Can parties to a mortgage agree to contract out of the statute of limitations?

1. In Price v Spoor, [2021] HCA 20, the High Court handed down a decision on 23 June 2021 about whether the parties to a mortgage could agree to contract out of the operation of the Queensland equivalent of the Limitation of Actions Act, 1958, and whether such an agreement was contrary to the public policy underpinning the Act.

Background facts

2. On 2 July 1998, Law Partners Mortgages P/L loaned $320,000 to Alan Leslie Price, Allana Mercia Price, James Burns Price and Gladys Ethel Price.

 

3. To secure the loan, Alan Leslie Price and Allana Mercia Price mortgaged land that they owned at Minden, west of Brisbane and Rosewood, near Ipswich in Queensland to Law Partners Mortgages P/L, and James Burns Price and Gladys Ethel Price mortgaged land that they owned at Tallegalla, near Ipswich in Queensland to Law Partners Mortgages P/L. 

4. The loan was not repaid on the due date, 2 July 1999. The parties negotiated a further agreement by which, among other things, the loan was extended to 2 July 2000.

5. A part of the mortgaged land was sold in November 2000, resulting in payment of accrued interest, legal costs, and a reduction of the principal loaned by $50,000. As at April 2001, the principle outstanding was therefore $270,000. 

6. Christine Claire Spoor and Kerry John Spoor were the trustees of a small pension fund. They became the mortgagees as successors in title to Law Partners Mortgages P/L.

7. In 2017, the mortgagees served notices under the Queensland Property Law Act requiring repayment of the principal, and accrued interest. They claimed over $4 million, including interest at the rate of 16.25% per annum, compounded monthly.

8. After the notices expired, the mortgagees sued the borrowers for repayment of the money loaned (plus interest) and sought to recover possession of the remaining security properties. 

9. The borrowers contended that the mortgagees were statute-barred from enforcing rights under the mortgages as a result of the expiry of the relevant time period under Queensland equivalent of the Limitation of Actions Act, 1958. 

10. Two of the borrowers further pleaded that the mortgagees’ titles under the mortgages had been extinguished pursuant to a provision in the Act, which provides, in effect, that where the time prescribed by the Act within which a person may bring an action to recover land has expired, the person’s title to that land “shall be extinguished”.

11. The mortgagees replied that the borrowers did not have the benefit of the Act as they had agreed, pursuant to clause 24 of the mortgages, that they would not plead any defence under the Act in proceedings to enforce the mortgagees’ rights as mortgagees.

12. Clause 24 was in the following terms:

RESTRICTIVE LEGISLATION

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.

Queensland Supreme Court

13. At first instance, Dalton J in the Supreme Court of Queensland [see [2019] QSC 53] refused the mortgagee’s application to strike out the borrowers’ defence as it related to the Statute of Limitations, and as a result entered judgment for the borrowers on the basis of their defence that the Statute of Limitations applied. Later, her Honour also made orders for the execution by the mortgagees of releases of the two mortgages. 

Queensland Court of Appeal

14. The Court of Appeal of the Supreme Court of Queensland (Gotterson JA with whom both Sofronoff P and Morrison JA agreed) [see (2019) 3 QR 176; [2019] QCA 297] allowed the mortgagees’ appeal, overturned the trial judge’s orders and gave judgment for the mortgagees in reasons handed down on 17 December 2019, later including ancillary orders for possession of the security properties. 

15. At paragraphs 18 to 19 of Gotterson JA’s decision, he noted that: 

[18] Accordingly, in the view of the learned primary judge, there was no reason to doubt the validity of a borrower’s promise in a loan or mortgage document never to raise a limitations defence to an action to recover monies due to the lender. However, her Honour drew a distinction in the case of a promise not to raise a limitations defence in an action to recover possession of land.

[19] In summary, relying on observations of Mason CJ in Verwayen, the learned primary judge reasoned that a provision such as s 10(1)(a) of the Limitations Act conferred a benefit upon an individual in the nature of a statutory right to plead a certain defence, which could be waived. By contrast, s 24(1) thereof operated to extinguish rights, and not merely to confer a benefit. Hence, her Honour held, it was not open to parties to contract against the operation of that section. Further, here, s 24(1) had operated to extinguish the mortgagee’s title to the mortgaged land before the current proceedings had been commenced. Thus, clause 24 was incapable of altering the extinguishment of that title. 

16. At paragraph 34 of the Court of Appeal’s decision, Gotterson JA noted:

There appears to be no Australian authority in which separate consideration has been given to whether a contractual provision not to plead a limitations defence entered into for consideration before a cause of action to which it might be pleaded has arisen, is void as against public policy. However, judicial observations at the highest level in this country suggest that such a provision is not, for that reason, void.

17. Further, at paragraph 36 (emphasis added):

In [Verwayen], Brennan J said of the “right” … that it was introduced solely for the benefit of a defendant who must plead it before it is effective and who may waive it. Consistently with this, French CJ, Crennan, Keifel and Bell JJ in Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129 at 143-144 more recently said:

... a person upon whom a statute confers a right may waive or renounce his or her rights unless it would be contrary to the statute to do so. It will be contrary to the statute where the statute contains an express prohibition against ‘contracting out’ of rights. In addition, the provisions of a statute, read as a whole, might be inconsistent with a power, on the part of a person, to forego statutory rights. It is the policy of the law that contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text.

18. And at paragraph 38:

As both Mason CJ and Brennan J expressed it, what is conferred by a limitations statute is a right on a defendant to plead as a defence the expiry of a limitation period. The right is conferred on a defendant as an individual. As such, an individual may contract for consideration not to exercise the right, or to waive it, as a defendant.

19. At paragraph 64 of the judgment, after analysing the High Court’s decision in Verwayen dealing with the waiver of reliance on the statute of limitations in that case, Gotterson JA concluded:

These statements are, to my mind, illustrations that according to ordinary usage, the word “defeat” aptly describes the effect of limitation provisions.

20. At paragraphs 65 to 66, the Honourable Justice of Appeal concluded:

I infer from these references that their Honours considered that a limitation provision was the means whereby the cause of action was defeated, notwithstanding that it was for a defendant to plead it for that to happen. In other words, they did not consider that a need for the provision to be triggered by a pleading of it has the consequence that the provision is not the means by which the cause of action is defeated.

Unlike the learned primary judge, I have, therefore, concluded that clause 24, according to its terms, does apply to provisions in the Limitations Act by which the enforcement of a right, power or remedy of the mortgagee might be defended by the mortgagor and thereby defeated. Relevantly, those provisions include ss 10(1)(a), 13 and 26(1). 

21. The final finding of the Court of Appeal was in paragraph 76, as follows:

It follows that the [mortgagees]’ titles as mortgagee will have been extinguished under s 24(1) only if the s 13 period of limitation has expired in respect of them. In my view, it has not in this case. That is because, consistently with these reasons and as it was open to the parties to agree, clause 24 has at all times operated to exclude s 13 from applying to the mortgages. Thus, as between mortgagor and mortgagee, the period of limitation prescribed by s 13 has never applied and hence has never expired.

22. In those circumstances, the appeal was allowed unanimously. 

High Court

23. The borrowers obtained special leave to appeal to the High Court. 

24. As a result of the grant of special leave, the principal questions to be determined by the High Court in the appeal were whether:

a. clause 24 of each of the mortgages was void and unenforceable as contrary to the public policy underpinning the Act; and

b. section 24 of the Act operated automatically to extinguish the mortgagees’ title at the expiry of the time period.

High Court’s decision

25. The High Court unanimously dismissed the appeal from the Queensland Court of Appeal. Kiefel CJ and Edelman J delivered joint reasons. Gageler and Gordon JJ (in a joint judgment) substantially agreed with Kiefel CJ and Edelman J, as did Steward J separately. 

26. Kiefel CJ and Edelman J noted (at paragraphs 9 to 11 of their reasons – emphasis added): 

In WorkCover Queensland v Amaca Pty Ltd [2010] HCA 34; (2010) 241 CLR 420 at 433 per French CJ, Gummow, Crennan, Kiefel and Bell JJ, … explained the effect of statutes of limitation by reference to what had been said by Gummow and Kirby JJ in The Commonwealth v Mewett (1997) 191 CLR 471 at 534-535; see also The Commonwealth v Verwayen (1990) 170 CLR 394 at 404 per Mason CJ. In Mewett, their Honours said that in the case of a statute of limitations in the 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 which may be pleaded. The cause of action is not extinguished by the statute and unless a defence relying on the statute is pleaded, the statutory bar does not arise for the consideration of the court.

What was said in Mewett accords with the reasons of Mason CJ in The Commonwealth v Verwayen (190) 170 CLR 394 at 405. Speaking there of then s 5(6) of the Limitation of Actions Act 1958 (Vic) (which provided "No action for damages for negligence ..., where the damages claimed by the plaintiff consist of or include damages in respect of personal injuries to any person, shall be brought after the expiration of three years after the cause of action accrued”) his Honour said that although the terms of that provision are capable of being read as going to the jurisdiction of the court, limitation provisions of this kind have not been held to have that effect. Instead they have been held to bar the remedy but not the right and thereby create a defence to the action which must be pleaded (Citing Dawkins v Lord Penrhyn (1878) 4 App Cas 51 at 58-59; The Llandovery Castle [1920] P 119 at 124; Dismore v Milton [1938] 3 All ER 762; Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398; Ketteman v Hansel Properties Ltd [1987] AC 189 at 219. These statements have been applied with approval on a number of occasions in this Court (Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297 at 305; Berowra Holdings Pty Ltd v Gordon [2006] HCA 32; (2006) 225 CLR 364 at 372 [20], 373-374 [24]-[25]; Brisbane City Council v Amos (2019) 266 CLR 593 at 615-616 [49]; Minister for Home Affairs v DMA18 (2020) 95 ALJR 14 at 18 [4], 23 [30]; 385 ALR 16 at 19, 26. Mason CJ went on to observe that since the right to plead a limitations defence is conferred by statute a contention that the right is susceptible of waiver "hinges on the scope and policy" of the Act. The same may be said of the question whether a person may abandon the statutory right to plead a defence of limitation, by agreement.

27. The borrowers relied upon the public interest in the finality of litigation as being the public policy behind the Statute of Limitations. 

28. Kiefel CJ and Edelman J rejected that argument, holding:

Mason CJ concluded (The Commonwealth v Verwayen (1990) 170 CLR 394 at 405-406) that by giving defendants a right to plead the expiry of the relevant time period as a defence, rather than imposing a jurisdictional restriction, the purpose of the Victorian Limitation Act could be discerned as one to confer a benefit on individuals "rather than to meet some public need which must be satisfied to the exclusion of the right of access of individuals to the courts". It was therefore possible, in his Honour's view, to "contract out" of statutory provisions of that kind.

29. At paragraph 35 of the joint judgement, Kiefel CJ and Edelman J held:

A defendant may bargain away the statutory right and that bargain may be enforced.

30. Justices Edelman and Gordon agreed with the judgment of Kiefel CJ and Edelman J and noted that the principal question in the appeal was whether clause 24 of the mortgages in question was void and unenforceable as contrary to the public policy underpinning the [Qld Limitation Act]. 

31. Their opinion (at paragraphs 38 - 40) was:

… That question raises a preliminary point of contractual construction and a subsidiary question about the appropriate relief if a party breaches a covenant not to rely upon a limitation defence.

32. Steward J noted at paragraph 66 of his judgment (in respect of construing the meaning of the terms of a contract): 

… there was no onus on the respondents to establish that their construction of cl 24 is correct. The issue of construction is a question of law (Deane v City Bank of Sydney [1904] HCA 44; (1904) 2 CLR 198 at 209 per Griffith CJ, Barton and O'Connor JJ), to be objectively determined having regard to the text and context of the contract, and the commercial purpose or objects which it was intended to secure (Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at 116 [46] [47] per French CJ, Nettle and Gordon JJ). 

33. At paragraphs 76 and 78 of his judgment, in considering whether the parties could contract out of the Statute of Limitations, Steward J noted: 

Two relevant propositions may be extracted from the reasons of Mason CJ in Verwayen.  [First] Whether or not a person can waive the defences conferred by a particular Statute of Limitations depends on the scope and policy of that Act; the test is whether the applicable provisions are "dictated by public policy" and were enacted "not for the benefit of any individuals or body of individuals, but for considerations of State” [at CLR 405]. If so, they cannot be excluded by contract. But if the benefit conferred by statute is otherwise private in nature, the law may permit the parties to exclude it.

…

78. The second proposition is that Parliaments have chosen to implement the public policy of finality in litigation by conferring on defendants a right to plead an applicable Statute of Limitations defence, rather than by imposing a restriction on jurisdiction (Verwayen at CLR 405). In that respect, no party disputed that it had been long established that the language used in the Limitation Act – an action "shall not be brought" – was a reference to a defendant having the capacity to plead a defence of limitation and not to the extinguishment of any underlying rights of a plaintiff (Brisbane City Council v Amos (2019) 266 CLR 593 at 599 [7] per Kiefel CJ and Edelman J). On that basis, Mason CJ in Verwayen concluded, for the purpose of considering whether the defences conferred by a Statute of Limitations (The Court in Verwayen was concerned with the Limitations of Actions Act 1958 (Vic)) may be waived, as follows (Verwayen at CLR 405-6] – emphasis added)):

"I conclude that the purpose of the statute is to confer a benefit upon persons as individuals rather than to meet some public need which must be satisfied to the exclusion of the right of access of individuals to the courts. On that basis, it is possible to 'contract out' of the statutory provisions, and it is equally possible to deprive them of effect by other means such as waiver. Put differently, the provisions are procedural rather than substantive in nature, which suggests that they are capable of waiver".

34. And at paragraph 88:

Once it is accepted that the policy of finality in litigation is one that is statutorily entrusted to each defendant, it follows that the limitation defences may be waived. It also follows, as a matter of logic and principle, that a party may agree to promise not to invoke those defences as part of the contractual bargain. 

35. Ultimately, all 5 members of the High Court who heard the appeal determined that it was permissible for the parties to agree to contract out of the provisions of the Limitation Act and that such an agreement was not contrary to public policy. The High Court also found that s 24 of the Limitation Act did not operate automatically to extinguish the respondents’ title at the expiry of the limitation period.

36. The Court noted that the provisions of the Limitation Act do not act as a statutory bar to bring proceedings or operate automatically to extinguish title, but instead give a party a defence.

37. Ultimately, the Court concluded the Limitation Act conferred rights on individuals rather than fulfilling any public need and therefore the contractual provision under which the borrowers waived their rights under the Limitation Act was effective.

Conclusions 

38. The Limitation of Actions Act 1974 (Qld) is similar to the Limitation of Actions Act, 1958 (Vic) (although the time limits are slightly different – 12 years to sue on a mortgage in Queensland, compared to 15 years in Victoria). 

39. The case shows the importance of borrowers obtaining proper advice about the terms of any loan documentation before borrowing (in particular, relating to terms like waiving any limitation rights). 

40. On the other hand, the decision should give lenders confidence that properly drafted loan documentation will protect their right to recover debts, even if there has been a very lengthy delay in taking action. 

41. It has been noted by other commentators that the decision did not deal with whether this type of contractual provision may be held void if it is ultimately found to be an unfair contract term under the Australian Consumer Law or under state legislation dealing with unfair contract terms.

WG Stark

Hayden Starke Chambers