Updates and background for this project (Digest)
Reforms in the United Kingdom
3.1 In the United Kingdom the law has been reformed to overcome the injustice caused in cases of loans between family members and friends. The first of these reforms, contained in the Prescription and Limitation (Scotland) Act 1973 (Scot), was recommended by the Scottish Law Commission in 1970.20 This was followed in England and Wales by reforms now contained in the Limitation Act 1980 (Eng)21 which were recommended by the Law Reform Committee in 1977.22
3.2 The English provisions create an exception to the general six year limitation period on causes of action accruing under simple contracts established by s5 of the Limitation Act 1980 (Eng):
6 Special time limit for actions in respect of certain loans
(1) Subject to subsection (3) below, section 5 of this Act shall not bar the right of action on a contract of loan to which this section applies.
(2) This section applies to any contract of loan which
(a) does not provide for repayment of the debt on or before a fixed or determinable date; and
(b) does not effectively (whether or not it purports to do so) make the obligation to repay the debt conditional on a demand for repayment made by or on behalf of the creditor or on any other matter;
except where in connection with taking the loan the debtor enters into any collateral obligation to pay the amount of the debt or any part of it (as, for example, by delivering a promissory note as security for the debt) on terms which would exclude the application of this section to the contract of loan if they applied directly to repayment of the debt.
(3) Where a demand in writing for repayment of the debt under a contract of loan to which this section applies is made by or on behalf of the creditor (or, where there are joint creditors, by or on behalf of any one of them) section 5 of this Act shall thereupon apply as if the cause of action to recover the debt had accrued on the date on which the demand was made.
(4) In this section “promissory note” has the same meaning as in the Bills of Exchange Act 1882.
3.3 The Law Commission of England and Wales has recently reviewed the law relating to the limitation of actions. The Law Commission favoured a “core regime” based on the general principle that the period of limitation does not begin to run until the plaintiff is or, in the circumstances, ought reasonably to be aware of the fact that he or she has suffered an injury (a “date of knowledge” or “discovery-based” regime).23 This core regime would replace the current limitation law that focuses generally on the date of the accrual of the cause of action. However, in respect of loans payable on demand, the Law Commission stated that it did not wish to undermine the policy behind the current English provisions. The Law Commission recommended that, in such cases, the cause of action “should not accrue until a written demand for repayment has been made”.24 This recommendation appears to go further than s 6 of the Limitation Act 1980 (Eng) since it directly affects the accrual of the cause of action, as opposed to the time at which the limitation period begins to run.
Proposals in other jurisdictions
3.4 The Queensland Law Reform Commission in its review of the law of limitations in 1998 recommended that, in claims for repayment of a debt payable on demand, the limitation period should commence “when a default in performance has occurred after a demand for performance has been made”.25 This followed the recommendation of the Law Reform Commission of Western Australia (adopting an Alberta provision)26 that “a claim based on a demand obligation” should arise “when a default in performance occurs after a demand for performance is made”.27 All of these recommendations were made in the context of proposed “discovery-based” regimes.
FOOTNOTES
20. Scottish Law Commission, Reform of the Law Relating to Prescription and Limitation of Actions (Report 15, 1970) at para 79. See also Scottish Law Commission, Prescription and Limitation of Actions (Memorandum No 9, 1969) at para 57.
21. Originally inserted as Limitation Act 1939 (Eng) s 2AA by Limitation Amendment Act 1980 (Eng) s 1.
22. England and Wales, Law Reform Committee, Final Report on Limitation of Actions (21st Report, Cmnd 6923, 1977) at para 3.19-3.26.
23. England and Wales, Law Commission, Limitation of Actions (Report 270, 2001) especially at para 3.7.
24. England and Wales, Law Commission, Limitation of Actions (Report 270, 2001) at para 4.4-4.6.
25. Queensland Law Reform Commission, Review of the Limitation of Actions Act 1974 (Qld) (Report 53, 1998) at 208.
26. Limitations Act 1996 (Alta) s 3(3)(c). Recommended by Alberta Law Reform Institute, Limitations (Report 55, 1989) at 71-72.
27. Law Reform Commission of Western Australia, Report on Limitation and Notice of Actions (Project No 36 Part 2, 1997) at 177.
