In the event of a dissatisfaction or alleged breach of a contractual obligation, a party may consider whether is able to bring an action under the contract. In doing so, that party (or indeed the party receiving a claim) may also consider whether the claim is time-barred. In other words, the action (for breach etc) must be commenced within the relevant period. It is for the defendant to plead the defence of limitation as the courts will not make the point against the claimant.

The law on limitation periods is set out in the Limitation Act 1980 (Limitation Act) which makes provisions in respect of different causes of action. For example, it provides for a period of:

·         Six years for actions in respect of simple contracts and of tort.

·         Twelve years in respect of breach of an obligation contained in a deed.

In both cases, the period begins to run from the date on which the cause of action accrued.

From 6 April 2011, in the event of cross- border mediation, if a limitation period expires whilst parties are mediating, those parties will not be prevented from starting court proceedings. In such situations, the limitation period will be deemed to have expired 8 weeks after the mediation concluded.

Another point to bear in mind is that a contractual term which imposes a shorter limitation period than provided under the Limitation Act may be subject to the reasonableness test under the Unfair Contract Terms Act 1977. For example, where parties are doing business on one of the parties written standard terms of business, the imposition of a nine-month limitation period for an action for breach of contract, will be subject to the reasonable test. However, the courts are less willing to intervene on the Unfair Contract Terms Act and the contractual limitations of liability; and in such circumstances the court may hold that commercial parties of equal bargaining strength should be bound by such a limitation period.

In a recent case, an employer appointed a contractor to carry out works at its property. The building contract included a bespoke clause providing that:

"No action or proceedings under or in respect of [the building contract] shall be brought against the Contractor after:

(a) the expiry of 1 year from the date of Practical Completion of the Services or;

(b) where such date does not occur, the expiry of 1 year from the date the Contractor last performed Services in relation to the Project."

Practical completion was never formally certified and the employer alleged that the works were defective.

The court found (on the facts) that the contractor had not waived its right to rely on the clause and that the employer's claim had commenced more than one year from the date the contractor last performed services under the building contract. While criticising aspects of the clause, the court struck out the employer's claim.

However, the court did not grant summary judgment on the contractor's counterclaim for payment under the building contract. For the purposes of that application, the court held that the clause did not prevent the employer alleging defective workmanship by way of set off against sums claimed by the contractor.

Although the clause referred to is bespoke, it is similar to the six year or 12 year limitation periods commonly included in, for example, collateral warranties provided by contractors and professional consultants. As such, while this is only a judgment on a strike out application, it may:

·         Provide some comfort to a contractor or professional consultant wishing to rely on such a contractual limitation period.

·         Remind a party wishing to restrict rights to set-off or counterclaim that they should use express drafting.

There is no general statutory time limit imposed by the Limitation Act on claims for specific performance or for an injunction or for other equitable relief. These remedies are expressly exempted from the time limits that apply in actions that are based on tort, on a simple contract or on a specialty. If beneficial interests are not affected, equitable remedies may generally be awarded after long periods of time.

There is, however, a long established principle that equity will adopt a time limit by analogy with any comparable statutory period, although there is little scope for this principle now that fixed periods have been imposed on many claims based on equitable titles and trusts.

All articles are for general purposes and guidance only and do not constitute legal or professional advice.

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