The interruption of the limitation period of a cause of action by means of a letter

Nothing lasts forever: this also applies to causes of action. The possibility to convert an action into cash does not exist infinitely. If, for example, a creditor has a monetary claim against a debtor, but omits to enforce the payment of that amount, after some time the law attaches consequences to this omission: the cause of action has then lapsed. The fact is that the debtor, after a certain time has gone by, may rely on the creditor not converting his action into cash anymore, and the debtor not needing to keep evidence endlessly.

The law, however, also offers the possibility to interrupt the limitation period of a cause of action. The consequence is that the limitation period commences again and the moment of limitation occurs later.

The limitation period may be interrupted by means of ‘a written notice in which the creditor unequivocally reserves his right to performance’. The creditor must give the debtor a sufficiently clear warning that he, also after the limitation period has lapsed, must have his data and items of evidence available, so that he will be able to defend himself against any action put up still by the creditor.

On 18 September 2015, the Dutch Supreme Court [Hoge Raad] passed judgment in a case in which the question came up of whether a letter from an American lawyer could be considered a written notice as mentioned above. This case will be discussed below.

HR 18 September 2015, ECLI:NL:HR:2015:2741

The case was as follows.

International Strategies Group Ltd (‘ISG’) claimed the payment of a monetary amount by Royal Bank of Schotland N.V. (‘RBS’) due to the fact that the latter or rather its legal predecessor ABN AMRO, allegedly omitted to take measures that could have prevented ISG from becoming the victim of fraud, when money of ISG was diverted. RBS defended itself by arguing that ISG’s claim would have lapsed. ISG, at its turn, argued that the limitation period was interrupted by a letter from its American lawyer to RBS. In that letter, ISG’s lawyer invited RBS’s lawyer for a meeting in order to discuss a number of questions that had arisen with ISG or rather its lawyer regarding the disappearance of monies of ISG. The Court of Appeal held that this letter had no interrupting effect because, in its opinion, the purpose of that letter mainly regarded the obtaining of information in a meeting between colleagues.

The Supreme Court set aside the Court of Appeal’s judgment. The Supreme Court held that not only must the Court of Appeal pay attention to the wording of the written notice (in which the creditor unequivocally reserves its right to performance) but also to the context in which the notice was made and the other circumstances of the case. According to the Supreme Court, the Court of Appeal has disregarded that the letter, in addition to the purpose mentioned by it, also contained a warning to RBS that was sufficiently clear, meaning that after the lapse of the limitation period, it had to have its data and items evidence available so that it could defend itself against a possible action set up by ISG. The strategy to obtain information first and to conduct a meeting does not negate this warning which was sufficiently clear. According to the Supreme Court, it is important in this respect that:

  • the letter was written by ISG’s lawyer and addressed to RBS’ s lawyer;
  • In that letter, a meeting is proposed about the parties’ dispute against the background of the possibility explicitly mentioned in the letter “that ABN Amro may be liable for the regrettable ‘disappearance’ of the entire syndicated $ 24,000,000”;
  • ISG’s lawyer explicitly pointed out in that letter that proceedings could be instituted; and
  • it has been remarked at the end of the letter “I would also think it appropriate to put ABN Amro carriers on notice of these potential claims”, in other words, ISG’s lawyer advises ABN Amro to report to its insurers the claim that ISG allegedly has against it.

Even though the letter did not say literally that ISG interrupted the limited period of its claim against RBS, RBS should have deduced from the contents of the letter that ISG was serious about it. Although it would be preferred, in order to avoid a discussion as it arose in the present proceedings, to interrupt the limitation period of a cause of action as explicitly as possible, it is sometimes preferred to act more cautiously, for example when an effort is made to reach an amicable settlement. It is then good to know that not only the literal text of the letter is concerned, but also the context in which the notice is made and the other circumstances of the case.

To conclude, a last remark on the limitation period. If a cause of action has lapsed, the consequence in the case of a monetary claim is that the debtor may no longer be forced actively to pay. The creditor may no longer ask the court to order the debtor to make the payment. However, the claim does not fully disappear, because a natural obligation will still exist. The consequence is that the possibility for setoff remains. If two parties have money to claim from each other, the party whose claim has lapsed may still rely on the setoff against the claim of his other party.

Should the above give rise to any questions, please contact mr. A.J.N. (Hanneke) Kolsters or mr. I. (Iris) Broere.

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