On 23 January 2019 the Court of Appeal decided that in relation to claims for debts due under a credit card agreement the limitation period starts to run after the time specified in a 'default notice' served on the borrower pursuant to section 87 of the Consumer Credit Act 1974.
This was an appeal in relation to a preliminary issue as to whether the claim of the respondent, PRA Group (UK) Limited (“PRA”), against the appellant, Christopher Doyle, for all sums outstanding under a credit card agreement between MBNA Europe Bank Limited (“MBNA”) and Mr Doyle (“the Agreement”), is barred by section 5 of the Limitation Act 1980 (“LA 1980”). Below is a helpful case summary for anyone interested in limitation on Consumer Credit Act 1974 ("CCA") debts.
PRA is an assignee of MBNA’s credit card debts. Mr Doyle owed nearly £4300 on his credit card which he took out in 1997 under a running account credit card agreement. MBNA served on Mr Doyle a default notice under the CCA section 87(1). The default notice stated that Mr Doyle was in breach of the Agreement because he was seriously in arrears and that, in order to remedy the breach, a payment of £4,296.34 had to be paid by 21 December 2009. It also stated that the account balance was £26,570.20. The default notice further stated that, if Mr Doyle failed to make that payment before 21 December 2009, further action might be taken against him, namely that his account would be closed, the agreement would be terminated and court proceedings might be taken to recover the whole amount owed by him. No payment was made and county court proceedings were brought to recover the debt by PRA on 31 October 2015.
Section 5 of LA 1980 provides that ‘An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.’ Proceedings in this case were brought within 5 years and 10 months since the date specified in the default notice, namely 21 December 2009 . Mr Doyle submitted that the claim is barred by expiry of the limitation period since the last payment was in about April 2009 but the proceedings were not issued until October 2015. The preliminary issue therefore turns on whether the 'cause of action' for the outstanding sums accrued when Mr Doyle first defaulted in his payments or only when Mr Doyle failed to comply with the default notice stipulated by CCA section 87(1) and required by clause 8f of the Agreement. Mr Doyle denied in his Defence that the default notice had any relevance to the commencement and expiry of the limitation period.
At first instance, a deputy district judge ruled in Mr Doyle’s favour, however his Honour Judge Madge, sitting in the County Court at Central London, allowed the PRA’s appeal. The permission for a second appeal was granted in this case as it raised an important point of principle or practice.
Court of Appeal Decision
The court dismissed Mr Doyle’s appeal in agreement with his Honour Judge Madge’s ruling that: the effect of section 87 is that the cause of action arises after the time specified in the default notice; a creditor cannot take any action until that time has expired and a cause of action cannot accrue until such a notice has been served.
The court noted that clause 8f of the Agreement provided for payment of the whole outstanding balance on the account in certain circumstances. It stated as follows: “8f Subject to us sending you any notice required or taking any steps required by law, you, or your legal representatives, must immediately pay your whole balance (including all interest and charges and fees due)…" (emphasis added). The court also cited section 87(1) of CCA, which states as follows: " “87.— Need for default notice. (1) Service of a notice on the debtor or hirer in accordance with section 88 (a “default notice”) is necessary before the creditor or owner can become entitled, by reason of any breach by the debtor or hirer of a regulated agreement,— ( a) to terminate the agreement, or (b) to demand earlier payment of any sum…." (emphasis added).
The court cited the definition “cause of action” as summarised in the following way by Lord Guest in Central Electricity Board v Halifax Corporation  AC 785 at 806: “The date when a cause of action accrues may be said to be the date on which the plaintiff would be able to issue a statement of claim capable of stating every existing fact which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to judgment.”
The court stated that the effect of the introductory wording of clause 8f of the Agreement (“Subject to us sending you any notice required or taking any steps required by law”) and, more particularly, CCA section 87(1) is that, absent service and expiry of a default notice there would have been both a complete defence to a claim for all outstanding sums under the Agreement and an unanswerable right to strike out the claim. In its view section 87(1) does not provide merely that a default notice is necessary before the commencement of proceedings to recover everything outstanding under the regulated agreement. It provides that there is no right to treat the agreement as at an end or to make a demand for accelerated payment of outstanding amounts. That is not a “procedural” precondition. It qualifies the substantive legal rights of the creditor. The court added that the contractual precondition in clause 8f of the Agreement (“Subject to us sending any notice required … by law) must have the same meaning and legal effect.
It was argued in favour of Mr Doyle that using default notices pursuant to section 87(1) to recover stale debts would allow lenders to artificially extend the 6 year limitation period bypassing the protections given by the LA 1980. The court did not consider the relevant policy arguments to be carrying any material weight. The court acknowledged that on Judge Madge’s interpretation of section 87(1) and clause 8f of the Agreement, the debtor is potentially exposed to a long-delayed claim for sums outstanding under the credit agreement; however it emphasised that it is no different from the case of a loan repayable on demand. In such a case, the creditor’s cause of action only arises if and when the creditor makes a demand. That is implicitly recognised in LA 1980 section 6. The court in this regard also agreed with his Honour Judge Madge that CCA sections 140A and 140B enable the court to remedy any abusive conduct by the creditor in artificially extending the limitation period by delaying service of the default notice. Accordingly, it stated that it is not necessary artificially to interpret section 87(1) and to analyse its impact on the rights of the parties under the Agreement to avoid the possibility of excessive delay and consequences for the debtor of such excessive delay. The court noted that CCA section 87(1) was rather intended to confer a benefit on the debtor under an agreement regulated by the CCA. It undoubtedly does so since it provides a debtor in default with the opportunity to remedy and expunge for all time that default.