Limitation: when does time start running under a Consumer Credit Act 1974 regulated agreement?

• United Kingdom

• Financial services disputes and investigations
• Litigation and dispute management

20-03-2019

Doyle v PRA Group (UK) Ltd [2019] EWCA Civ 12

Summary:

An action to recover a debt cannot be brought after six years from the date on which ‘the cause of action accrues’ (s5 Limitation Act 1980).  In the case of a debt which arises under a regulated consumer credit agreement (that is, a credit agreement regulated by the Consumer Credit Act 1974 (‘the Act’)), a notice must be first served on the debtor (‘Default Notice’) before the recovery action can commence (s87(1) of the Act).  The Default Notice specifies a time period (usually 14 days) for the debtor to remedy the default, failing which the creditor will be entitled to take action to recover the debt.

This decision considered the date when ‘the cause of action accrues’ and when the six year time period starts to run in the case of a regulated consumer credit agreement, i.e. was it (a) when the debtor defaulted with repayments under the credit agreement; or (b) later, once the creditor had served a Default Notice and the debtor had failed to remedy the default within the time period specified in the Default Notice.  The Court of Appeal held that the correct answer was (b), that the cause of action did not accrue until the debtor had failed to remedy the default within the time period specified in the Default Notice.

Background:

Mr D entered into a running account credit card agreement in 1997 with a bank (subsequently assigned to the PRA Group (UK) Limited (‘the PRA Group’) which had no fixed or minimum duration.  It provided for minimum monthly payments and also for the whole balance to be repaid in certain circumstances (including if payments were not made when due) subject to any notices being served or steps taken as required by law.

Mr D fell into arrears and was served with a Default Notice requiring the arrears to be repaid by 21 December 2009 and specifying that otherwise the account would be closed, the agreement terminated and proceedings taken to recover the full balance due.

In October 2015, (within 6 years of 21 December 2009 - the date for repayment specified in the Default Notice), the PRA Group issued proceedings against Mr D for the full sums outstanding under the agreement. Mr D served a defence in February 2016 including an allegation that the claim was out of time because it had been brought more than 6 years from the date of the last payment which was made in April 2009. This was tried as a preliminary issue.

DDJ Medlicott found for Mr D on the basis that the cause of action arose at the time of the breach of the agreement (that is on default) and that the service and expiry of a Default Notice was merely a procedural step before proceedings could be issued. On appeal,  HHJ Madge allowed the PRA Group ’s appeal and Mr D appealed to the Court of Appeal.

The Court of Appeal’s Decision:

The Court found in favour of the PRA Group as a matter of contractual and statutory interpretation.    The wording in the agreement and the provisions of S87(1) of the Act meant that without service of a Default Notice and the expiry of the period for remedying the default stated in the Default Notice, Mr D would have had a complete defence to the claim.

The Court’s reasoning was that the wording in S87(1) of the Act not only provides that a Default Notice is necessary before commencement of proceedings but until the expiry of the period to remedy the default specified in the Default Notice, there is no right to treat the agreement as terminated or demand payment of the outstanding sums.  Furthermore, this was not merely a procedural step, as it qualifies the substantive rights of the creditor and, this interpretation is supported by the wording of s89 of the Act which specifies that if the debtor takes action to remedy the breach specified in the Default Notice that the breach shall be treated as not having occurred, which reverses the legal rights and obligations of both parties.

The Court also rejected finding in favour of Mr D for policy reasons.  As to the argument that the debtor would be exposed to a long-delayed claim (because the Default Notice could be served at any time), the Court said it was no different from the case of a loan repayable on demand.  The Court also said that as well as any detriment arising from this uncertainty, the debtor would on the flip side have the benefit of extended credit over and above their entitlement in the agreement. 

The Court also rejected the argument that delay may benefit the creditor particularly where information available to the debtor to challenge a creditor may get lost or destroyed because it was still necessary for a claimant to adduce sufficient evidence to prove the case to a civil standard of proof.

Furthermore the Court held that it was not necessary or appropriate to consider for the purposes of the preliminary issue,  the Court’s powers under s140A & s140B of the Act to remedy any abusive conduct by a creditor in artificially extending the limitation period by delay in serving a notice.

Comment:

This decision has clarified the accrual of the cause of action for limitation purposes for unsecured regulated consumer credit agreements.  It should be noted that secured loans which were regulated consumer credit agreements when originated will now be consumer credit back book mortgage contracts such that default notices will no longer be applicable to these agreements.

Whilst on the face of it, the decision may appear to give lenders carte blanche to delay serving a notice,  it should be noted that the Court does has very wide powers under s140A & s140B  of the Act to remedy any unfairness to a debtor, if a delay is found to result in unfairness.