One question we are regularly asked is “how long is too long to claim payment on an outstanding invoice?” You may have recently noticed an old, unpaid invoice that has been missed by your accounting system or let a large fee go unpaid during good times and now need the money to shore up your cash flow. Regardless of the reason, whether or not you can still chase a Debtor for an outstanding invoice in England and Wales is set out in the Limitation Act (LA) 1980.
In a nutshell, under the LA 1980, you have six years to claim an unpaid debt if the Debtor does not acknowledge the debt (for example by making part payments). If you fail to issue proceedings within 6 years of the due date, the debtor can claim the debt is statute barred.
When does time begin to run?
The cause of action (when the limitation period starts running) for simple contract debts is usually when the original terms and conditions of the agreement state that you, as the Creditor, can take court action or alternatively, when two or three payments have been missed.
Before you begin court action against an individual or a sole trader you must comply with the Pre-Action Protocol for Debt Claims.
In an action for payment for works or services, the cause of action arises on completion of the work.
Why is time extended for acknowledgement or part payment?
Section 29(5) of the LA 1980 provides that, where a right of action has accrued to recover a debt or other liquidated pecuniary claim, time starts running for limitation purposes from the date on which the Debtor “acknowledges the claim or makes any payment in respect of it“. Effectively, acknowledgement or part payment acts like a resetting of the clock, and the six-year time limit starts again.
In Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565, Justice Kerr stated that the test to be applied with regards to acknowledgement is “…the Debtor must acknowledge his indebtedness and legal liability to pay the claim in question…”.
Under section 30 of the LA 1980, an acknowledgement must be in writing and signed by the person making it.
Does the Court have any discretion to extend the six-year time limit?
Unfortunately, the LA 1980 provides no discretion for the Court to extend the six-year time limit. However, if the Debtor has committed fraud or concealed wrongdoing, the six-year limitation period will not begin to run until after you have uncovered the misconduct.
