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Limitation in international trade

One of the legal instruments and security accreditation of the rights and interests of the parties in the liability is the mechanisms of judicial protection and /or arbitration. But these mechanisms have their own characteristics and aspects that are important to know to protect your interests effectively. Thus, the important aspect is the limitations, in other words, the period during that a person is guaranteed by the judicial protection of rights.

In the international sale this issue is of particular importance because of the potential application of the law in different countries, with the main difficulty is that the laws of different countries often do not coincide with any duration of the statute of limitations, not the order of their calculation, interruption, resumption etc. That’s why, if an international sales contract party recognizes the applicable foreign law, special attention should be given to clarify these aspects, as they can have a significant impact on the overall disposition of the parties.

Rather simpler question of limitation is solved between the parties, who are residents of states that have ratified the Convention on the Limitation Period in the International Sale of Goods (New York, 1974). In this case, if the parties agree to apply existing legal right to any of their countries or the right of a country – signatory of the Convention, the limitation period will be 4 years.

However, in spite of all the advantages of this Convention for the parties, sometimes it restricts the parties in comparison with the ational legislation. Thus, the right of many countries, including Ukraine, provide contractual limitation periods in the direction of their increase over standard. Instead the Convention actually prohibits the increase of the contractual limitation period, at least at the time of signing the contract. Under the Paragraph 2 Article 22 of the Convention, the application of the debtor that extend the period of limitation, will be effective if it is done only during the period of limitation. This limitation in the Convention excludes the prolongation of the limitation period through the applicant made at the time of signing of the contract and any other time till the moment of the breach of the contract. It is a protective mechanism against abuse, because without such restriction the party with a stronger negotiating position may impose this extension to other side whilesigning the contract; in addition, the provision about the period of limitation may become the part of the model contract, which the other party may not pay enough attention to. Like this, the applicant of the debtor made after the expiration of the period provided in the Convention, will have no effect, because it hasn’t been done through the period of limitation.

I would also like to note that although the Article 24 of the Convention, involves the use of the consequences of the missing of limitations solely under the application of an interested party (usually the defendant), the plaintiff should not hope for a favorable behavior or negligence of the defendant. In accordance with this Article of the Convention the expiration of the limitation period shall be taken into account when considering a dispute only by the party involved in the process. In the presence of such applicant, in accordance with the Article 25 of the Convention, the right of the demand is not recognized and enforceable if the dispute starts after the expires of the limitation period.

So, we should not lose the sight of the fact that the Convention also provides the same rules of the suspension or extension of the limitation period, and it changes and the order of its calculation, and also introduces a general limit period of limitation consideration the interruptions and resumptions (10 years – by Article 23 of the Convention).

Taking into account all written above the interested party has to pay much attention to all aspects connected with the limitations, for not to be denied of the protection in the court. The interested party needs to monitor the limitations to allow sufficient time for the submission of claims to the courts or arbitration or take action to extend the limitations. For example, the Article 19 of the Convention states that, where the creditor performs, in the State in which the debtor has his place of business and before the expiration of the limitation period, any act, other than the acts described in articles 13, 14, 15 and 16, which under the law of that State has the effect of recommencing a limitation period, a new limitation period of four years will commence on the date prescribed by that law. That’s why the interested party must be aware of the national laws of the country of the debtor, what specific actions; even if they are not related to the excitation of the court or tribunal may cause resumption of the limitation period. For example, in some jurisdictions, a letter or even an oral request may be sufficient. In other jurisdictions, such action of the creditor will not renew the limitation period and the creditor will have to initiate legal proceedings in order to interrupt during this period. At the same time you should not forget that the Article 19 of the Convention applies only in cases whe n the act committed by the creditor (in case of the absence of this Convention), “resulted in a resumption of” local limitations under the law of the state of the debtor. If a local rule provides only the additional shorter period after such action and does not cause “renewal” of the original limitation period, then such local rule cannot be the basis for the application under the Article 19 of the Convention. It should be noted that the consequence of the renewal of the limitation differs from the commencement of proceedings (the Article 13 – 16 of the Convention) after the commencement of proceedings the limitation period is “interrupted” taking into account reservations of the Articles 17 and 18 of the Convention.

If you solve this issue through practical area, under the right of Ukraine holding contractors mutual reconciliation status on a specific date and design of such verification in the form of a separate written document leads to a resumption of limitations. Such act is easily signed by Ukrainian companies, that’s why with due tact and perseverance, the interested party may repeatedly, with the reservation of Article 23, to renew the limitations, signing such acts, for example, annually.

This article points once again the need for careful legal support of business processes that will protect the rights and interests, and the consultations with lawyers in the country of the counterparty will reveal some aspects of the local laws that may also be useful and important.

Author: Kydalov Igor


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Publication Date: 30.10.2014
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