Report on the Accrual of Cause of Action and Limitation Periods in Sri Lankan Civil Law

Executive Summary

The concept of a "cause of action" is fundamental to civil litigation in Sri Lanka, serving as the legal foundation upon which a claim can be brought before a court. It signifies the set of facts that, if proven, establish a legally recognized wrong and create a right to seek judicial redress. Crucially, the precise date a cause of action "accrues" — that is, the moment it arises — dictates the commencement of statutory limitation periods. These time limits are not mere technicalities; they are critical for the successful initiation and maintenance of legal proceedings, preventing claims from becoming time-barred and ensuring the efficient administration of justice.

This report provides a comprehensive analysis of when a cause of action arises under various specific legal scenarios within Sri Lankan law, drawing upon the Prescription Ordinance, the Civil Procedure Code, the Bills of Exchange Ordinance, and relevant judicial precedents. It details the general principles governing accrual, such as the moment of breach for contracts or the suffering of damage for torts, and explores exceptions like the discovery rule for fraud. Furthermore, it offers a focused examination of accrual points and corresponding limitation periods for promissory notes, written and unwritten loan agreements, written sales agreements, insurance policies, bank overdrafts, and partition and rei vindicatio actions. Understanding these nuances is paramount for legal professionals to navigate the complexities of civil litigation effectively in Sri Lanka.

I. Introduction to Cause of Action and Limitation Periods in Sri Lanka

A. Definition of "Cause of Action"

In Sri Lankan jurisprudence, a "cause of action" is the technical legal term for the specific set of facts that give rise to a claim enforceable in a court of law.¹ It represents a legally recognized wrong that empowers an aggrieved party to initiate legal proceedings. For a plaintiff to successfully pursue a case, all essential elements constituting their cause of action must be satisfied.¹ The Civil Procedure Code explicitly defines "cause of action" as "the wrong for the prevention or redress of which an action may be brought, and includes the denial of a right, the refusal to fulfil an obligation, the neglect to perform a duty and the infliction of an affirmative injury".² Essentially, it encapsulates the entire factual matrix that forms the basis of an enforceable claim.⁴ Without a valid cause of action, a court lacks the authority to hear a dispute, and the claim is likely to be dismissed, potentially with an order for the plaintiff to pay costs.¹

B. Purpose and Significance of Limitation Periods

Limitation periods are statutory time limits within which a party must commence legal action. Their fundamental purpose is to prevent individuals from delaying the enforcement of their rights indefinitely, thereby fostering certainty and finality in legal affairs.⁴ Once the prescribed period elapses, the claim may no longer be valid or enforceable in a court of law.⁴ This legal framework is rooted in public policy considerations, aiming to prevent the courts from being inundated with stale claims where evidence may have deteriorated, and memories faded, ensuring that disputes are addressed while facts are still fresh and reliable.¹ The imposition of these time limits promotes judicial efficiency and discourages prolonged uncertainty in legal relationships.

C. Overview of the Prescription Ordinance and Other Relevant Statutes

The primary legislative instrument governing limitation periods in Sri Lanka is the Prescription Ordinance. This Ordinance sets out various timeframes for different types of civil actions. While the standard limitation period for actions founded on contract or most torts is six years from the date the cause of action accrues ⁴, the Ordinance also prescribes numerous exceptional periods for specific claims. For instance, claims on a deed or for the recovery of land typically have a 12-year period, while personal injury claims are generally subject to a three-year limit.⁵ Beyond the Prescription Ordinance, other specific enactments, such as the Bills of Exchange Ordinance, contain provisions that influence the accrual of certain causes of action, particularly concerning negotiable instruments.

The interplay between the existence of a valid cause of action and the adherence to statutory limitation periods functions as a dual gatekeeping mechanism for the judicial system. A valid cause of action grants entry to the courts, but the limitation period dictates when that entry is permissible. This framework reflects a careful public policy balance: access to justice is provided for legitimate grievances, but it is tempered by the need for judicial efficiency, the preservation of evidentiary integrity, and the prevention of perpetual litigation. The dismissal of claims, either for lacking a valid cause of action or for being time-barred, underscores the court's role in managing its docket and upholding legal certainty.¹

Furthermore, the development of causes of action in Sri Lanka is not solely confined to statutory enactments. As noted in legal commentary, a cause of action may also arise from the common law, which has evolved gradually over time through judicial decisions.¹ This judicial law-making process has led to the development of various causes of action, such as those for trespass to land, breach of contract, private nuisance, false imprisonment, and negligence.¹ This dynamic aspect means that the concept of a cause of action is not static; it is continually shaped by judicial interpretation and societal needs. Legal professionals must therefore remain attuned to how judicial precedents might expand or refine existing causes of action, which can in turn influence the precise moment a new type of wrong is recognized and, consequently, when its cause of action accrues.

Type of Action	Limitation Period (Sri Lanka)	Source Snippets
Actions founded on contract or tort	6 years	4
Actions on a deed or for recovery of land	12 years	4
Personal injury claims	3 years	5
Money lent without written security (Unwritten Loan)	3 years	6
Goods sold and delivered	1 year	6
Shop bill or book debt	1 year	6
Work or labour done	1 year	6
Wages of artisans, labourers, or servants	1 year	6
Promissory note or bill of exchange	6 years	6
Written promise, contract, bargain, or agreement	6 years	6
Other written security (not mortgage/bond)	6 years	6
Actions on Mortgage or bond	10 years	6
Other causes of action not expressly provided for	3 years	6

II. General Principles Governing Accrual of Cause of Action

A. Accrual on Breach of Contract

For claims arising from contracts, the cause of action generally accrues from the earliest instance of a breach of the contract.⁴ This means that the statutory clock for the limitation period begins to run the moment a party fails to perform an obligation as agreed, irrespective of whether the aggrieved party is immediately aware of that specific breach.⁸ The legal position is that the right to bring an action arises as soon as the contractual obligation is unfulfilled, "unless there is some special term of the agreement to the contrary".⁷ This emphasizes that while the general rule is clear, the specific terms negotiated within a contract can influence the precise trigger for accrual.

B. Accrual on Suffering Damage in Tort

In most tortious claims, such as those for negligence or nuisance, a cause of action accrues when damage is suffered.⁴ This distinguishes tort from contract law, where the mere breach of an agreement is often sufficient to trigger accrual. In tort, the actual harm, injury, or loss sustained by the plaintiff is typically the event that initiates the limitation period. For example, in a negligence claim, the cause of action would arise when the injury resulting from the negligent act manifests, not necessarily when the negligent act itself occurred.¹

C. The "Discovery Rule" and its Application

A significant exception to the general accrual principles is the "discovery rule," which defers the commencement of the limitation period. This rule stipulates that the statute of limitations does not begin to run until the date on which a claimant actually discovers, or with reasonable diligence should have discovered, an injury or loss, rather than on the date when the wrongful act giving rise to the injury or loss originally took place.⁴ This rule serves to lengthen the normal statute of limitations period in specific circumstances.¹⁰

The discovery rule is particularly pertinent where an action is based on fraud or a mistake. In such cases, the limitation period does not commence until the fraud or mistake was discovered or could, with reasonable diligence, have been discovered.⁴ The concept of fraudulent concealment further delays accrual, involving conduct that actively conceals the existence of the plaintiff's cause of action.¹¹ While common law fraud or deceit is not always a prerequisite, equitable fraud—defined as unconscionable conduct, active concealment of a wrongdoing, or passive failure to inform of a knowingly or recklessly committed wrongdoing—may be sufficient to invoke this rule.¹¹ However, it is important to note that establishing fraudulent concealment is a high evidentiary bar, and the plaintiff is still required to demonstrate that they exercised reasonable diligence to discover the fraud and uncover the cause of action.⁹ This requirement prevents claimants from indefinitely delaying legal action.

The application of the discovery rule highlights a tension within legal principles: the desire for legal certainty versus the pursuit of equitable justice. While the general accrual rules prioritize a fixed, objective trigger to ensure finality and prevent stale claims, the discovery rule acknowledges that a claimant cannot reasonably be expected to sue for a harm they could not have known about. The stringent requirements for invoking this rule, particularly the emphasis on "reasonable diligence" and the high evidentiary standard for proving fraudulent concealment, demonstrate the judiciary's careful approach to balancing these competing interests. Courts aim to provide recourse for unknowing victims while simultaneously guarding against the indefinite revival of claims where evidence might have deteriorated or witnesses become unavailable. This reflects a continuous judicial effort to balance the individual's right to seek redress with the broader public interest in timely dispute resolution and the integrity of the judicial process.

D. Effect of Acknowledgment of Debt or Part Payment

A crucial mechanism that can affect the running of limitation periods is the acknowledgment of debt or part payment. Where a right of action has accrued to recover any debt, and the person liable or accountable has acknowledged the claim in writing or makes any partial payment in respect of the debt, the right of action is deemed to have accrued anew from the date of the acknowledgment or the last payment.⁴ This effectively resets the limitation period, providing creditors with a means to extend their ability to pursue claims.

However, this principle is not without important qualifications. A creditor cannot unilaterally appropriate part of a debt from a customer's account and claim that it constitutes a payment by the debtor for the purpose of overcoming the limitation rule. For the limitation period to be extended, the debtor must have performed a "positive act to effect payment".¹² This distinction is significant: while the law of prescription suppresses the

remedy (the right to sue) after the limitation period, it does not extinguish the underlying right (the debt itself).¹² Therefore, a bank, for example, might still exercise a right of set-off for a time-barred debt if such a right is contractually available.¹²

The provision allowing acknowledgment of debt or part payment to restart the limitation period carries substantial strategic implications for both debtors and creditors. For creditors, it offers a vital mechanism to revive a potentially time-barred debt, providing an incentive to seek such acknowledgments or even small payments. For debtors, this means that seemingly innocuous actions, such as a partial payment or a written response acknowledging a debt, can inadvertently extend their liability, even if they were unaware of the prescriptive effect. The judicial stance that a creditor's unilateral appropriation is insufficient to restart the clock underscores that for the limitation period to be extended, there must be a clear act by the debtor that implies a fresh promise to pay the balance. This highlights the importance for debtors to exercise extreme caution regarding any communication or payment related to old debts, as it could unintentionally waive their right to plead prescription. Conversely, creditors must ensure that any acknowledgment or payment is clearly attributable to the debtor and demonstrates an intention to pay the remaining balance.

E. Waiver of Prescription

Parties to an agreement can, in certain circumstances, validly and enforceably agree to waive the right to plead prescription. Such an agreement is generally held to be valid whether it is made before or after the period of limitation has run.¹³ This contractual flexibility allows parties to opt out of the statutory time limits, which can be particularly relevant in ongoing commercial relationships or in the context of guarantees, where a guarantor might waive their right to rely on prescription as a defense.¹³ This ability for parties to contractually waive the plea of prescription suggests that while the Prescription Ordinance sets default time limits, it allows for party autonomy in specific contexts, especially where sophisticated parties are involved. This indicates that the policy rationale behind prescription, which includes preventing stale claims and promoting certainty, can be overridden by explicit agreement, thereby recognizing the freedom of contract. However, this flexibility is not absolute; courts have demonstrated a willingness to intervene when contractual clauses attempt to

unreasonably shorten statutory limitation periods, as seen in the context of insurance policies.¹⁴ This implies a distinction: parties may extend or waive prescription, but they may not be able to unreasonably shorten it, particularly in relationships characterized by an imbalance of bargaining power. This illustrates the judiciary's role in ensuring that contractual terms do not become instruments of oppression.

III. Accrual of Cause of Action in Specific Scenarios

A. Promissory Notes

Definition and Types

A promissory note is a written promise by one party (the maker) to pay a specified sum of money to another party (the payee) at a definite time or on demand.¹⁵ The Bills of Exchange Ordinance, the governing statute in Sri Lanka, defines what constitutes a promissory note and distinguishes between two primary types: demand promissory notes and time promissory notes.¹⁶ It is important to note that for stamp duty purposes, the Stamp Ordinance may define a "promissory note" more broadly to include even a conditional promise to pay. However, for the purposes of mercantile law and enforceability, a promissory note must typically contain an absolute, unconditional promise to pay, not contingent on an uncertain event or payable out of a particular fund.¹⁹

Accrual for Demand Promissory Notes

For a demand promissory note, the cause of action typically accrues from the date of the note itself.¹³ This is because a demand note is, by its nature, payable immediately upon execution or at any time thereafter when a demand for payment is made.¹⁵ While a formal demand is often made in practice to notify the debtor and formalize the default, it is not strictly necessary for the right to sue to arise. The legal obligation to pay exists from the date of the instrument, making that the trigger for the limitation period.

Accrual for Time Promissory Notes

In the case of a time promissory note, which specifies a definite future date for payment (e.g., "three months after date" or "on 31st December 2025"), the cause of action accrues upon the expiration of that specified time, when the payment becomes due.⁶ The Bills of Exchange Ordinance provides rules for determining the time of payment, including the addition of three "days of grace" to the fixed payment date, unless the instrument explicitly provides otherwise.¹²

Limitation Period

Actions upon any promissory note in Sri Lanka are generally subject to a six-year limitation period, commencing from the date the cause of action arises or the breach occurs.⁶ While some general references in other jurisdictions might suggest a three-year period for certain money recovery suits ²⁰, the specific provisions of Sri Lanka's Prescription Ordinance clearly categorize promissory notes under the six-year limitation for written instruments.⁶

The distinction between demand notes and time notes in determining accrual is not merely a technicality; it reflects a fundamental difference in the foreseeability of default. For a demand note, the maker is implicitly in default from day one, as payment can be demanded at any time. This places a significant onus on the payee to act diligently. Conversely, for a time note, both parties have a clear, pre-determined future date for performance, making the breach (non-payment) a predictable event. This difference influences risk assessment for both lenders and borrowers, as the window for legal action opens at different points, impacting their strategic planning for collection or defense.

Furthermore, the varying definitions of "promissory note" across different statutes, such as the Stamp Ordinance (which includes conditional promises for stamp duty) versus the requirements for a mercantile instrument (absolute promise to pay) ¹⁹, highlight a critical legal nuance. A document might be treated as a "promissory note" for one statutory purpose (e.g., revenue collection) but not for another (e.g., enforceability under the Bills of Exchange Ordinance or Prescription Ordinance). This means that simply labeling a document as a "promissory note" does not automatically confer all the legal characteristics or limitation periods associated with a true mercantile promissory note. A thorough legal analysis must delve into the

substance of the promise (absolute versus conditional) to determine the correct legal classification and, consequently, the applicable limitation period. This could lead to a situation where a document, though stamped as a promissory note, might be treated as an unwritten agreement for limitation purposes if its terms are not absolute, potentially shortening the prescriptive period from six years to three years.

B. Loans Given on a Written Agreement

General Principles

A loan granted under a written agreement is fundamentally a contract, and as such, the general principles of contract law apply.²¹ For a valid and enforceable contract to exist, there must be a clear offer, an unequivocal acceptance, an intention by the parties to create legal relations, and valuable consideration.²¹ In the context of business or commercial transactions, there is a legal presumption that parties intend to be legally bound by their agreements.²¹

Accrual upon Breach

The cause of action for a loan given on a written agreement accrues upon the breach of the contract.⁴ This typically occurs when the borrower fails to repay the loan or any specified installment by the due date(s) stipulated in the agreement. The legal principle dictates that the statute of limitations begins to run from the earliest moment at which an action could have been brought.⁷ For a written loan agreement, this is directly linked to the failure to meet a clearly defined repayment obligation.

Limitation Period

Actions founded on a written contract or agreement, including written loan agreements, are subject to a standard limitation period of six years from the date of the breach.⁴ This period provides a clear timeframe for lenders to pursue legal recourse for defaulted loans documented in writing.

For written loan agreements, the implied condition of a "due date" for repayment serves as the primary and most objective trigger for accrual. The failure to pay by a specified date constitutes an undeniable breach, making the accrual point clear and reducing potential disputes over when the limitation period began. This clarity streamlines litigation for written loan agreements.

Furthermore, the emphasis on definite and certain terms in a contract, as highlighted in legal principles ²², is particularly important for written loan agreements. Vague or indefinite terms regarding repayment schedules, interest rates, or default clauses can lead to ambiguities concerning when a breach occurred. This ambiguity can complicate the determination of the accrual date and potentially open avenues for challenges regarding the limitation period. Therefore, a meticulously drafted written agreement is not only about defining obligations but also about establishing clear, unambiguous triggers for legal recourse, thereby minimizing future litigation over procedural matters like accrual.

C. Loans Given on an Unwritten Agreement

Challenges in Proving Unwritten Agreements

While oral agreements can be legally binding in Sri Lanka, proving their existence and specific terms presents significantly greater challenges compared to written contracts.¹⁶ Without a written record, parties must rely on other forms of evidence, such as proof of performance (e.g., bank statements showing transfers or repayments), witness testimony, and any relevant correspondence.²⁴ The core difficulty lies in establishing the fundamental contractual elements—offer, acceptance, consideration, and intention to create legal relations—without the clear documentation that a written agreement provides.²⁴

Accrual upon Money Becoming Due

For money lent without written security, which includes unwritten loan agreements, the cause of action accrues from the time the money claimed became due.²⁶ Determining this "due date" can be particularly challenging in the absence of a written repayment schedule. It might depend on an implied reasonable time for repayment, an oral understanding, or the occurrence of a specific event that was orally agreed upon.

Specific Limitation Period

Actions for the recovery of money lent without written security are subject to a shorter limitation period of three years from the time the cause of action shall have arisen.⁶ This is a critical distinction from written contracts, which generally benefit from a six-year period.

The inherent difficulty in proving the existence and terms of oral agreements, as repeatedly emphasized in legal discussions ¹⁶, is significantly compounded by this shorter three-year limitation period. Less time is available to gather circumstantial evidence, such as bank statements or the fading memories of witnesses, which might otherwise help establish the agreement's terms and the precise accrual date. This combination of a high evidentiary burden and a compressed timeline creates a disproportionately higher risk for parties relying on unwritten loan agreements, making successful enforcement considerably less probable. This suggests a policy implication: the law implicitly discourages unwritten agreements for loans by making them both harder to prove and subject to quicker prescription.

Furthermore, the ambiguity surrounding the "due date" for unwritten loans directly impacts the determination of the accrual point. Without a written schedule, it becomes contentious whether the loan was payable on demand, within a reasonable time, or upon a specific oral condition. If parties dispute the due date, they are effectively disputing the accrual point, which then determines whether the action is time-barred. This lack of clarity on the accrual date is a direct consequence of the "unwritten" nature of the agreement and can lead to complex factual inquiries in court, shifting the focus from the debt itself to the very existence and terms of the agreement.

D. Written Sales Agreements

Accrual upon Breach

For written sales agreements, the cause of action accrues upon a breach of the contract. Common breaches include non-delivery of goods, non-payment of the purchase price, or a breach of a warranty or condition related to the goods.⁴ The limitation period begins from the "earliest time at which an action could be brought".⁷

Distinction between Conditions and Warranties

The nature of the breach, whether it pertains to a "condition" or a "warranty," affects the remedies available to the aggrieved party, though both can give rise to a cause of action for damages.²³ A "condition" is a major term vital to the main purpose of the contract; its breach entitles the injured party to repudiate the contract and claim damages. A "warranty," on the other hand, is a less important term that does not go to the root of the contract; its breach typically only gives the injured party the right to claim damages, without the right to repudiate the entire contract.²³

Limitation Period

Generally, actions founded upon any written promise, contract, bargain, or agreement, which includes written sales agreements, are subject to a six-year limitation period from the date of the breach.⁶

However, a crucial exception exists for actions specifically "for or in respect of any goods sold and delivered." Such actions fall under a special provision, Section 8 of the Prescription Ordinance, and must be brought within one year after the debt shall have become due.⁶ This one-year period applies even if the underlying sales transaction was based on a written contract.²⁶ Where a cause of action appears to fall within the scope of more than one provision, the legal principle of

generalia specialibus non derogant (general provisions do not derogate from special provisions) applies. Therefore, for written sales agreements specifically concerning "goods sold and delivered," the particular one-year period under Section 8 takes precedence over the general six-year period for written contracts under Section 6.²⁶

The stark contrast between the general six-year limitation for written contracts and the specific one-year period for "goods sold and delivered," even when the sales agreement is written, represents a clear legislative policy choice. Commercial transactions involving goods are typically high-volume and require rapid finality. A shorter limitation period compels parties to address disputes promptly, preventing stale claims that could tie up inventory, disrupt supply chains, or complicate accounting. The application of generalia specialibus non derogant reinforces that this is a deliberate carve-out, prioritizing the unique demands of commerce over the general contractual principle. This indicates a legislative intent to promote fluidity and certainty in the market for goods.

While both conditions and warranties give rise to a cause of action upon breach, their distinction carries significant practical implications for the aggrieved party's remedial strategy, which can influence the timing of legal action. A breach of a "condition" allows for repudiation of the contract and damages, offering a more drastic remedy. A breach of a "warranty" typically only allows for damages. This means that if a buyer discovers a breach of warranty, their cause of action accrues for damages, and they must act within the limitation period for that claim. If it is a breach of condition, they have the option to repudiate the contract or continue and claim damages. This choice can influence when they formally declare a breach and thus when their cause of action for a specific remedy might be perfected, although the underlying breach event still triggers the limitation clock. The choice of remedy, while not altering the initial accrual of the breach, affects the type of action and the quantum of damages sought, thereby influencing the strategic timing of the lawsuit.

E. Insurance Policies

Accrual upon Denial of Claim or Breach of Policy Terms

The cause of action under an insurance policy typically accrues when the insurer denies a claim submitted by the policyholder or otherwise breaches a term of the policy.¹⁴ This denial is often formally communicated through a letter of repudiation, which clearly states the insurer's reasons for rejecting liability.¹⁴

Impact of Policy Clauses Shortening Limitation Periods

Insurance policies, being written contracts, sometimes contain clauses that attempt to impose a shorter period for commencing legal proceedings than the statutory limitation periods (e.g., three months from the date of claim rejection).¹⁴ However, Sri Lankan courts have consistently held such clauses to be unreasonable and unenforceable if they restrict the provisions of the Prescription Ordinance.¹⁴ The general statutory limitation period of six years for breach of contract, as provided by the Prescription Ordinance, applies to actions arising from insurance policies.⁶

Independent Cause of Action

In some instances, a party may attempt to establish an independent cause of action based on subsequent correspondence or negotiations (e.g., an offer to pay a certain sum) that is separate from the original insurance policy and its arbitration clause.³⁰ However, courts will scrutinize whether such correspondence truly constitutes a new, independent agreement with distinct terms and consideration, or merely relates to the ongoing dispute under the original policy.³⁰ The burden of proof lies with the party asserting this independent cause of action.

The judicial stance against contractual clauses that unreasonably shorten statutory limitation periods, as seen in the context of insurance policies ¹⁴, demonstrates the judiciary's role as a protector of statutory rights against potentially oppressive contractual terms. This is particularly relevant in contracts of adhesion like insurance policies, where there is often an imbalance of bargaining power. This indicates a broader legal principle: parties generally cannot contract out of statutory limitation periods if doing so would undermine public policy or lead to unjust outcomes. This provides a crucial safeguard for policyholders and sets a precedent against similar attempts by other large entities to circumvent statutory protections.

The strategic maneuver of attempting to establish an "independent cause of action" based on post-denial correspondence, particularly to bypass an arbitration clause in the original insurance policy ³⁰, highlights a complex legal issue. The court's careful scrutiny of whether an "offer to pay" truly constitutes a new, binding agreement or merely a negotiation within the existing dispute is critical. If such attempts were easily successful, arbitration clauses could be readily circumvented, undermining their purpose of providing an alternative dispute resolution mechanism. This suggests that for a new cause of action to accrue independently, the subsequent interactions must clearly demonstrate the formation of a

new contract with distinct terms and consideration, not merely a continuation of the dispute under the original agreement. This requires a high evidentiary bar for the party asserting the independent cause of action.

F. Bank Overdrafts

Accrual Point

Generally, for bank overdrafts, the cause of action accrues from the time the overdraft facility is utilized, as it is considered a loan by the banker to the customer. In such cases, no specific demand for repayment is necessary for the limitation period to commence.¹³ However, if the specific overdraft agreement explicitly stipulates that a demand for repayment is a prerequisite, then the cause of action would accrue upon the issuance of such a demand.¹³ In instances of erroneous debits by a bank, a customer's cause of action to recover the overcharged monies may accrue when the customer discovers the error or when a demand for the incorrect sum is made.³²

Limitation Period

The applicable limitation period for bank overdrafts depends on the nature of the underlying agreement. If the overdraft facility is not secured by a written contract specifying detailed repayment terms, it may be treated as "money lent without written security," subjecting it to a three-year limitation period.⁶ Conversely, if the overdraft is part of a broader, comprehensive written banking facility agreement, the standard six-year limitation period for written contracts would likely apply.⁶

Right of Set-Off for Time-Barred Debts

A significant legal principle concerning bank overdrafts is that a banker generally retains an undisputed right to set off a time-barred debt against a customer's account, even if a lawsuit cannot be filed to recover that debt.¹² This is because the law of prescription suppresses the

remedy (the right to sue) but does not extinguish the underlying right (the debt itself).¹² However, the bank cannot unilaterally appropriate funds from a customer's account and then claim that this constitutes a payment by the debtor to overcome the limitation rule; there must be a positive act of payment by the debtor to restart the prescriptive period.¹²

The principle that "time runs against the banker in respect of each overdraft from the time when it is made" implies a continuous accrual risk for banks, particularly for "dormant" overdrafts.¹³ Unlike a term loan with a fixed repayment schedule, an overdraft is a revolving credit facility. If no demand is made and the account remains inactive, the limitation period for the entire overdraft amount can start accruing from its inception. This means that banks must actively manage their overdraft portfolios, either by making regular demands, securing written agreements with clear terms, or ensuring customer activity that acknowledges the debt, to prevent substantial sums from becoming time-barred. This highlights a continuous accrual risk if banks are not proactive in their debt management.

The distinction that prescription suppresses the remedy but not the right has profound implications for banking operations.¹² It signifies that even if a bank is legally barred from

suing a customer for a time-barred overdraft, it can still recover the debt if it possesses a contractual right to set off funds from other accounts held by the customer. This provides banks with a powerful residual mechanism for debt recovery that survives the limitation period. However, the crucial caveat that a bank cannot unilaterally appropriate funds to restart the limitation period is vital. This indicates a distinction between exercising an existing right (set-off) and attempting to revive a time-barred claim through a manufactured "part payment." This underscores the nuanced legal position of banks regarding time-barred debts, granting them a self-help remedy while preventing them from manipulating the prescriptive clock.

G. Partition and Reivindicatio Actions

Partition Actions

Nature of Action

A partition action in Sri Lanka is a statutory proceeding instituted when land is held in common by two or more owners, and one or more of them seek to divide the land into separate shares or to sell it and distribute the proceeds, in accordance with the provisions of the Partition Act.³³ Its primary purpose is to break up common ownership and provide clear, marketable title to individual shares.

Accrual

The cause of action in a partition action arises from the mere existence of common ownership and the desire of a co-owner to have the land partitioned or sold. It is not tied to a "breach" in the contractual sense or a specific wrongful act by another party. The right to institute such an action subsists as long as the common ownership endures and the legal requirements for partition, as stipulated in the Partition Act, are met.

Limitation Period

Partition actions are generally not subject to the typical contractual or tortious limitation periods found in the Prescription Ordinance. Instead, they are governed by specific procedural requirements outlined within the Partition Act itself, which focus on the proper framing of the plaint, identification of necessary parties, and registration of the action as a lis pendens.³³ The right to partition is considered a continuous right inherent in co-ownership, rather than a right that accrues at a single point in time and is then subject to a prescriptive bar.

Reivindicatio Actions

Nature of Action

A rei vindicatio action is a legal remedy available to an owner of property to recover possession of that property from anyone who is unlawfully holding it.³⁵ It is fundamentally an action for the assertion of ownership (dominium) and for ordering the ejectment of the unlawful possessor.³⁵ To succeed in a

rei vindicatio action, the plaintiff bears a paramount and heavy burden to prove not only their ownership but also the specific, precise, and definite boundaries of the land in dispute, ensuring its clear identification.³⁵

Accrual

The cause of action for a rei vindicatio action accrues when the owner's right to possession is denied or when possession is unlawfully withheld by another party.³⁵ This is often considered a continuous cause of action as long as the unlawful possession persists.

Distinction from Licensee Ejectment

It is crucial to distinguish a rei vindicatio action from a licensee ejectment action. While a plaintiff in an ejectment action may include a prayer for a declaration of title, this does not automatically convert it into a rei vindicatio action if the underlying basis of the claim is contractual privity, such as a license granted to the defendant.³⁶ In licensee ejectment cases, Section 116 of the Evidence Ordinance (estoppel) applies, which precludes the licensee from denying the title of the licensor.³⁶ The substance of the pleadings and evidence, rather than merely the prayer for relief, determines the true nature of the action.³⁶

Limitation Period

Actions for the recovery of land in Sri Lanka are subject to a longer limitation period of twelve years from the date on which the right of action accrued.⁴ This period is particularly relevant for establishing prescriptive title by adverse possession against the true owner.

The unlawful withholding of property in a rei vindicatio action constitutes a "continuous wrong." While the limitation period for land recovery is 12 years, the accrual is tied to the denial of ownership or unlawful withholding of possession. This indicates that the cause of action effectively "re-accrues" each day the unlawful possession continues, although the 12-year period is primarily for the adverse possessor to gain prescriptive title. The owner's right to vindicate is ongoing until the adverse possessor perfects their title. This contrasts sharply with discrete contractual breaches and highlights the unique nature of property rights in relation to prescription, suggesting a longer window for the owner to act, reflecting the fundamental importance of land ownership.

The emphasis on the "paramount duty" and "greater and heavy burden" on a plaintiff in a rei vindicatio action to prove "dominium" (ownership) and "specific precise and definite boundaries" of the land ³⁵, along with the strict procedural requirements for partition actions ³³, reflects the high value and immutability of land. The law places a premium on clear, undisputed title, and the judicial process for property actions is designed to meticulously establish ownership, preventing frivolous claims and ensuring finality in land disputes. This indicates a deeper societal value placed on land tenure and its accurate recording.

Table 2: Accrual Points and Limitation Periods for Specific Scenarios

Scenario	Accrual Point	Applicable Limitation Period (Sri Lanka)
Promissory Notes
- Demand Note	Date of the note	6 years
- Time Note	Expiration of specified time (maturity date)	6 years
Loans Given on a Written Agreement	Date of breach (e.g., failure to repay on due date)	6 years
Loans Given on an Unwritten Agreement	Time the money claimed became due	3 years
Written Sales Agreements
- General Contractual Breach	Date of breach (e.g., non-delivery, non-payment, breach of warranty)	6 years
- For Goods Sold and Delivered	1 year after the debt became due (even if written)	1 year
Insurance Policies	Date of claim denial or breach of policy terms by insurer	6 years (statutory period prevails over shorter policy clauses)
Bank Overdrafts
- General	Time the overdraft is made (unless agreement requires demand)	3 years (if unwritten); 6 years (if part of written agreement)
- Erroneous Debits	When customer discovers error or demand for incorrect sum is made	(Typically 3 years for money recovery, subject to discovery rule)
Partition Actions	Existence of common ownership and desire of co-owner to partition/sell	No specific prescriptive period (governed by Partition Act procedural requirements)
Reivindicatio Actions	When owner's right to possession is denied or possession is unlawfully withheld	12 years (for recovery of land)

V. Conclusion and Key Takeaways

The precise determination of the date of accrual of a cause of action is not merely a technicality but a fundamental prerequisite for successful litigation in Sri Lanka. Failure to correctly identify this date can lead to claims being time-barred, irrespective of their substantive merit, effectively closing the doors of justice to an otherwise valid claim. The analysis presented herein demonstrates that accrual points and corresponding limitation periods vary significantly across different types of legal actions, reflecting distinct legal principles and policy considerations.

From the immediate accrual for demand promissory notes to the longer periods for land recovery, and the nuanced application of the discovery rule in cases of fraud or mistake, each scenario presents its own unique challenges. The law balances the need for prompt dispute resolution and evidentiary integrity with considerations of fairness and the protection of fundamental rights. The judicial approach to contractual clauses attempting to shorten statutory limitation periods, for instance, underscores the courts' role in preventing contractual overreach and upholding public policy. Similarly, the specific, shorter limitation periods for commercial transactions involving "goods sold and delivered" highlight a legislative intent to promote rapid finality in high-volume trade.

For legal professionals and potential litigants, several key takeaways emerge:

• Prompt Identification: It is paramount to promptly identify any potential cause of action as soon as a wrong or breach occurs. Delay can irrevocably prejudice a claim.

• Thorough Review of Agreements and Statutes: Meticulous review of all relevant agreements, particularly their terms regarding payment dates, conditions, and warranties, is essential. Concurrently, a comprehensive understanding of the Prescription Ordinance and other specific statutes governing the particular cause of action is critical.

• Meticulous Record-Keeping: Maintaining detailed and accurate records of all transactions, communications, and events is indispensable. For unwritten agreements, circumstantial evidence such as bank statements or witness accounts becomes crucial in the absence of formal documentation.

• Early Legal Counsel: Seeking legal counsel early in any dispute allows for a timely and accurate assessment of the accrual date and the applicable limitation period. This proactive approach enables the formulation of an effective litigation strategy and helps avoid the pitfalls of time-barred claims.

• Understanding Implications of Debtor Actions: Parties must be acutely aware of the implications of acknowledgments of debt, partial payments, or any agreements to waive prescription, as these actions can significantly alter the running of limitation periods. For creditors, securing such acknowledgments can extend the life of a debt, while for debtors, inadvertent actions can revive old liabilities.

In essence, navigating the landscape of accrual and limitation in Sri Lankan civil law demands not only a deep understanding of statutory provisions and judicial precedents but also a proactive and diligent approach to legal rights and obligations.