The Limitation Act 2010 is an important limit on liability claims. It stops or limits them after the expiry of a time period. How that is calculated can be complex (depending on knowledge of the claim). But for claims on contracts where the obligation is clear to all parties the limitation period is 6 years “after the date of the act or omission on which the claim is based” (s 11(1) of the Act).
What is an On demand loan?
On demand loans are common, especially where money is loaned to family members. The loan in fact may be intended as a gift but its form may be “repayable on demand” or the loan may have no express time for repayment (both different from where notice is required for repayment or repayment is conditional upon an event).
When does the limitation period run from? When does the limitation period run from on such loans that are merely repayable on demand or with no express time for repayment? Instinctively, the answer might be -when actual demand is made or a time for payment is specified in the demand or a reasonable time after the demand is made.
In fact, the answer is the time of receipt of the loan so that on day 1 of the advance the 6 year period starts to run and after it has expired the lender can’t claim repayment.
The historical reason for this seems to be that under the English common law the debt or obligation to repay was a separate cause of action from a breach of contract, so that time started to run from when the money was lent on the basis that the borrower always had to be ready to repay it.
As noted above, the rule could be modified by different wording around the conditions for demand.
However, if not modified, the rule remains, even though criticised (see eg Sorrell, “Limitations on Recovery of on Demand Loans: Time for a Change” (2016) 22 NZBLQ 79).
Of course, care must be taken in assessing loan agreements and the facts. For example, where there has been part repayment or acknowledgement of the debt, the limitation period can start running afresh. It is always good to take legal advice on matters involving loans to assess all the relevant facts and wording of the loan agreement. The answer may surprise you.
Contact Wynyard Wood
At Wynyard Wood we are able to provide you with robust legal advice to protect your rights and draft clearly worded agreements enabling you to avoid the pitfalls of agreements that are unclear as to their intent. We have a range of services wide enough to advise you on Contracts, Wills and Estates, Trusts (and Trust property), and Relationship Property.
