The recent High Court case of Price v Spoor [2021] HCA 20 has affirmed that parties can effectively contract out of some statutory limitation periods. To understand what this means, it is helpful to first consider how we arrived at this position.
In this case, the respondent mortgagee (Spoor) and the appellant mortgagor (Price) had entered into two mortgages. Each of the mortgages were executed in 1998, with the principal loan amount of $320,000 to be repaid in July 2000. Each of the mortgages included a term which stated that the mortgagor would not plead any statutory limitation period defence which may exist at that time or in the future. The principal loan was not repaid in July 2000, and fast forward to 2017, the mortgagee brought proceedings to sue the mortgagor for over $4 million, and for possession of the properties the subject of the mortgage.
The High Court had to decide on three primary questions:
- Whether the parties to a mortgage can agree that one of the parties will not plead a limitation defence, or whether, as a matter of public policy, a term of this nature should be ineffective at law.
- Whether a particular provision of the Act in question operates to automatically extinguish the mortgagee's title to the mortgaged land at the end of the limitation period.
- Whether the terms of the contract were actually effective in preventing the mortgagor from pleading the limitation defence.
The Limitation Act – How it operates
The Limitation of Actions Act 1974 (Qld) contains provisions which proscribe the time limit within which legal actions, such as breach of contract or for the recovery of land or money, may be brought. The general position is that proceedings must be commenced within 6 or 12 years from the date the cause of action arose, and this is largely mirrored across all States and Territories within Australia.
Over the years, there has been some debate over whether these statutory time limits either (1) act as an automatic jurisdictional bar on bringing proceedings; or (2) whether they must be pleaded as a defence which in effect defeats the whole of the claim. The distinction may seem trivial, but the answer to this question is critical to whether the parties can contract out of the limitation period. If it is the former, any agreement to not enforce the limitation period would be ineffective. If it is the latter, a term of this nature is valid, so long as it is effective.
In one of the earlier cases which concerned a similar issue, The Commonwealth v Mewett (1997) 191 CLR 471, Justice Gummow and Justice Kirby said that, in the case of a statute of limitation in traditional form, a statutory bar does not go to the jurisdiction of the court to entertain the claim, but rather to the remedy available, and therefore to the defences that may be pleaded. This concept was referred to and affirmed by the High Court again in WorkCover Queensland v Amaca Pty Ltd (2010) 241 CLR 420.
Each of these cases, among other authorities, were referred to in the High Court's decision, effectively settling the position that a limitation period acts as a statutory defence to a claim, which must be pleaded by the party seeking to enforce the defence.
As a result, the High Court stated that the real question is whether or not a person may, as a matter of public policy, abandon their statutory right to plead the limitation period by agreement.
Public policy
The High Court noted, with reference to its earlier decisions of Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129, that a person on whom a statute confers a right may waive that right unless it would be contrary to the statute to do so. Clear examples of this include where there is a provision which expressly prohibits contracting out of rights, or where the statute, properly construed, is inconsistent with a person's right of waiver.
Ultimately, it was confirmed that the Limitation Act conferred a right on an individual, and that public policy does not prevent a person from waiving that right. In essence, this can be inferred from the language of the statute, further taking into account that the legislation does not, by its proper construction, seek to remove jurisdiction of the court once a limitation period has ended, but rather it confers a benefit or right on an individual basis – as such, no issue of public policy arises where a person chooses to contract out of the limitation period.
Extinguishment
Section 24 of the Limitation Act provides, in effect, that where the 12 year limitation to bring an action to recover land has expired, the person's title to that land "shall be extinguished".
The appellant mortgagor argued that s 24 operates to extinguish rights, not create them. On this basis, it was submitted that s 24 operated automatically at the end of the limitation period – that is, in contrast to the High Court's position described above, there is no need plead the defence.
However, the High Court did not accept this to be the case. It held that the if s 24 was intended to operate automatically to extinguish rights, without the need to plead the defence, there would remain no right or title in respect of which a court could provide any remedy. Section 24 still requires that the defence of limitation be raised by pleading to take effect.
Was the term effective?
The final question was whether the clause in question was effective by its language to actually prevent the mortgagor from pleading the statutory defence.
Clause 22 read as follows:
"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 argued by the appellant mortgagor that the clause was too vague, and that clear words without ambiguity are required to contract out of a benefit conferred by a statute. It was also submitted that, because of the ambiguity and breadth of the clause, it should be interpreted in accordance with the contra proferentem principle – that is, the clause should be read down against the person who drafted the contract.
Although providing different reasons, the Justices essentially made similar observations and findings in respect of the clause. Two particular propositions were important.
Firstly, the clause used the words "may be" and "defeated" which meant that, on proper construction, the clause applied to the state of affairs that occur when pleading a statutory time limit defence under the Limitation Act. It was especially noted in each of the Court's reasons that the word "defeated" had a special judicial meaning, and had a special role to play in these circumstances.
Secondly, as noted in particular by Justice Steward, there was no suggestion in this case that the mortgages in question were anything other than two balanced parties entering into a commercial arrangement at arm's length. In such circumstances, the usual objective principles of interpretation applied – and it is this aspect of the judgment which draws some uncertainty about how similar clauses might be construed in pro-forma consumer contracts.
Unfair terms and the impact on future litigation
It is common for businesses to offer consumers the same or a similar contract. This is known as a standard form contract.
There are laws protecting consumers from unfair terms in circumstances where they have little or no opportunity to negotiate with businesses, such as with standard form contracts. Businesses may use standard form contracts to improve efficiency, but they must take account of the consumer's rights when preparing their contract.
There is prior authority in the case of ASIC v Bendigo and Adelaide Bank [2020] FCA 716 which supports the proposition that any standard form loan document, which might include a mortgage, could be the subject of unfair term remedies under the Australian Consumer Law.
The fairness of a term must be considered in the context of the contract as a whole, and there are a number of indicia which must be considered to determine whether a term is unfair.
It is likely that if these kind of terms become more common place in contracts they will be challenged, should a party seek to enforce its rights after a statutory time period has lapsed.
What it means for you
Although this case appears to be concrete in application, some parts of the judgment leave open the possibility that similar clauses in standard form contracts might be subject to challenge.
Businesses seeking to impose terms which limit or waive a person's right to plead a statutory time limit should seek advice on the drafting and negotiation of the clause, to ensure that the term is effective, enforceable and to minimise the likelihood of any successful action to have the term challenged.