When issuing a claim for breach of contract, it is essential the claim form is issued within the relevant limitation period. For most contractual claims motor finance companies pursue, that period is six years from the date when the cause of action accrues. If the claim is commenced outside the limitation period, that is an absolute defence to the proceedings, regardless of how meritorious the claim otherwise is.
However, determining when the cause of action accrued, and so when that six-year period starts to run, is not always as straightforward as it may initially seem.
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In BMW Financial Services (GB) Ltd v Hart (2012), it took the Court of Appeal to determine when the clock started to run. Under the HP agreement entered into between the parties, Hart was obliged to make monthly instalments and a final balloon payment at the end of the agreement. BMW could only claim monies from Hart when a notice of termination had been served on him or when BMW had communicated acceptance of his repudiation of the agreement.
Hart failed to pay two instalments and on 26 August 1999, BMW sent him a letter accepting his repudiation of the agreement and giving notice of its termination. In accordance with the terms of the agreement, that letter was deemed served on 28 August 1999.
Nothing further occurred until BMW issued its claim on 26 August 2005. Default judgment was obtained against Hart who had moved abroad. Hart became aware of the judgment when he returned to the UK in 2011 and applied to have it set aside on the basis the claim had been issued outside the six-year limitation period.
At first instance, the court agreed with Hart. It held that the limitation period started to run from when Hart first missed an instalment payment, which was in July 1999.
BMW successfully appealed. The Court of Appeal held that, looking at the wording of this particular contract, BMW could only make a claim once a termination notice had been given, or it had communicated its acceptance of Hart’s repudiatory breach. It was only at that stage the sum under the agreement became due. Prior to that time, all that was due from Hart was the outstanding instalments. Limitation started to run when the notice was served on Hart on 28 August 1999 and the claim form had therefore been issued (just) within the limitation period.
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By GlobalDataThe failure to pay an instalment did not of itself accelerate the obligation to pay the whole amount outstanding.
Comment
Determining when a cause of action accrues in a specific hire purchase agreement will depend upon the wording of the agreement itself; sometimes immediately upon the failure to make an instalment payment or, as in the above case, only when notice of termination has been given.
Companies need to ensure they are aware of when the cause of action accrues under their HP agreements so that proceedings can be issued in time. The court will have no sympathy if the claim is issued late, even by just one day.
Greg Standing is a partner in Wragge & Co’s motor finance litigation team
