Limitation: The Silent Claim Killer

This is what clients call me about at five o'clock on a Friday. Not a complicated contract, not a supplier dispute. They have just realised that in three days they will lose a claim they thought they still had "plenty of time to deal with".

Limitation arrives quietly. No warning, no letter. One day the period simply runs out, and a claim that was enforceable yesterday is left as nothing more than a moral position. Once the debtor raises the limitation defence, the court dismisses the claim as time-barred, without having to ask whether you were right. That is worse, because you were right and simply came too late.

¶ Limitation as a Weapon

I will start with what is discussed least: limitation as a strategic tool for the party defending itself.

When I represent a defendant and find that the claimant filed suit after the limitation period expired, I am holding the key to the back door. I do not need to deal with whether the claimant is right, challenge the evidence or argue about legal classification. I raise the limitation defence and the court dismisses the claim.

Limitation does not apply by itself, though. The court does not consider it of its own motion, so you have to raise it. A surprising number of lawyers forget this: they focus on the merits and never look at the calendar.

I have seen it many times. The other side files a damages claim and my clients panic: "But it happened, we really did cause the damage." Perhaps. Yet the claimant had known about the damage and who caused it for four years, and the general limitation period is three years. The limitation defence is raised and the claim is dismissed.

¶ Limitation as a Trap

Now the other side of the coin, which hurts far more.

Clients come to me with perfectly legitimate claims. A supplier failed to deliver, a customer failed to pay, a business partner siphoned money out of the company. But they come too late, sometimes by months, sometimes by years.

Why? Because limitation periods are more complex than most people assume.

Under Czech civil law, the general limitation period is three years. Most people know that, or think they do. Less well known is the following:

Subjective and objective periods. For damages claims, a three-year subjective period runs from the moment the injured party learns of the damage and who is responsible for it, or should and could have learned of it. At the same time an objective period runs: ten years from when the damage occurred, fifteen years if it was caused intentionally. The two periods run in parallel, and the claim becomes time-barred when whichever of them ends first expires. For harm to health, life or liberty the objective period does not apply (Section 636(3) of the Civil Code), and only the three-year period matters.

Special periods. Warranty claims, insurance claims and employment claims all have periods of their own. Anyone who loses track of them can easily lose a claim they should have asserted earlier.

When the period does not run. In some situations the limitation period stops running, for example when the creditor brings the claim before a court and properly continues the proceedings (Section 648 of the Civil Code). A letter will not stop it, and neither will negotiating on its own. The exception is set out in Section 647 of the Civil Code: if you agree with the debtor to negotiate about the claim out of court, the period does not run during the negotiations until one of you expressly refuses to continue them. From then on it runs again, but it will not end sooner than six months later (Section 652). An agreement to mediate can also count as such an agreement. Put it in writing, otherwise you will find it hard to prove if a dispute arises. This is exactly the trap a great many business owners fall into.

A scenario from practice: a client has a receivable from a customer who keeps promising to pay. Once a quarter an email arrives saying they are "working on it". The client does not want to damage the relationship, so he waits. One year passes, then two, then two and a half. Then the client realises the claim will be time-barred in six months. The customer knew all along.

¶ Limitation as Tactical Pressure

Most interesting of all is limitation as a negotiating tool.

An approaching limitation deadline creates pressure, and in law as in business pressure is one of the strongest levers there is.

If you know the other side's claim will be time-barred in two months, you have a big negotiating advantage. You can offer a settlement at a fraction of the original amount and they will accept, because otherwise they get nothing. Unless you have agreed with them to negotiate out of court, you can slow the talks down, because time is on your side. You can afford patience more easily than they can.

If, on the other hand, limitation is closing in on you, you have several options. You can file a lawsuit even if you are not fully prepared, because the period does not run once you have filed. That holds only if you properly continue the proceedings, which means paying the court fee and correcting any defects in the statement of claim. You can also obtain from the debtor a written acknowledgment of the debt, stating both its basis and its amount; a new ten-year period runs from the date of the acknowledgment (Sections 639 and 2053 of the Civil Code). An email saying the debtor is "dealing with it" is not an acknowledgment of the debt. Finally, you can agree with the debtor in writing to go to mediation, during which the period does not run.

It pays to know about these options before it is five o'clock on a Friday.

¶ What to Do About It

Law schools teach limitation as an abstract legal concept. In practice it wipes out legitimate claims every single day.

Three rules that will save you money and sleepless nights:

First: for every claim you hold or know about, find out the limitation period. "Roughly three years" is not enough; you need a specific date.

Second: do not rely on the other side acting in good faith. Perhaps they are. Or perhaps they are just waiting for your period to run out.

Third: if you are not sure, ask a lawyer now rather than in a month. Limitation makes no distinction between the party who was right and the party who came too late.

One of the worst moments in legal practice is telling a client: "You were right. But it is too late." You do not have to end up there if you keep an eye on your deadlines in time.

If the claim is still live but you are weighing whether to litigate, read Not every battle is worth fighting and When to go to court and when to mediate. If the dispute is already running and you need to know what you can procedurally demand, see What you can ask for in a civil lawsuit.