially to interpret section 87(1) and to analyse its impact on the rights of the parties under the agreement to avoid the possibility of excessive delay and consequences for the debtor of such excessive delay.
The court noted that section 87(1) was rather intended to confer a benefit on the debtor under an agreement regulated by the CCA. It undoubtedly does so since it provides a debtor in default with the opportunity to remedy and expunge for all time that default.
Comments
For advisers, when considering defending a claim on the basis of the limitation argument, this case now adds clarity that the limitation period starts to run when the default notice expires. When the client receives the Pre-Action Protocol for Debt claims (PAP) pack, it can be queried and the claimant should confirm in the ‘Particulars of Claim’ when a default notice was served, eliminating the possibility of a statute barred argument.
Furthermore, this also means more work could be generated where a creditor has unnecessarily delayed in serving a default notice and a claim is defended on the grounds of an unfair relationship as per sections 140A and 140B CCA. Unless this can be dealt with at the PAP stage, the client risks incurring costs if unsuccessful in defending the claim or making a set aside application.