High Court confirms ability of parties to contract out of standard limitation periods
For example, section 10 of the Limitation of Actions Act 1974 (Qld) states:
Actions of contract and tort and certain other actions
(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action arose –
(a) ... an action founded on simple contract ..."
In Price v Spoor1 the High Court considered whether it was possible for parties to contract out of limitation periods. The resolution of this question required consideration of two issues:
- do limitation periods extinguish causes of action (or remove the jurisdiction of courts to hear them), or do they merely create a defence that must be pleaded to be relied upon; and
- if limitation periods merely create a defence that must be pleaded, will courts enforce an agreement not to plead a limitation period?
In relation to the first issue, the court followed earlier authority and held that, in their usual form, limitation periods do not extinguish causes of action or remove the jurisdiction of courts to hear them. A court will therefore not enforce a limitation period unless it is pleaded by the party seeking to rely on it.
On the second issue, the court applied the general principle that parties may waive a statutory right conferred on them, unless it would be contrary to the statute to do so. A statute may prevent waiver expressly or by implication.
In determining whether a statue impliedly prevents rights being waived, a court will consider whether the statutory rights are conferred in the public interest or for the benefit of a particular individual. The appellant argued that limitation periods are imposed because of the public interest in the finality of litigation. However, the court, applying the reasoning of a judgment of Chief Justice Mason in 19902, held that in so far as limitation periods give defendants a right to plead a defence, rather than imposing a jurisdictional restriction, their purpose should be understood as conferring benefits on individuals.
The court therefore concluded that the parties could (and, in fact, did) contract out of the relevant limitation periods. It is possible, however, that a court would reach a different conclusion about differently worded limitation periods. It was also not necessary for the court in this case to consider whether terms excluding limitation periods would infringe legislative prohibitions on 'unfair' contract terms.
Price v Spoor [2021] HCA 20
Exclusion by agreement of limitation defence
In this case, the High Court upheld the ability of parties to agree that they will not plead limitation defences.
This case illustrates that rights conferred by statute may be waived if it is not contrary to the statute to do so.
Facts
The mortgagees brought proceedings against the mortgagor for monies under the mortgage. The mortgagor claimed that the mortgagees were statute-barred from bringing their action under the Limitations of Actions Act 1974 (Qld). In reply, the mortgagees relied on clause 24 of the mortgage:
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 power 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 be lawfully done.
The mortgagees asserted that the effect of clause 24 was to preclude the mortgagor from relying on the limitation defence.
Judgment
The court said that where a statute confers a right on a person, that person may waive that right unless it would be contrary to the statute to do so. The court unanimously dismissed the mortgagor's appeal, albeit in three separately delivered judgments. Each judgment considered three questions:
1. Whether clause 24 excluded the mortgagor from relying on the limitation defence?
Despite the 'obvious shortcomings' and 'clumsiness' of clause 24, the court adopted a business-like approach to interpretation; determined objectively by reference to its text, context and purpose, to determine the rights and liabilities of the parties. The court noted that throughout the mortgage agreement, both parties had agreed to broad covenants that had the effect of waiving both their rights regarding certain subject matters. Ultimately, the court interpreted clause 24 as intending to exclude the mortgagor from relying on a limitation defence.
2. Whether the rights conferred by the Limitations of Actions Act were created for the benefit of the individual or the state?
The court said that the limitation provisions were not designed to restrict the jurisdiction of the court. Instead, it was created to bar the remedy, not the right, that attaches to an individual that must be pleaded. As a result, the court concluded that the limitation provisions were conferred for the individual and were capable of being waived by the individual.
3. Whether it would be contrary to the Limitations of Actions Act to waive the mortgagor's right to plead a limitation defence?
The court noted that there were no express prohibitions against contracting out of the limitations defence, and reading the statute as a whole did not indicate anything to the contrary.