(1) The exercise of rights governed by the Principles is barred by the expiration of a period of time, referred to as “limitation period”, according to the rules of this Chapter.
(2) This Chapter does not govern the time within which one party is required under the Principles, as a condition for the acquisition or exercise of its right, to give notice to the other party or to perform any act other than the institution of legal proceedings.
1. Notion of limitation period
All legal systems recognise the influence of passage of time on rights. There are two basic systems. Under one system, the passage of time extinguishes rights and actions. Under the other system, the passage of time operates only as a defence against an action in court. Under the Principles a lapse of time does not extinguish rights, but operates only as a defence (see Article 10.9).
This Article refers in general to “rights governed by the Principles” to indicate that not only the right to require performance or the right to another remedy for non-performance can be barred, but also the exercise of rights which directly affect a contract, such as the right of termination or a right of price reduction contractually agreed upon.
1. A sells a tanker to B. Upon delivery the ship turns out not to be in conformity with the specifications contained in the contract, but it is only three and a half years later that B brings an action against A for the cure of the defects. A may raise the defence of B’s claim being time-barred under Article 10.2.
2. The facts are the same as in Illustration 1, except that the contract between A and B contains a clause allowing B a price reduction of up to 30% in case of missing equipment or spare parts. B’s right to a price reduction is also barred.
2. Notice requirements and other prerequisites for enforcing rights
Under the Principles rights can be lost if the party entitled to acquire or exercise a right fails to give notice or to perform an act within a reasonable period of time, without undue delay, or within another fixed period of time (see Articles 2.1.1 – 2.1.22 (communications in the context of formation of contracts), Article 3.15 (avoidance of contract for defects of intent), Article 6.2.3 (request for re-negotiation), Article 7.2.2(e) (request for performance), Article 7.3.2(2) (termination of the contract for non-performance)). Although they serve a function similar to limitation periods, these special time-limits and their effects are not affected by the limitation periods provided for in this Chapter as they are designed to meet special needs. As they are generally much shorter than the limitation periods provided for in this Chapter, they take effect regardless of the latter. In the exceptional case that in the circumstances a “reasonable period of time” is longer than the applicable limitation period, the former will prevail.
3. The facts are the same as in Illustration 1, except that B sets A an additional period of time of 60 days for the cure of the defects. A fails to cure the defects, but it is only two months after the expiry of the additional period fixed that B sends A a notice of termination under Article 7.3.2. Although B’s claim is not time-barred under Article 10.2, it has lost the right to terminate the contract because it has not given notice of termination within a reasonable time as required by Article 7.3.2(2).
3. Mandatory rules of domestic law
In cases in which the parties’ reference to the Principles is considered to be only an agreement to incorporate them in the contract, mandatory rules on limitation periods of national, international or supranational origin relating to the length, suspension, and renewal of the limitation periods as well as to the right of the parties to modify them, prevail over the rules laid down in this Chapter (see Comment 2 on Article 1.4). Yet even in cases in which the Principles are applied as the law governing the contract, domestic mandatory rules on limitation periods prevail over the rules laid down in this chapter, provided that they claim application whatever the law governing the contract (see Comment 3 on Article 1.4).
4. Seller A in country X sells and delivers component parts to car manufacturer B in country Y. Some of the parts are defective and the same year of delivery the defects cause accidents for which B has to pay damages. Four years later, B asks A to be indemnified for its costs. A refuses to pay. The contract provides for arbitration in country Z with the UNIDROIT Principles as the applicable law. In an arbitration commenced by B, A raises the defence of the expiration of the three-year limitation period provided for in Article 10.2. B responds that under the law of country X the claim for damages for defective goods is time-barred only after 5 years, and that this rule claims to apply irrespective of the law governing the contract. The rule of the law of country X prevails.