(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.
(1) The general limitation period is three years beginning on the day after the day the obligee knows or ought to know the facts as a result of which the obligee’s right can be exercised.
(2) In any event, the maximum limitation period is ten years beginning on the day after the day the right can be exercised.
1. No common solution
Although periods of limitation of rights and claims are common to all legal systems, they differ in length. They range from six months or one year for claims for breach of warranties, to up to 15, 20 or even 30 years for other claims. At international level the 1974 United Nations Convention on the Limitation Period in the International Sale of Goods (as amended in 1980) (“UN Limitation Convention”) provides uniform rules but is restricted to the international sale of goods.
2. Relevant factors
The stated length of a limitation period does not always in itself determine the time after which the exercise of rights is barred. That time may be affected by the prerequisites for the starting of the period and by circumstances affecting its running (see Articles 10.4 to 10.9). It may also be affected by the agreement of the parties (see Article 10.3). Party autonomy with regard to limitation periods is of great practical importance, as periods that are either too long or too short may be tolerable if the parties may modify them freely according to their needs.
3. Balance between interests of obligee and obligor
The Principles strike a balance between the conflicting interests of the obligee and the obligor of a dormant claim. An obligee should have a reasonable chance to pursue its right, and should therefore not be prevented from pursuing its right by the lapse of time before the right becomes due and can be enforced. Furthermore, the obligee should know or at least have a chance to know its right and the identity of the obligor. On the other hand, the obligee should be able to close its files after some time regardless of the obligor’s knowledge, and consequently a maximum period should be established. Contrary to the UN Limitation Convention which has only one absolute limitation period of four years which begins on the date of accrual of the claim (see Articles 8 and 9(1)), the Principles provide for a two-tier system.
4. Basic structure of the limitation regime
The two-tier system adopts the policy that the obligee should not be barred before it has had a real possibility to pursue its right as a result of having actual or constructive knowledge of the right. Paragraph (1) therefore provides for a rather short three-year limitation period starting the day after the obligee knows or ought to know the facts on which its right is based and this right can be exercised. Paragraph (2) provides for a ten-year maximum limitation period, commencing at the time when the right can be exercised, regardless of the obligee’s actual or constructive knowledge.
5. Right can be exercised
The obligee has a real possibility to exercise its right only if it has become due and can be enforced. Paragraph (2) therefore provides that the maximum limitation period starts only at such date.
6. Knowledge of the facts as distinguished from knowledge of the law
The general three-year limitation period starts the day after the day “the obligee knows or ought to know the facts as a result of which the obligee’s right can be exercised”. “Facts” within the meaning of this provision are the facts on which the right is based, such as the formation of a contract, the delivery of goods, the undertaking of services, and non-performance. The facts indicating that a right or claim has fallen due must be known or at least knowable by the obligee before the general limitation period starts. The identity of the obligor may also be in doubt, e.g. in cases of agency, the transfer of debts or entire contracts, the winding-up of companies, or unclear third-party beneficiary contracts. In these cases, the obligee must know or have reason to know whom to sue before it can be blamed for not having pursued the right or claim. Actual or constructive knowledge of “facts”, however, does not mean that the obligee must know the legal implications of the facts. If, despite full knowledge of the facts, the obligee is mistaken about its rights, the three-year limitation period may nevertheless start to run.
1. A designs and builds a bridge under a contract with county B. A’s engineers make a mistake in calculating the strength of some steel girders. Four years later, the bridge collapses due to a combination of the weight of some heavy trucks and a storm. B’s claims for damages are not barred, because the general limitation period started only at the time of the collapse, when B was in a position to discover A’s breach.
2. The facts are the same as in Illustration 1, except that the bridge collapses eleven years after its construction. B’s claims are barred under the maximum limitation period under Article 10.2(2). Parties to such a contract are well advised to adjust the maximum period while remaining within the limits of Article 10.3.
3. A sends B a notice under Article 7.3.2 terminating a sales contract between A and B because B refuses to take delivery of goods tendered by A. Thirty-seven months after receipt of the note of termination, B demands the return of an advance on the purchase price paid prior to the termination, asserting that, due to an error in its bookkeeping, it had overlooked its payment of the advance with the consequence that it had only recently become aware of the claim for restitution it had under Article 7.3.6(1). B’s claim for restitution is barred by the three-year limitation period, as B ought to have known of its payment when the contract was terminated and the claim to repay the advance arose.
4. The facts are the same as in Illustration 1, except that B asserts that it had not realised the legal effects of a notice of termination. B’s claim for restitution is nevertheless barred. An error of law with regard to the legal effects of a notice of termination cannot absolve the obligee since “ought to know” includes seeking legal advice if the party is uncertain about the legal effects of the circumstances.
7. Day of commencement
Since, in the absence of an agreement to the contrary, the obligor can normally perform its obligation in the course of the whole day of the debt’s maturity, the limitation period does not start on that same day but only on the following day.
5. A is obliged to pay a sum of money on 24 November. If A does not pay by that date, the limitation period starts on 25 November.
8. Right must be exercisable
An obligation may exist even if performance cannot as yet be required (see, e.g., Article 6.1.1(a)). While a creditor’s claim to the repayment of a loan is founded on the contract and may therefore arise at the time of the conclusion of the contract or of the payment of the loan to the debtor, the repayment claim will usually fall due much later. Furthermore, a right may not be enforceable if the obligor has a defence.
6. A loan agreement obliges the borrower to repay the loan on 15 November. The lender grants the borrower an extension of the date of repayment until 15 December. The limitation period starts on 16 December.
7. A contracts to build a fertiliser plant for B. The price is to be paid in three instalments, the last instalment being due four weeks after completion of the work as certified by an engineering firm. After certification there are still malfunctionings of the plant. B is entitled to withhold performance of the last instalment under Articles 7.1.3(2) and 7.1.4(4). The limitation period for the claim for payment does not begin until the right to withhold payment is extinguished by cure of the malfunctionings.
9. Maximum period
Under paragraph (2) the obligee is in any event, i.e. irrespective of whether it knew or ought to have known the facts giving rise to its right, prevented from exercising the right ten years after it could have exercised it. The objectives of this maximum period of ten years are the restoration of peace and the prevention of speculative litigation where evidence has faded.
8. B borrows money from A and orders its accountant to repay the loan when repayment falls due in January. Fifteen years later, a dispute arises over whether the loan was repaid fully or only in part as A claims. A’s asserted claim is barred by Article 10.2(2), because the maximum limitation period has expired.
10. Ancillary claims
This Article applies to all rights, including so-called “ancillary claims”.
9. In a loan agreement, the borrower agrees to pay an interest of 0.7% per month if there is default in repayment. Thirty-five months after repayment is due, the borrower repays the principal. The lender need not sue for all successive monthly instalments of interest at once, but can wait up to thirty-six months for each instalment before it is barred.
10. Under the contract of builder A with owner B, A agrees to complete construction by 1 October and to pay EUR 50,000 for every month of delay up to a maximum amount of EUR 2,500,000. Completion is delayed for 40 months. Claims for damages for non-performance or delay are barred 36 months after 2 October. The claim for the penalty for each month of delay is barred 36 months after it arises.
This Article does not provide a definition of “year”, because at international level a reference to “year” is usually understood as being a reference to the Gregorian calendar (see Article 1(3)(h) of the UN Limitation Convention). In any event, calendars deviating from the Gregorian calendar will in most cases have the same number of days per year, with the consequence that they do not influence the length of limitation periods. A different meaning of “year” can be agreed upon by the parties under Article 1.5. Such an agreement may be explicit or derived from an interpretation of the contract.
(1) The parties may modify the limitation periods.
(2) However they may not
(a) shorten the general limitation period to less than one year;
(b) shorten the maximum limitation period to less than four years;
(c) extend the maximum limitation period to more than fifteen years.
1. Basic decision: modifications possible
In some legal systems the power of the parties to modify limitation periods and their effects is restricted out of concern for the weaker parties and, in particular, consumers. A distinction is sometimes made between very short limitation periods, which can be prolonged, and other limitation periods, which cannot be modified or can only be shortened. Since the Principles apply to international contracts between businesspersons who are normally experienced and knowledgeable persons who do not need to be protected, they permit the parties to adapt the limitation periods applicable to the rights arising out of their contracts to their needs in a given case. Restrictions to the parties’ autonomy in this respect may, however, follow from the mandatory rules of the otherwise applicable law (see Article 1.4).
2. Limits of modifications
The possibility nevertheless remains that a party with superior bargaining power or better information may take advantage of the other party by either unduly shortening or lengthening the limitation period. This Article therefore limits the power to shorten the general limitation period by stating that it may not be shortened to less than one year starting from the moment of actual or constructive knowledge, and to shorten the maximum period by stating that it may not be shortened to less than four years. The maximum limitation period and, necessarily, the general period cannot exceed fifteen years.
1. The facts are the same as in Illustration 2 to Article 10.2, except that in their contract the parties provide that the maximum limitation period for all claims based on hidden defects is fifteen years. B’s claim for damages is not yet barred.
2. The facts are the same as in Illustration 2 to Article 10.2, except that in their contract the parties provide that the maximum limitation period for all claims based on hidden defects is twenty-five years and the bridge collapsed after sixteen years. B’s claim for damages is barred, because the maximum limitation period can be extended to only fifteen years.
3. The facts are the same as in Illustration 2 to Article 10.2, except that in their contract the parties provide that the general limitation period in case of harm resulting from the non-conformity of the bridge starts only upon the submission of a written report of experts of an independent engineering firm. After the collapse of the bridge, it is uncertain what the causes were, and it takes two years for the engineering firm to submit its report. The general limitation period begins to run only from the day after the day on which the report was submitted.
3. Time of modification
A modification can be agreed upon before or after the commencement of a limitation period. A modification agreed upon before or after the commencement of a limitation period differs from an agreement concluded after the limitation period has expired. Such an agreement, although too late to modify the applicable limitation period, may have legal consequences either as a waiver of the defence that the limitation period has expired or as a new promise by the obligor.
(1) Where the obligor before the expiration of the general limitation period acknowledges the right of the obligee, a new general limitation period begins on the day after the day of the acknowledgement.
(2) The maximum limitation period does not begin to run again, but may be exceeded by the beginning of a new general limitation period under Article 10.2(1).
1. Acknowledgement of rights
Most legal systems permit the running of the limitation period to be altered by acts of the parties or other circumstances. Sometimes acts of the parties or other circumstances “interrupt” the running of the limitation period, with the effect that a new limitation period starts. Sometimes acts or other circumstances cause a “suspension” of the running of the limitation period, with the effect that the period of suspension is not counted in computing the limitation period. According to this Article the acknowledgement of a right by the obligor causes an interruption of the limitation period (see also Article 20 of the UN Limitation Convention,).
2. Commencement of a new general limitation period
The new limitation period that starts following acknowledgement of the right of the oblige is the general limitation period, because by virtue of such an acknowledgement the obligee will necessarily possess the knowledge required for commencement of the limitation period under Article 10.2(1). There is therefore no need to protect the obligee by granting it a new maximum limitation period.
1. A defectively performs a construction contract with B and B informs A of the non-conformities in October without receiving any response from A. Two years later B again approaches A, threatening to bring an action for damages. This time A responds and acknowledges the non-conformity of its performance and promises to cure the non-conformity. On the following day a new general limitation period starts to run for B’s right to damages.
The commencement of a new general limitation period following acknowledgement can take place either during the general limitation period under Article 10.2(1), or during the maximum limitation period under Article 10.2(2). While the maximum limitation period will not in itself begin again, the new general limitation period may exceed the maximum period by up to three years if the obligor acknowledges the right of the obligee after more than seven years but before the maximum period has already expired.
2. B discovers defects in the construction work of A only nine years after completion of the work. The defects could not have been discovered earlier. B threatens to initiate legal action, and A acknowledges the defects. A new general limitation period begins to run on acknowledgement, so that altogether the limitation period amounts to twelve years.
3. Novation and other acts creating a new obligation
Acknowledgement does not create a new obligation, it merely interrupts the running of the limitation period. Accessory rights are therefore not extinguished. Consequently, if the limitation period has already ended, a mere acknowledgement under this Article does not retroactively remove or invalidate the limitation defence.
3. The facts are the same as in Illustration 2, except that B knows or ought to know of A’s defective construction at the time of completion. B approaches A only 7 years later, and A acknowledges the defective performance. B’s claim is nevertheless already barred under Article 10.2(1) and is not revived by A’s acknowledgement.
If the parties want to undo the effects of a completed limitation period, they can create a new obligation by a “novation” or an unilateral act on the part of the obligor, or the obligor can waive the defence of the expiration of a limitation period. The parties can also prolong the duration of the obligee’s right beyond the end of the maximum limitation period under Article 10.2(2).
4. The facts are the same as in Illustration 3, except that A, in order to maintain a profitable business relation, not only acknowledges the defective performance, but promises to cure the defects regardless of any question of A’s liability. This agreement creates a new obligation for A, which is barred only three years later.
5. Nine years after completion B discovers defects in A’s construction work which could not have been discovered earlier. On notice to A, A responds that it will investigate the causes of the defects and will therefore not invoke the limitation period until six months after the experts investigating the defects submit their report. The report is submitted twelve months later, confirming B’s notice of defects. When B asks A to cure the defects, A argues that the maximum period of Article 10.2(2) has expired with the consequence that no claim for damages can be made by B. A’s argument is incorrect if B abstained from initiating judicial proceedings on account of A’s waiver.
4. Interruption of limitation periods modified by the parties
To the extent that the parties have modified the general limitation period under Article 10.2(1), acknowledgement and the commencement of a new limitation period affect the general period as modified. If, for example, the parties have shortened the general limitation period to one year, acknowledgement causes a new one-year period to run.
6. A and B have agreed to shorten the limitation period for claims arising from the non-conformity of A’s performance to two years. After nine and a half years B discovers defects in A’s performance, and A acknowledges its obligation to cure. B has another two years to pursue its claim before it is barred under Article 10.2(1).
Since the obligor can acknowledge more than once, the limited effect of an acknowledgement that causes only the general limitation period to start again can be overcome by a subsequent acknowledgement.
7. A delivers non-conforming goods to B in November. B suffers loss resulting from the non-conformity because its customers complain and return the goods. Since two years later the total amount of loss is not yet clear, B pressures A to acknowledge its liability and in December of that year A complies with B’s request. Two years later, there are still uncertainties regarding the exact extent of B’s obligations towards its customers, some of whom have sued for compensation for consequential damages allegedly caused by the goods. B therefore turns to A again, who acknowledges its obligation to compensate B should the claims of B’s customers be well-founded. B has three more years before its claims against A are barred.
(1) The running of the limitation period is suspended
(a) when the obligee performs any act, by commencing judicial proceedings or in judicial proceedings already instituted, that is recognised by the law of the court as asserting the obligee’s right against the obligor;
(b) in the case of the obligor’s insolvency when the obligee has asserted its rights in the insolvency proceedings; or
(c) in the case of proceedings for dissolution of the entity which is the obligor when the obligee has asserted its rights in the dissolution proceedings.
(2) Suspension lasts until a final decision has been issued or until the proceedings have been otherwise terminated.
1. Judicial proceedings
In all legal systems judicial proceedings affect the running of a limitation period in either of two manners. Judicial proceedings can cause an interruption of the limitation period, so that a new limitation period begins when the judicial proceedings end. Alternatively, judicial proceedings can cause only a suspension, so that a period that has already lapsed before the judicial proceedings began will be deducted from the applicable period, the remaining period starting at the end of the judicial procedure. This Article adopts the latter solution (see also Article 13 of the UN Limitation Convention).
2. Commencement of proceedings
The requirements for the commencement of judicial proceedings are determined by the law of procedure of the court where the proceedings are instituted. The law of procedure of the forum also determines whether the raising of counterclaims amounts to the instituting of judicial proceedings in regard to these claims: where the counterclaims raised as a defence are treated as if they were brought in separate proceedings, raising them has the same effect on the limitation period as if they had been filed independently.
1. A purchases from B a truck that turns out to be defective. A notifies B of the defects but, because of other pending contracts between A and B, A does not press the matter for 24 months. When the negotiations between A and B on the other contracts break down, B turns down a request by A to cure the defects, asserting that the defects were caused by A’s mishandling of the truck. A files a law suit against B by depositing it with the clerk of the competent court. Under the procedural law applicable in that court, this is sufficient to initiate litigation with respect to A’s claims. The running of the limitation period is suspended, until a final decision is handed down. This includes not only a decision of the court of first instance, but also, if appeal is allowed, that of a higher court on any available appeal. If the parties reach a settlement or the plaintiff withdraws its complaint, this ends the litigation if it is so regarded under the applicable domestic procedural law.
2. B initiates litigation for the purchase price of goods by filing a complaint as required by the procedural law of the country of the competent court. A raises claims under an asserted guarantee either as counterclaims or by way of set-off. The limitation period for A’s warranty claims is suspended until there is a final decision on the counterclaims or a settlement or withdrawal of A’s counterclaims.
“Termination” by a final decision or otherwise is to be determined by the rules of procedure of the forum. These rules decide when a decision is final and therefore brings the litigation on the litigated subject-matter to an end. These rules also have to decide whether and when the litigation comes to an end without a final decision on the merits, e.g. by the withdrawal of a complaint or by a settlement of the parties.
4. Suspension by insolvency or dissolution proceedings
For the purpose of this Article, insolvency and dissolution proceedings are regarded as judicial proceedings (Article 10.5(1)(b) and (c)). The dates of the commencement and ending of these proceedings are determined by the law governing the proceedings.
(1) The running of the limitation period is suspended when the obligee performs any act, by commencing arbitral proceedings or in arbitral proceedings already instituted, that is recognised by the law of the arbitral tribunal as asserting the obligee’s right against the obligor. In the absence of regulations for arbitral proceedings or provisions determining the exact date of the commencement of arbitral proceedings, the proceedings are deemed to commence on the date on which a request that the right in dispute should be adjudicated reaches the obligor.
(2) Suspension lasts until a binding decision has been issued or until the proceedings have been otherwise terminated.
1. Arbitral proceedings
Arbitration has the same effect as judicial proceedings. The commencement of arbitral proceedings therefore has the same suspensive effect as judicial proceedings. In general, the date of commencement is determined by the applicable arbitration rules and the starting point of suspension is also determined by these rules. For cases in which the rules on arbitration do not exactly determine the date of commencement of the proceedings, the second sentence of paragraph (1) of this Article provides a default rule.
A cancels a distributorship contract with B, claiming that B has defaulted payments due for A’s delivery of goods to B. B counterclaims damages for lost profits, but B changes its law firm and allows almost 30 months to pass from the termination of the agreement. The agreement contains an arbitration clause, providing that all disputes and claims “shall be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce”, and B submits a request for arbitration under those rules. The rules provide that the date of receipt of the request is to be regarded “for all purposes” as the date of the commencement of the arbitral proceedings. The running of the limitation period is suspended until a final award is handed down or the case is otherwise disposed of.
2. Termination of arbitration
While the most frequent cases of termination will, as in judicial proceedings, be those that end with a decision on the merits of the case, arbitration can also end otherwise, e.g. by the withdrawal of an application, by a settlement or by an order or injunction of the competent court. The applicable rules on arbitration and civil procedure have to determine whether or not such events terminate the arbitration and thereby also the suspension.
The provisions of Articles 10.5 and 10.6 apply with appropriate modifications to other proceedings whereby the parties request a third person to assist them in their attempt to reach an amicable settlement of their dispute.
1. Alternative dispute resolution
Before resorting to judicial proceedings or arbitration, parties may start negotiations or agree on conciliation or other forms of alternative dispute resolution.
Under the Principles negotiations do not automatically suspend the limitation period. Parties who want the limitation period to be suspended should come to an express agreement to this effect.
By contrast, this Article provides that conciliation and other forms of alternative dispute resolution cause a suspension of the limitation period. The definition of “alternative dispute resolution” as proceedings whereby the parties request a third person to assist them in their attempt to reach an amicable settlement of their dispute, is inspired by Article 1(3) of the 2002 UNCITRAL Model Law on International Commercial Conciliation.
2. Absence of statutory regulations
As only few countries have enacted statutes on alternative dispute resolution and rules for such proceedings are relatively rare, this Article refers to the provisions on judicial and arbitral proceedings, which have to be applied with “appropriate modifications”. This means that, in the absence of an applicable legal regulation, the commencement of proceedings of alternative dispute resolution is governed by the default provision in the second sentence of Article 10.6(1), the proceedings starting on the date on which one party’s request to have such proceedings reaches the other party. Since the end of a dispute resolution procedure will very often be uncertain, the reference to Articles 10.5 and 10.6, and in particular to the phrase ”until the proceedings have been otherwise terminated” in their paragraphs (2), is also to be applied with appropriate modifications. Thus, a unilateral termination of the dispute resolution procedure by one of the parties will suffice to terminate the suspension. A unilateral termination that is made in bad faith is subject to Article 1.7.
The parties, a hospital and a supplier of hospital equipment, agree to submit disputes over prices to a board of mediation. Under the applicable rules a review by this board starts on the date on which one party submits a complaint to the other party, who then has to invite the board to review the case under the applicable rules. The mediation ends either when the board decides on the claim, or there is a settlement between the parties, or the claimant’s request is withdrawn.
(1) Where the obligee has been prevented by an impediment that is beyond its control and that it could neither avoid nor overcome, from causing a limitation period to cease to run under the preceding Articles, the general limitation period is suspended so as not to expire before one year after the relevant impediment has ceased to exist.
(2) Where the impediment consists of the incapacity or death of the obligee or obligor, suspension ceases when a representative for the incapacitated or deceased party or its estate has been appointed or a successor has inherited the respective party’s position. The additional one-year period under paragraph (1) applies accordingly.
1. Effects of impediments
Most legal systems take into account impediments that prevent the obligee from pursuing its rights in court, as does the UN Limitation Convention (see Articles 15 and 21). It is a basic policy concept that the obligee must have the possibility to pursue its rights before it can be deprived of them as a result of the lapse of time. Practical examples of impediments include war and natural disasters that prevent the obligee from reaching a competent court. Other cases of force majeure may also prevent the pursuance of a right and at least cause the suspension of the limitation period. The impediment must be beyond the obligee’s control. Imprisonment, therefore, would suspend the limitation period only where it could not have been avoided, such as in the case of a prisoner of war, but the imprisonment of a criminal would not. Only the general limitation period is suspended, however. If the maximum period has elapsed before the obligee could pursue this right, the obligee is subject to the defence of the expiration of the maximum limitation period.
1. A’s lawyer plans to file a complaint against B, an engineering firm, for alleged professional malpractice by B’s employees. The limitation period will expire on 1 December, and A’s lawyer has completed the complaint on 25 November, intending to file it by express mail or in person with the clerk of the competent court. On 24 November, terrorists attack A’s country with biological weapons of mass destruction, causing all traffic, mail service, and other social services to completely cease, thus preventing the timely filing of A’s complaint. The limitation period ceases to run and will not expire until one year after some means of communication has been restored in A’s country. If, however, the disruption of all means of communication in A’s country lasts ten years, A’s right is barred by the maximum limitation period.
2. Additional period of deliberation
Since impediments beyond the control of the obligee may occur and cease to exist towards the end of the limitation period, it is possible that after the ceasing of the impediment only a very short time or no time at all might be left for the obligee to decide what to do. This Article therefore provides for an additional one-year period of time from the date on which the impediment ceases to exist with a view to enabling the obligee to decide what course of action to take.
3. Incapacity and death
Incapacity and death of the obligee or of the obligor are but special examples of impediments to an effective pursuance of the obligee’s right. Paragraph (2) provides for the same solution as in the case of general impediments.
2. A lends B money which is due to be repaid on 1 January. A does not seek repayment for a long time and dies thirty-five months after the date for repayment. The law of succession applicable to A’s estate requires that an administrator appointed by the court administer the estate and collect outstanding debts. Since the docket of the competent court is overcrowded, it takes two and a half years for an administrator to be appointed. The administrator has one month left of the three-year general limitation period plus an additional one-year period to pursue the deceased party’s claim against B before the limitation period expires.
(1) The expiration of the limitation period does not extinguish the right.
(2) For the expiration of the limitation period to have effect, the obligor must assert it as a defence.
(3) A right may still be relied on as a defence even though the expiration of the limitation period for that right has been asserted.
1. No extinction of the right
The expiration of the limitation period does not extinguish the obligor’s right, but only bars its enforcement.
2. Expiration of the limitation period must be raised as a defence
The effects of the expiration of the limitation period do not occur automatically. They only occur if the obligor raises the expiration as a defence. The obligor can do so in any proceedings in accordance with the applicable law, and also outside of proceedings by invoking the expiration of the limitation period. The existence of the defence can also be the subject of a declaratory judgement.
1. A purchases goods from B. Part of the purchase price is due on 1 April and is not paid. Thirty-eight months later, B files a complaint against A. A does not invoke the expiration of the limitation period, nor does it appear in court, and B moves for a default-judgment. Judgment will be for B, since A did not raise the expiration of the limitation period as a defence.
3. Use of a time-barred right as a defence
Since under the Principles the expiration of a limitation period does not extinguish the right, but only gives a defence that must be asserted by the obligor (paragraphs (1) and (2)), it follows that the obligee’s right still exists, although a claim for its performance may be barred by the obligor’s assertion of the expiration of the limitation period. It can, therefore, be used as a defence, e.g. as grounds for the retention of performance by the obligee (paragraph (3)).
2. A leases a printing press to B for ten years. Under the contract A is obliged to maintain the press in working condition and to undertake repairs, unless a defect is caused by B’s negligence in operating the machine. The machine breaks down, but A refuses to do the necessary repairs. B, after futile requests and negotiations with A, has the repairs done by another company and asks A to pay the necessary costs. A does not react, and B does not pursue the matter. Five years later, at the end of the lease, B again requests payment of the costs of the repairs. A refuses to pay and invokes Article 10.2(1), requesting the return of the printing press. B is entitled to damages for breach of contract and to withhold delivery of the press.
The obligee may exercise the right of set-off until the obligor has asserted the expiration of the limitation period.
As the obligee’s right continues to exist, it can be used for set-off if the prerequisites of set-off under Article 8.1 are met.
1. The facts are the same as in Illustration 2 to Article 10.9, except that A not only asks for the return of the press, but also for the payment of the unpaid rent. B is entitled to set off its counterclaim for damages against this monetary claim despite the expiration of the limitation period.
Although the expiration of the limitation period does not in itself extinguish the right of the obligee, the situation changes when the obligor invokes the time bar as a defence by asserting it against the obligee. By so doing, the obligor makes the limitation period effective, with the consequence that the right can no longer be enforced. Since set-off may be considered the self-enforcement of a right, it is not available after the defence of the expiration of the limitation period has been invoked.
2. The facts are the same as in Illustration 1, except that B requests the payment of damages and threatens to sue four years after having had the repairs done. A objects, asserting that the machine broke down due to B’s fault. Since this is hard to prove, A in a letter to B also invokes the time bar under Article 10.2(1). B can no longer set off its claim for damages.
Where there has been performance in order to discharge an obligation, there is no right of restitution merely because the limitation period has expired.
1. Time-barred claim as valid basis for performance
Another consequence of the fact that under the Principles the expiration of the limitation period does not extinguish the right of the obligee but can only be asserted as a defence, is that if the obligor performs despite its defence, the obligation it performs remains effective as a legal basis for the obligee’s retaining the performance. Mere expiration of a limitation period cannot be used as grounds for an action to reclaim the performance under restitutionary or unjust enrichment principles.
2. Restitutionary claims based on other grounds
Despite the lapse of the limitation period, a restitutionary claim can be based on grounds other than performance, e.g. where a payor claims to have paid a non-existing debt due to a mistake.
1. Bank B lends money to borrower A, who does not repay on the date required by the loan agreement. A’s debt is overlooked and forgotten because of a book-keeping error on the part of B. Four years later, B discovers its error and sends A a notice claiming repayment. A complies with this request, but later learns from a lawyer that it could have refused repayment on account of the expiration of the limitation period. A cannot reclaim the payment as unjust enrichment from B.
2. The facts are the same as in Illustration 1, except that A has in fact repaid the loan, but both sides are unaware of this. Four years later, B erroneously requests payment from A, and A complies. A can recover the second payment because A has already paid a debt which has thus been extinguished by full performance.