Can you contract out of limitation periods?
Posted on January 24, 2022
Introduction
The High Court recently found that yes - parties can contract out of limitation periods in certain circumstances.
In Price v Spoor [2021] HCA 20, a clause in a contract which restricted the operation of the Limitation of Actions Act 1974 (Qld) (Act) was held effective and enforceable.
Key takeaways
Statutory time limitation provisions have the effect of barring an action after a certain amount of time. For example, a breach of contract claim must generally be brought within 6 years from the breach. Such provisions are important considerations both when entering into a contract and when bringing or defending a claim.
Price v Spoor shows that any “contracting out” provisions should be carefully considered, as they can mean that under the contract parties agree not to rely on certain benefits provided by legislation.
This case confirms that limitation periods can be contracted out of in certain circumstances, provided that the relevant legislation does not contain an express provision, or when read as a whole evince the intention of the legislature, against doing so.
There are other situations where the question of whether parties may contract out of certain limitation periods is unanswered. An example is building dispute time limitation provisions, where those provisions are likely to be found within acts which may have different purposes, or which may attract different public policy considerations.
The facts
The Respondent mortgagees (Spoor) issued a claim against the Appellant (Price) for more than $4 million owed under two mortgages, as well as to take possession of the mortgaged land.
Price alleged that Spoor was barred from bringing the action under the Act. Under the Act, a party only has a certain amount of time to bring an action for the recovery of land or money under a mortgage; 6 years after the cause of action arose under the contract, and 12 years from the date the right of action accrued for the action to recover land.
Spoor relied on clause 24 of the mortgages. This expressly excluded (insofar as can lawfully be done) all legislation that could curtail, suspend, postpone, defeat or extinguish any powers rights or remedies of the mortgagee and the obligations of the mortgagor. Spoor submitted that clause 24 operated to restrict Price from pleading the limitation defence pursuant to the Act.
The High Court, through three sets of reasons, unanimously agreed that Price’s appeal should be dismissed. Spoor was permitted to rely on clause 24 of the mortgages to prohibit Price from relying on the time limitation periods set out in the Act.
The policy behind the Act
A central issue was whether the Act prohibits contracting out. Whilst the Act does not contain an express provision against contracting out,[1] the High Court nonetheless considered the public policy objective of the Act. Past High Courts have given great weight to public policy considerations of statutory limitation provisions generally, to prevent parties from contracting out of such provisions[2]. Gaegler and Gordon JJ stated that this Act might indicate that the rights given are not capable of being renounced as they are in the interests of the public, in addition to the individual.[3] However a limitation period preventing a claim only arises where the Act is pleaded by a defendant in its defence. [4]
Price contended that the Act pursues the public interest in the finality of litigation. Kiefel CJ and Edelman J observed that provisions limiting the period within which actions should be commenced are “conducive to the administration of justice and are in the public interest”. However, their Honours went on to agree with the often referenced judgment of Mason CJ in Commonwealth v Verwayen,[5] where the former Chief Justice held that it was possible to contract of out of these provisions on the basis that they confer a benefit on individuals (as opposed to those provisions having been enacted for purely public policy reasons).
Steward J stated that it was incorrect to say that the Act cannot be adjusted or disturbed by contract as it serves partly a public policy in relation to finality of litigation. The legislative choice was to confer an option on defendants whether to use the benefits of the Act as a defence to a claim, which is a purely private benefit.[6]
The Contract
Gageler and Gordon JJ found that clause 24 was a “contracting out” clause generally, because it relates to any legislation that would operate to limit the obligations of the mortgagor or the powers, rights and remedies of the mortgagee. It could therefore operate as a contractually enforceable term that the mortgagor would not rely on the Act.
To similar effect, Steward J considered that clause 24 was a promise by the mortgagor not to use a benefit provided by legislation against the mortgagee(s).[1]
Kiefel CJ and Edelman J concluded that there was an agreement by way of clause 24 that Price would not rely upon the benefit given by the Act, which agreement was enforceable.
Lynch Meyer’s Dispute Resolution and Litigation Team are experienced in dealing with complex litigation. Please contact us and we can provide you with legal advice to suit your needs.
This article is general in nature, is based on the law as at the date of publication, and is not intended to provide legal advice to your specific situation.
[1] At [40] (per Gaegler and Gordon JJ).
[2] Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129.
[3] At [39] (per Gaegler and Gordon JJ).
[4] At [39] (per Gaegler and Gordon JJ).
[5] The Commonwealth v Verwayen (1990) 170 CLR 394.
[6] At [87] (per Steward J).
[7] At [64] (per Steward J).
