When does the statute of limitation allows not to pay?

16.09.2021 When does the statute of limitation allows not to pay?

Author: TGS Baltic Assistant-Attorney-at-Law, Elīza Siliņa

When does the statute of limitation allows not to pay?

When concluding a contract everyone should be aware that in accordance with Section 1587 of the Civil Law and the so-called of pacta sunt servanda principle, every legal transaction obliges its parties to fulfil the promised. However, it must be taken into account that in case the right of claim – to do the promised – has not been exercised within a certain period it disappears.

Latvian Prof. K. Torgāns has stated that “it would be unreasonable to allow a potential debtor to be under the recovery of a debt or at least a potential litigation forever hanging like the sword of Damocles”.[1] Consequently, an institute of statute of limitation which allows to avoid uncertainty in property relations and protects the rights and legal interests of the debtor has been introduced in civil law.

According to Section 1895 of the Civil Law, the general statute of limitation for liability is 10 years, while Section 406 of the Commercial Law stipulates that claims arising from commercial transactions expire within 3 year period (unless a different time period is prescribed by the law). The issue of application of the term specified in the Civil Law or the Commercial Law depends on the specific type of transaction, thus, the parties and the purpose of the transaction are the primary things to be assessed. Therefore, if the transaction is concluded in the course of commerce, for example, a supply contract between two companies, the statute of limitation would expire after 3 years, on the other hand, if the transaction is concluded between two natural persons for personal use, a period of 10 years will apply.

With regard to the moment at which the above-mentioned statute of limitation is calculated, reference should be made to Section 1896 of the Civil Law, which provides the procedure for determining the starting point of the statute of limitation. Namely, the statute of limitation begins on the day on which the claim is established to the point where an action against a debtor, who has not fulfilled its obligation, may be immediately brought up. Respectively, the statute of limitation begins with the occurrence of the debtor’s obligation to make the payment, which gives rise to the creditor’s claim. For instance, if the contract states that the debtor has to make a payment by December 31, the calculation of the statute of limitation begins after the date on which the debtor has failed to make a payment.

However, it should be kept in mind that the lapse of 3 or 10 years is not itself sufficient to establish the statute of limitation and there are a number of cases that interrupt the statute of limitation. Such interruption is regulated by Sections 1902 – 1906 of the Civil Law and provides that the statute of limitation shall be interrupted by: 1) bringing an action in court or arbitration; 2) a reminder to the debtor; 3) recognizing the claim of the creditor. Consequently, the interruption is based either on the creditor’s initiative to enforce the debt, which clearly indicates to the debtor that the creditor is not indifferent to the exercise of its rights or on the debtor’s explicit recognition of its obligations.

There do not appear to be any questions regarding the creditor’s recourse to the courts or arbitral tribunals, but the other two cases have been explained in legal doctrine as well as in the case law several times, including the Supreme Court of the Republic of Latvia significantly changing the established practice.

Hence, Section 1905 of the Civil Law states that the prescription period is interrupted by the creditor’s reminder to the debtor, which is an expression of the creditor’s will addressed to the debtor, from which the claim of fulfilling overdue obligations arises. Case law recognizes that the creditor’s reminder must be communicated individually and personally to the debtor and it must clearly state the creditor’s intention to demand fulfilment of a specific obligation.[2] Simple communication between the creditor and the debtor is not itself sufficient to establish the interruption of the statute of limitation.

It should also be noted that when the case reaches the court, the debtor will be obliged to submit evidence proving the fact of the reminder.[3] The relatively recent judgment of the Supreme Court should be mentioned, in which the court retreated from preceding case-law and admitted that no provision obliges the creditor to prove the fact that the reminder sent to the debtor was, in fact, received by the debtor.[4] Accordingly, it is sufficient to send a reminder to the debtor’s declared address of residence requesting repayment of the debt and no proof of receipt is required, as it is reasonable to assume that the debtor as a person, who is objectively aware of (they cannot not know) unfulfilled obligations and possible creditor claims or reminders, is expected to check the mailbox at least periodically. Otherwise, this could be abused, for example, by the debtor not removing the registered letter from the mailbox and thus abusively delaying time and artificially creating a prescription period.

According to Section 1906 of the Civil Law, the prescription period is also terminated if the debtor itself “in some way recognizes the creditor’s claim”. The legislator has not specified how the debtor is to recognize the debt without requiring a form of recognition, but in explaining the content of the above legal provision, legal doctrine states that recognition of a creditor’s claim may take the form of actions, documents or statements also in the form of a request for an extension of the deadline.[5] The recognition of a debt may take place both directly, for example, by sending a written notice to the creditor, or indirectly, where the action against the creditor is perceived as recognition of the debt, which may take the form of, as an example, the payment of a part of the debt.

Accordingly, the statute of limitation is interrupted by the occurrence of one of the above cases. It is important to note that the interruption of the statute of limitation means that a new period begins to run at the moment of interruption, therefore, upon the occurrence of any of the above circumstances, the period is recalculated.

Another relevant issue with regard to the statute of limitation is the case where, for example, one of the parties has not noticed its occurrence. First of all, it should be worth noting that the statute of limitation does not pose as an obstacle to the filing of an application to the court, its acceptance and commencement of legal proceedings, but if the expiration of the statute of limitation is established and if one of the parties indicates it, the action will be dismissed.

Secondly, the question must be considered of whether the court is required to declare the expiration of the statute of limitation on its own if the parties have not done so? Although this issue has long been ambiguous in balancing the adversarial principle in civil proceeding and the principle that the court itself must know the law (jura novit curia). However, the Supreme Court’s case-law makes it clear that invoking the statute of limitation in civil proceedings is a matter of the defendant’s prerogative within the framework of the principles of dispositivity and adversarial proceedings.[6] This means that the court cannot act as a representative of one of the parties and apply the statute of limitation on its own initiative.

Consequently, it must be borne in mind that it is important to follow the deadlines for fulfilment of obligations, as well as to regularly remind the debtors about their obligations. Otherwise, there is a risk of a statute of limitation expiring and a chance of losing the possibility to receive fulfilment of obligations.

[1] Torgāns K. Saistību tiesības. Mācību grāmata. Rīga: Tiesu namu aģentūra, 2014, 246.-247. lpp.

[2] Latvijas Republikas Augstākās tiesas Civillietu departamenta 2017. gada 4. jūlija spriedums lietā Nr. C20229814 SKC 248/2017.

[3] Augstākās tiesas Civillietu departamenta 2017. gada 6. jūlija spriedumu lietā Nr. SKC-327/2017.

[4] Latvijas Republikas Senāta Civillietu departamenta 2020. gada 3. decembra spriedums lietā Nr. SKC-12/2020.

[5] Torgāns K. Saistību tiesības. Otrais papildinātais izdevums. Rīga: Tiesu namu aģentūra, 2018, 243.lpp.

[6] Senāta sprieduma lietā Nr.SKC-2482/2015, Nr.SKC-327/2017 un Nr.SKC-292/2018.