The High Court has confirmed that in some circumstances parties may contract out of statutory limitation periods, which in this instance was the Limitation of Actions Act 1974 (Qld).
This matter related to a mortgage, with the mortgagee filing proceedings in 2017, for unpaid amounts around 4 million that were due many years before on 2 July 2000. The Borrower, raised in defense the above mentioned limitation Act which provides
an action on a simple contract cannot be brought after the expiration of 6 years from the date of the breach; and
an action to recover land shall not be brought after the expiration of 12 years from the date the right accrues.
The Lender relied upon the following clause in the mortgage agreement:
‘The Mortgagor covenants with the Mortgage[e] that the provisions of all statutes now or hereafter in force whereby or in consequence whereof any o[r] all of the powers rights and remedies of the Mortgagee and the obligations of the Mortgagor hereunder may be curtailed, suspended, postponed, defeated or extinguished shall not apply hereto and are expressly excluded insofar as this can lawfully be done.’
It was agreed that if the contract term was unenforceable and limitation periods applied, the lenders rights to seek repayment of the loan were statute-barred.
The High Court acknowledged that statutory limitation periods promote the public policy of finality of litigation, ensuring speedy resolution of disputes and orderly administration of justice.
However, it was also affirmed that it is possible to waive or renounce a right under a statute, (such as a right to rely on a limitation period), with such a determination depending on whether the statute contains express words prohibiting this or whether this would be contrary to public policy.
In this regard, it requires consideration of the purpose of the statute and whether the statutory right is conferred in the public interest or for the benefit of an individual alone.
The High Court unanimously held that limitation periods in the Act could be excluded under the terms of the mortgage. The High Court reasoned that the mortgage agreement was effective to oust the limitation period. In effect, the Cout determined that the clause in question should be interpreted by reference to how a reasonable businessperson would have understood it.
Thus, the court held that the policy of finality in litigation could still be achieved but, consistent with the broad principle of ‘freedom of contract’, it was entrusted to each party to reach and be bound by their bargain.
In this respect, the High Court expressed:
The Limitation Act contains no express words prohibiting waiver. While the public policy behind the legislation of ensuring the finality of litigation has long been acknowledged, the “critical question” is whether the benefit is personal to the individual or whether it rests upon public policy. The benefit under the Act was regarded as personal as the wording of the statute was in a form recognised as requiring the remedy to be pleaded. As the defendant may elect to plead or not, so too may it elect, by way of contract, not to rely upon it. All of this pointed to a personal rather than public purpose.
This decision sets a certain precedent that public policy does not in itself prevent parties from contracting out of limitation periods, and clarity on the drafting required or needed for this to occur.
That being said, it remains the case that the Australian Consumer Law protections, may prevent parties from contracting out of the Limitations Acts, particularly in standard form contracts.
Clauses that waive or limit limitation periods are critical for risk allocation and also require careful scrutiny. Affinity Lawyers are able to assist in drafting, advising or preparing contractual documents of this nature and or enforcing or defending proceedings.