In this article Gordon Simpson, Commercial Litigation Solicitor, considers the obiter comments of the Judge.
The case of Goldsmith v Chittell  EWHC 630 (Ch) involved a claim by the claimant, Jonathan Goldsmith, for repayment of a loan of £663,232. Mr Goldsmith claimed that he had loaned the sum of £718,232 (the equivalent of $1.3 million) in August 2005 to a company beneficially owned by Mr Chittell, the defendant. The payment was made to a company Middle Eastern European Landmark Holdings Limited (“MEELH”). There were no express terms for repayment of the loan. Mr Goldsmith claimed the loan was repayable on demand and that he made an oral demand for repayment in November 2011 following which Mr Chittell made a number of repayments: £10,000 on 17 November 2011; £25,000 on 11 April 2012; and £20,000 on 11 July 2012 (“the Alleged Repayments”). A written demand for repayment was also made by Mr Goldsmith on 29 January 2013. Mr Chittell’s position was that the Alleged Repayments were loans by him to Mr Goldsmith who was in financial difficulty.
Proceedings were issued by Mr Goldsmith in August 2014. In the defence it was initially raised that MEELH had provided various services in return for payment. On 17 February 2016, the defence was amended to put forward the case that the payment of $1.3 million was a share of profits payable to Mr Chittell in respect of a development project which he and Mr Goldsmith had both worked on. In addition, Mr Chittell ran a limitation defence in the event the Court determined the payment in August 2005 was a loan repayable by him.
Mr Goldsmith did not succeed on his claim. Although the Court did take into account the fact that Mr Chittell had changed his defence when considering the credibility of his position, Mr Goldsmith was unable to explain several documents, not least his expression of gratitude at receiving the Alleged Repayments. In a text message sent on 11 April 2012 Mr Goldsmith had expressed gratitude at receiving the second of the Alleged Repayments in the sum of £25,000 and confirmed he would pay the sum back. The wording of that text message was more consistent with Mr Chittell’s case that these payments were a loan by Mr Chittell to Mr Goldsmith, as opposed to Mr Goldsmith’s case that these were partial repayments to Mr Goldsmith with substantial sums still outstanding.
In the circumstances, the Court did not have to consider the limitation defence. The Judge, Miss Penelope Reed QC, however expressed her view at the end of her judgment.
The arguments turned around section 5 and section 6 of the Limitation Act 1980 (“LA 1980”). Section 5 provides:
“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.”
The rule set out in the case of Re Brown  2 Ch 300 provides that under a contract of loan, where the sum is payable on demand, that does not mean that a demand is a pre-requisite of a claim and therefore there is an immediate obligation to repay, which will mean that the cause of action accrues immediately and the six year period starts to run.
The payment by the claimant had been made in August 2005 and applying section 5 of the LA 1980 and Re Brown, the limitation period would have expired in August 2011.
The Judge considered whether section 6 of the LA 1980 would have saved the claimant had she decided the case differently in the claimant’s favour such that the payment in August 2005 had in fact been a loan to the defendant.
Section 6 of the LA 1980 states:
“(1) Subject to subsection (3) below, section 5 of this Act shall not bar the right of action on a contract of loan to which this section applies.
(2) This section 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 made by or on behalf of the creditor or on any other matter; except where in connection with taking the loan the debtor enters into any collateral obligation to pay the amount of the debt or any part of it (as, for example, by delivering a promissory note as security for the debt) on terms which would exclude the application of this section to the contract of loan if they applied directly to repayment of the debt.
(3) Where a demand in writing for repayment of the debt under a contract of loan to which this section applies is made by or on behalf of the creditor (or, where there are joint creditors, by or on behalf of any one of them) section 5 of this Act shall thereupon apply as if the cause of action to recover the debt had accrued on the date on which the demand was made.
(4) In this section “promissory note” has the same meaning as in the Bills of Exchange Act 1882.”
The particulars of claim asserted that the loan was repayable on demand but there were no express terms to that effect. The crucial point for the purposes of section 6(2) is whether it was effectively a term of the loan that its repayment is not just on demand but whether repayment is conditional on a demand being made. The Judge decided that section 6 of the LA 1980 applied and the cause of action accrued when the written demand was made for repayment by 29 January 2013. Therefore if the claimant had been able to establish the payment made in August 2005 had been a loan, the claim would not have been statute barred in 2011.
When parties enter into a loan they have the option to set out the terms upon which the loan is repaid. Within those terms it is possible to exclude the application of section 6 of the LA 1980. It is not uncommon for parties to enter into loan agreements without specifying the terms for repayment. In the absence of any specific provisions for the loan to be repaid by a fixed or determinable date, the Court is likely to decide that the limitation period runs from the date of any written demand as opposed to the date of the loan itself. Section 6 of the LA 1980 mitigates the harshness of the rule in the case of Re Brown.
It is important for parties entering into loan agreements to consider the terms for repayment. In the absence of express wording, the debtor cannot automatically assume the loan becomes statute barred after 6 years as the cause of action may not have accrued by then if no written demand for payment has been made.
Limitation arguments often turn on the facts of each case and therefore careful consideration should be given to the merits of a limitation defence when seeking to enforce or defend payment of a loan.
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