The High Court has considered (obiter) when the limitation period starts in relation to an "on demand" loan with no express deadline for repayment.
In the case of Goldsmith v Chittel  EWHC 630 (Ch) (5 April 2016), Goldsmith brought a claim against a former friend Chittel for repayment of a sum of £663,232 in respect of a loan purportedly made in August 2005. Chittel successfully argued that the monies provided by Goldsmith in August 2005 constituted Chittel's share of profits made by Goldsmith in relation to a development project in Dubai known as the Hexagon Project and were not loan monies. Following dismissal of the claim, the court went on to consider Chittel's argument that if the payment had been a loan, Goldsmith's claim was statute barred.
Section 5 of the Limitation Act 1980 (the “Limitation Act”) provides: "An action founded on a simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued." Historically, at common law, where a loan is repayable on demand or does not stipulate a specific repayment date, then the loan is treated as being repayable immediately and the six year limitation period starts to run as soon as the loan is provided (Re Brown’s Estate  2 Ch 300).
Section 6 of the Limitation Act mitigates the provisions of section 5 by setting out the circumstances where limitation runs from the later date of written demand of repayment. Section 6(2) applies to "any contract of loan which:
(a) does not provide for repayment of the debt on or before a fixed or determinable date; and
(b) does not effectively (whether or not it purports to do so) make the obligation to repay the debt conditional on a demand for repayment..."
What did the court decide?
The court found (obiter) that (i) no repayment date was specified; and (ii) although Goldsmith asserted that the loan was repayable on demand, there was no express term to that effect. Finally, the court was not convinced that repayment was conditional upon a demand actually being made. On this basis, if the payment had been a loan, Goldsmith's cause of action would have started to accrue when written demand was made in 2011 rather than when the monies were paid in 2005.
What does this mean for practitioners?
This case highlights the importance of analysing not only whether a loan is repayable on demand without a fixed repayment date but also whether the obligation to repay the debt is conditional upon a lender’s demand for repayment. Both of these limbs must be addressed in order to benefit from section 6 of the Limitation Act.