February 3, 2013

I want to claim monies owed from a project completed 8 years ago

Problem: We are a main contractor that specialises in the fit-outs of public houses all over the Midlands. In 2004 we refurbished a pub in Birmingham, and in the October time put forward our final account. The client disagreed with the total amount claimed (mostly items relating to additional work), but did make a part payment leaving a sum of just under £11,000 below our final account total.

We contested the part payment at the time and threatened to take it further, and over the following 12 months there were various letters exchanged between us and the client’s representative. However, due to other project commitments we did not chase the account after October 2005.

In late 2012, we decided to have a purge on aged debtors and this particular account came up. Including the shortfall on the final account and retention, the amount owing is approximately £19,750 plus VAT. However, when we sent a letter to the client demanding payment within 7 days, we received a letter from their solicitors stating that we were no longer entitled to the payment because it was “time barred”. Any guidance on this would be appreciated.

Hamish, Hinkley

Response: Hello Hamish. Your monetary claim relates to payment [presumably] of the final tranche of retention and for additional work. I have assumed that the Contract has not been executed as a deed and hence the initial concern therefore is not whether you have a good cause of action, but whether your client has the defence of limitation.

If you submitted your final account in October 2004, it would follow that the project would have been completed by this date, which is over 8 years ago. Under section 5 of the Limitation Act 1980, any right of 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.” However, section 29(5) of the Act provides that a debtor’s written acknowledgment of his debt or other liquidated pecuniary claim starts time running afresh. In other words, where the person liable or accountable for the claim acknowledges or makes any payment against the claim, the right is treated as having accrued on the date of the acknowledgment or payment.

Before you received the solicitor’s letter, the last communication you had with your client about the monies was in October 2005. This means that by the end of October 2011, which is a six year period, there was no correspondence between you and your client. Therefore, applying section 5 of the Limitation Act, the right of action to pursue the debtor client would have ceased as from the end of October 2011.

There is nothing stopping you from commencing proceedings to recover the debt, but your client would have an absolute defence insofar that the claim is time-barred. I would therefore advise that you put this down to experience and introduce procedures within your organisation to ensure nothing like this ever happens again.

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.

Author background

Michael is a Barrister, Chartered Builder, Registered Adjudicator & Accredited Expert in quantum and planning matters. He is Managing Director of Michael Gerard & Co www.michael-gerard.co.uk, a company of chartered building consultants and quantity surveyors who provide a specialised service in the areas of construction law, quantum, programming, business recovery and insolvency support to the construction industry. Michael is also a consultant with Silver Shemmings LLP, a London practice of solicitors specialising in construction.