Russell Kelsall explains when claims under hire purchase agreements are time-barred.
On 10 October, the Court of Appeal handed down an extempore judgment in BMW Financial Services (GB) Limited v Hart (2012) on the issue: when does the limitation period for bringing a claim for the unpaid balance expire?
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BMW Financial Services (BMW FS) entered into a hire purchase agreement with Hart. It does not appear that the agreement was regulated by the Consumer Credit Act (CCA). In July and August 1999, Hart failed to pay two instalments. On 26 August 1999, BMW FS accepted Hart’s repudiation and terminated the agreement.
Hart left the UK without paying. BMW FS issued a claim on 26 August 2005. Default judgment was obtained. On his return, Hart successfully applied to have the judgment set-aside arguing the claim had been issued out of time.
Judge Halbert decided, following Reeves v Butcher (1891) 2 QB 509, the limitation period started when Hart did not pay the instalment in July 1999. The claim was time-barred.
BMW FS appealed to the Court of Appeal. After hearing submissions, the Court allowed the appeal and decided:
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By GlobalData– In Reeves, the agreement stated the monies would not be called in so long as the borrower regularly paid interest. If, however, the borrower missed a payment, the balance of the loan would become due 21 days after default.
– Under the terms of the agreement, BMW FS had no right to make a claim for the unpaid balance until it had terminated the agreement.
– It was only when BMW FS had terminated that the sums became due. Until then, the only sums Hart had to pay were the outstanding instalments.
– Hart’s failure to pay did not, on its own, accelerate the obligation to pay the whole amount due.
– The Court therefore distinguished the earlier decisions of Reeves and Hemp v Gardland 114 ER 994 (which Reeves
followed).
The decision is both pragmatic and commercially sound. The agreement stated the balance became due upon termination. If
the agreement had been regulated by the CCA, termination is subject to the lender serving (where appropriate) a notice under
the CCA. Notice under Section 87 or 76 is specifically required before a lender can become entitled to (amongst other things)
demand "earlier payment of any sum". Any other conclusion would have been contrary to the wording of the CCA. This envisages
that the balance does not become due (and cannot be demanded as being due) until after the expiry of the notice period.
Russell Kelsall is a senior associate at Squire Sanders LLP
