The Court of Appeal recently handed down judgment in Doyle v PRA Group (UK) Ltd , which dealt with the question of when limitation commences for claims under agreements regulated by the Consumer Credit Act 1974 (the CCA). Martin Ward, principal associate – financial services disputes and investigations at Eversheds Sutherland, writes.
Historically, it has been held that a cause of action accrues from the earliest time at which a claimant can bring an action.
In Reeves v Butcher , Reeves lent money to Butcher, and Butcher agreed to pay interest quarterly. The agreement provided that if Butcher defaulted on interest payments for 21 days, Reeves could demand the principal.
Butcher failed to pay any interest. Reeves issued a claim and Butcher argued that the claim was time barred. The Court held that time began 21 days after the first instalment of interest became due, and the claim was time barred.
Limitation arising on expiry of a default notice
A creditor who seeks to terminate an agreement or recover possession of goods by reason of any breach of a regulated agreement must follow the requirements under s87 of the CCA by serving a default notice.
A default notice must specify the nature of the breach and if it is capable of remedy, the date the action is to be taken to remedy it, or if it is not capable of remedy, the amount and date compensation is to be paid. A creditor shall not terminate an agreement before the date specified has elapsed.
In Doyle v PRA Group, Doyle entered into a credit agreement with MBNA Ltd in 1997. Clause 8f of the credit agreement required payment of the entire balance upon breach. In April 2009, Doyle defaulted, and in December 2009, MBNA sent him a default notice, which required payment by 21 December 2009. Doyle failed to make payment.
Subsequently, the debt was sold to PRA Group.
On 31 October 2015, PRA Group issued proceedings. Doyle argued that the claim was time barred, arguing that the cause of action accrued when he first defaulted in April 2009. The first instance court agreed, and PRA Group appealed.
In the High Court, the decision was overturned. It was held that the effect of s87 was that the cause of action did not arise until after the expiry of the time specified in the default notice (i.e. 21 December 2009).
The Court of Appeal agreed, stating that clause 8(f) of the agreement stated that PRA Group had the right to recover any outstanding sums “subject to…sending [Mr Doyle] any notice required or taking any step required by law”. The Court stated that the time began to run from the date on which the default notice expired, and not from the date of Doyle’s breach.
Hire purchase context
The Court dealt with a similar issue for termination sums arising out of an unregulated hire purchase agreement in BMW Financial Services (GB) Ltd v Hart .
BMWFS entered into a hire purchase agreement with Hart. In July 1999, Hart failed to pay a monthly instalment. On 26 August 1999, BMWFS terminated the agreement and demanded payment of the unpaid balance. BMWFS issued a claim on 26 August 2005. By following Reeves, the judge held that time started when Hart did not pay the instalment (July 1999).
However, the Court of Appeal stated that the distinction with Reeves was that BMWFS had no right to make a claim for the unpaid balance at the date of the missed instalment as the sums only became due once BMWFS gave notice of termination. Hart’s failure to pay the instalment did not, on its own, cause the whole amount to become due.
Although the decision in Doyle was partly based on the contract terms, the Court stated that its decision was based on its interpretation of s87.
This case is significant for the debt-recovery industry, as it provides clarity that although a default notice is a procedural step and a statutory requirement, it qualifies the legal rights of a creditor and forms part of the cause of action, as without a valid default notice, the creditor would have no claim at all.
by Martin Ward