Preclusion

What it means

Preclusion is the extinction of a right because the person entitled did not exercise it within the period set by law. Once a preclusive period has passed, the right no longer exists and cannot successfully be asserted in court or elsewhere. The court or authority applies the extinction on its own, regardless of whether the other party invokes it.

Preclusion differs fundamentally from limitation. A time-barred right continues to exist; it simply cannot be enforced if the debtor raises the limitation defence. If the debtor voluntarily pays a time-barred debt, it cannot ask for the money back. With preclusion the right is gone entirely, which is why such periods are sometimes called forfeiture periods.

Whether a period is one of limitation or preclusion is set by law, usually expressly. Preclusive periods are typical in public law, for example in tax proceedings, and in private law where quick legal certainty is needed, such as when challenging legal acts or asserting certain claims under liability for defects.

How it works in practice

The best-known example in tax practice is the deadline for assessing tax. Once it passes, the tax administrator cannot assess or reassess tax, and the taxpayer can no longer file a supplementary return to reclaim an overpayment. In certain circumstances, however, the period is extended, for example when a tax audit begins, and in some situations it is longer.

In business relationships preclusive periods include, for example, the deadlines for asserting rights from defects in a sale if not raised in time, and the deadline for filing a claim in bankruptcy. If a creditor fails to file in time, the claim is disregarded in the bankruptcy. Missing such deadlines generally cannot be remedied.

In running a company we recommend keeping a calendar of deadlines that distinguishes limitation and preclusive periods. Preclusive periods take priority because there is no second chance. For contracts it is also worth noting deadlines for complaints and notification of defects, which a contract may set shorter than the statutory ones.

What to watch out for

The most common mistake is assuming a period can be extended by agreement or that the other side will overlook it. With preclusion this is impossible; the right lapses regardless of the parties' will. Unlike limitation, acknowledging the debt does not prevent preclusion either. A missed deadline must therefore be prevented in advance.

Take care in counting periods. What matters is the day from which the period runs, whether it is counted in days, months or years, and whether posting on the last day is enough. The rules differ between laws. When in doubt, it is safer to file early than to risk the filing arriving a day late.