Company Registration

Running Account – When Is It Time Barred?

We have dealt with a couple of articles in relation to the topic of statue of limitation i.e. when a claim is barred from being litigated in court because it is time-barred by law. Today, we will briefly discuss another topic in relation to statue of limitation- what is a running account, and when does a claim premised on a running account time-barred?

Running Account - When Is It Time Barred?

Make an appointment with Company Secretary for advice and consultation

A brief guide to running account

What is a running account? This term was concisely explained in Bajaj Textiles Ltd v Gian Singh & Co Ltd, where the court noted as follow:

“…the dealings between the parties consisted mainly of goods sold and delivered by the defendants to the plaintiffs and of loans from one to the other. The account between them was kept in the ledger of the defendants and the defendants debited the plaintiffs with the costs of the goods as and when they were supplied and with the amount of the loans as and when they were made. The plaintiffs from time to time made payments to the defendants on account generally and credit was given in the ledger for these payments as they were made. The payments were made in varying sums and clearly were not made in respect of any particular debit. The plaintiffs also kept an account in the name of the defendants in which there was a series of credits and debits. The account between the parties is in fact a running account which to the knowledge of both parties is of that kind and kept in that way.”

To put it plainly, a running account is a form of a general account/ tab that is kept between the two parties (for example, a buyer and a seller) whereby whenever the buyer buys something from the seller, the seller will record down the amount that the buyer owes the seller (based on the invoice that was issued to the buyer). The amount in the record is then deducted by the seller accordingly when the buyer pays money (in varying sums, and does not need to be a specific sum) to the seller. Likewise, the buyer will record down the same in his own record – it is a live account between the buyer and the seller and it will only cease to be “live” either when the debt is completely settled, or the seller absolved the buyer from the debt.

So when is a lawsuit that is premised upon a claim stemming from a running account barred by time?

As stated in the Limitation Act- 6 years from the date the cause of action (in this case, from the date where the money in the running account is due) arises. 

However, in most limitation claims, parties to the claim will be able to pinpoint the exact date when a cause of action arises. For example: Let us say A owes B RM2.6 billion and the money was supposed to be paid by the 1st of November 2020. B then has 6 years to pursue a claim against A before he is prevented from pursuing the matter ever again because his claim is barred by the Limitation Act.

How does this work out for a running account? As noted above, a buyer can actually pay whatever amount he wants to pay to the seller. By now, as a reader, you will realize a couple of problems applying the general rule to a claim arising from a running account:

  1. Which amount/ debt is the seller claiming against the buyer?
  2. Assuming it is the entire amount, how does the seller determine when is the date in which the cause of action arises? The debts from an earlier unsettled transaction, or from a later unsettled transaction?
  3. What happens if the earlier transaction was more than 6 years from the later transaction? Is the entire claim time barred? Bare in mind that a running account, as noted above, is a live account.

What does the law say?

In Malaysia, the law was enunciated clearly in Malaysan Banking Bhd v Wembley Industries Holdings Bhd , which states that:

“a running account is a single account and not a composite of its various parts. A payment made on account of a running account is in respect of the entire outstanding balance, with the result that time is extended for the whole of the debt. It appears, therefore, that a running account will become statue barred only if more than six years elapse between the supply of the last article under it and the last payment on account.”

Simply put:

  1. In a claim against another premised on a running account, the claim is for the entire debt (or outstanding balance) in the account; 
  2. The date on the individual transaction does not play a part in determining when a claim premised on a running account is time barred; and
  3. A claim premised on a running account is only time barred if the last payment was made to the buyer more than 6 years from when the claim against the buyer was initiated in court. 

Therefore, both the debtor and the creditor will have to be aware of the above, before pursuing/ defending premises on a  running account in court.

Make an appointment with Company Secretary for advice and consultation

Read More about our article about Company Secretary :

Winding Up Company in Malaysia

Can A Director Be An Employee Of The Company?

What is Paid-up Capital in Malaysia?

Winding Up 101: The ‘Just and Equitable’ Principle

Franchising & Licensing in Malaysia

Sleeping Director

What is Company Constitution Malaysia, When to Adopt and is it Mandatory?