Covid-19 and Limitation Periods in Cross-Border Disputes

The law governing limitation periods is critical in managing a dispute; a failure to commence proceedings within the required limitation period is usually nothing less than fatal to a claim. This article considers the potential impact of the Covid-19 pandemic on limitation periods affecting international civil litigation in the courts of England and Wales (henceforth, with apologies, the English courts). The focus of this article is on statutory limitation periods, but it is important to note that some claims may also be subject to contractually agreed limitation periods which require separate and careful consideration.

The first point to note is that, although some court buildings have closed, the English civil courts have not (or at least not yet) shut down or suspended operations because of the Covid-19 pandemic. Indeed, the judiciary has demonstrated significant resilience and agility in adapting to changed circumstances. The measures adopted include a new Remote Hearings Protocol, as well as Practice Direction 51Y specifically on ‘Video or Audio Hearings During Coronavirus Pandemic’. A further Practice Direction 51ZA (‘Extension of Time Limits and Clarification of Practice Direction 51Y – Coronavirus’) allows parties to agree to extend time limits under the Civil Procedure Rules by up to 56 days without the permission of the Court (instead of the usual 28 days), and for applications to be made to the Court for other extensions of time and adjournments. Guidance on the principles to be applied in considering such applications has also recently been provided by the High Court, in Muncipio De Mariana v BHP Group Plc [2020] EWHC 928 (TCC). No change has, however, been made to the applicable limitation periods for civil litigation in England governed by English law, as set out in the Limitation Act 1980.

This is, however, certainly not the end of the story. As is well known, cases in the English courts with a cross-border element (the majority of cases in the Commercial Court) may be governed by foreign substantive law, pursuant to the relevant choice of law rules. What is perhaps slightly less well known is that if a cause of action is governed by foreign law this includes the application of foreign limitation periods. There was historically some uncertainty on this point – under the common law some limitation periods were considered procedural (and thus always governed by the law of the forum) and some substantive (and thus potentially governed by foreign law), depending on whether they barred a remedy or extinguished a right. This somewhat dubious distinction was duly criticised, and the matter was clarified in UK law through the adoption of the Foreign Limitation Periods Act 1984, which established that all limitation periods were in effect to be considered substantive. The EU Regulations which now provide the choice of law rules for contractual and non-contractual claims in the English courts (the Rome I Regulation 2008 and the Rome II Regulation 2007) also expressly provide that the law chosen by those rules, which may be foreign law, is to govern limitation periods (Rome I Regulation, Article 12(1)(d), and Rome II Regulation, Article 15(h)). The UK has legislated for the continued application of these rules after Brexit on a unilateral basis – regardless of the terms of any negotiated agreement – subject to some minor amendments which do not affect this point.

As a consequence, the applicable limitation periods for proceedings in the English courts may well come from foreign law. And it is therefore very important to note that some jurisdictions have made changes to those limitation periods as a result of the Covid-19 pandemic. Different approaches have, however, been adopted in different jurisdictions. For example, in some countries the rules only extend limitation periods which are due to expire, while in others they extend all limitation periods. France is an example of the former approach – limitation periods due to expire between 12 March 2020 and 24 June 2020 have presently been extended to 24 August 2020 (Order No. 2020-306 of 25 March 2020). New York is an example of the latter approach – limitation periods have been suspended for all court proceedings governed by New York state law, regardless of when they are due to expire. Limitation periods are (at present) considered not to have run between 20 March 2020 and 6 June 2020, a period of 78 days. (The qualification ‘at present’ is necessary because the end date of this period was originally 19 April 2020, but it has been extended several times.) Thus any limitation period governed by New York law which was due to expire after 20 March 2020 will be extended by 78 days – this includes, for example, any limitation period due to expire in 2021. Various other jurisdictions have adopted diverse rules similar to one of the two approaches above, including Italy, Spain, India, several Canadian provinces, and many other US states.

At first glance, a claimant seeking to commence proceedings in the English courts which would be governed by the substantive law of a foreign legal system which has extended its limitation periods ought to be able to rely on that extension. However, caution should be exercised before doing so, because there are two important qualifications to the rule that limitation periods are determined by the foreign law that governs a substantive claim.

The first is that under the Foreign Limitation Periods Act 1984, as well as under the Rome I and II Regulations, the application of a foreign limitation period is subject to an exception where this would be contrary to public policy. The Act specifies that this includes ‘undue hardship’ to a party to the proceedings. This exception is most often relied on by a claimant, where proceedings have been commenced in England within a more generous English limitation period but not within the period set under foreign law, to argue that application of the foreign period would cause an injustice. The High Court applied the exception in this way in a very recent decision, Roberts (a minor) v Soldiers, Sailors, Airmen and Families Association [2020] EWHC 994 (QB) – finding, as an alternative basis for decision, that even if proceedings had been brought outside German limitation periods, the effect of German law should be disapplied. The exception could also, however, be relied on by a defendant, to argue that a more generous foreign limitation period should be disapplied, in favour of an English limitation period under which the claim cannot proceed. This is perhaps unlikely in the Covid-19 context, as it would be difficult to argue that a short extension of limitation periods under foreign law was a cause of injustice, but given that English courts have remained open throughout the pandemic, such an argument could be made.

A potentially more significant issue comes from the fact that when the English courts apply foreign limitation periods, they do so with what the Supreme Court called, in Ministry of Defence v Iraqi Civilians [2016] UKSC 25 at [13], ‘a process of transposition’. In that case, Iraqi law governed the substantive claims in tort and therefore the applicable limitation periods. The Iraqi limitation period had not expired, because there was an impediment to bringing proceedings in Iraq – a law giving UK armed forces immunity from suit – and the limitation period was not considered to run if such an impediment were present. However, the Supreme Court determined that for the purposes of applying that law in the English courts, the Iraqi limitation rule required ‘transposition’, such that only an impediment to bringing proceedings in England should extend the limitation period. Proceedings could have long been brought in England during the period since the allegations arose, and thus the claims were time-barred. In the context of the Covid-19 pandemic, a similar argument could potentially arise if a foreign legal system extended limitation periods specifically for the duration of the closure of its courts. Even if that would have the effect of extending limitation periods for claims brought in those foreign courts, it could be argued that when that rule is ‘transposed’ to the English courts, which have not closed, no such extension should be recognised.

Given these uncertainties, it is important to be as prudent as ever in identifying and complying with any applicable limitation periods. One potential course of action whose effectiveness has long been accepted in English law is an agreement, sometimes called a standstill or tolling agreement, under which limitation periods are either suspended or extended. There is an important difference between these two alternatives, and such agreements should be drafted carefully to avoid uncertainty as to their effects. In relation to personal injury claims during the Covid-19 pandemic, it is notable that a suspension of limitation periods has been established on a multi-party basis by a Protocol to which insurance companies and law firms may voluntarily sign up. However, the effectiveness of such an agreement is determined by the law governing limitation periods, and not all legal systems accept that parties have the power to extend statutory limitation periods by contract. Where the parties have entered into such an agreement, and foreign limitation law refuses to recognise it, this may be the basis for another public policy argument (as in Hellenic Steel Co v Svolomar Shipping Co Ltd (The Komninos S) [1991] 1 Lloyd’s Rep 370), but its success will depend on the circumstances of each case. Caution should therefore be exercised before relying on a standstill agreement to extend limitation periods in cross-border disputes.

The most sensible course of action, if there is a risk that a limitation period will expire, may well be to commence protective proceedings. This should, however, also be done with great care. If a claim is not fully set out, an application to amend the particulars of claim which would effectively introduce a new claim may run into real problems.  Although the Court has power to allow the amendment under CPR 17.4 (i.e. where the new claim arises out of the same facts or substantially the same facts as the existing claim) notwithstanding the expiry of the foreign limitation period (see PJSC Tatneft v Bogolyubov [2017] EWCA Civ 1581, [2018] 4 WLR 14 at [83]-[84]), an application may be refused if it is (at the time of application) outside the applicable limitation period – for a recent example of this danger, see PJSC Tatneft v Bogolyubov [2018] EWHC 2499 (Comm).

In the context of the present health crisis, limitation periods are perhaps not the first thing on the minds of parties to a cross-border dispute. Given their critical importance, however, and the added complexities introduced by amendments to limitation periods in a number of jurisdictions, as well as the practical delays likely to be experienced in preparing to commence proceedings, an understanding of their precise effect is more important than ever.

 Alex Mills is a Professor of Public and Private International Law at UCL Faculty of Laws and a member of Blackstone Chambers’ Academic Research Panel.