Is an agreement not to plead any defence under the Limitation of Actions Act 1947 (Qld) unenforceable as contrary to public policy? Can parties contract out of statutory provisions of that kind?

Intro:-

The principal question in this appeal is whether cl 24 of each mortgage is void and unenforceable as contrary to the public policy underpinning the Limitation of Actions Act 1974 (Qld) ("the Limitation Act").

Price v Spoor [2021] HCA 20 (23 June 2021)

Facts:-

The Limitation of Actions Act 1974 (Qld) ("the Limitation Act") contains provisions which prescribe the time within which actions founded upon simple contract or for the recovery of land or monies secured by a mortgage over land shall be brought.

The principal question on this appeal is whether the parties to a mortgage may agree that the mortgagor will not plead the statutory limitation by way of defence to an action brought by the mortgagee or whether such an agreement is unenforceable as contrary to public policy. A second question concerns the operation of a provision of the Limitation Act respecting extinguishment of title. A third concerns the terms of a clause in the mortgages in question and whether they are effective to prevent the appellants from pleading the statutory time limitation.

These questions arose in proceedings brought in 2017 in the Supreme Court of Queensland by the respondents as mortgagees in which they claimed more than $4 million as monies owing under and secured by two mortgages, together with recovery of possession of land the subject of the mortgages.

By way of defence and counterclaim, the appellants alleged that the respondents were statute‑barred from bringing the action for debt pursuant to ss 10, 13 and 26 of the Limitation Act. The respondents were in consequence said to be barred from enforcing any rights under the mortgages. Two appellants further alleged that the respondents' title under the mortgages had been extinguished.

In reply, the respondents relied on cl 24 of each mortgage, which they contended amounted to a covenant on the part of the appellants not to plead a defence of limitation. As a result it was said that the appellants were estopped from pleading it. The respondents might have described the abandonment of reliance on the statutory right which they allege was effected by the agreement as a waiver by the appellants of that right.

Issues:-

1) Whether cl 24 is effective to prevent mortgagors from pleading any defence under the Limitation Act or whether agreement not to plead any defence under the Limitation Act is unenforceable as contrary to public policy.

2) Whether s 24 of the Limitation Act operated automatically to extinguish mortgagees' title at expiry of relevant time period.

3) Whether mortgagees' remedy confined to damages for mortgagors' breach of cl 24 of mortgages.

Analysis:-

The Limitation Act provisions and their effect

Section 10(1)(a) of the Limitation Act in its relevant part provides that:-

"(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 ..."

Section 13 provides:

"An action shall not be brought by a person to recover land after the expiration of 12 years from the date on which the right of action accrued to the person or, if it first accrued to some person through whom the person claims, to that person."

The provision which relates to the extinguishment of title upon which the appellants rely is s 24(1), which relevantly provides:

"... where the period of limitation prescribed by this Act within which a person may bring an action to recover land ... has expired, the title of that person to the land shall be extinguished."

Section 26 deals with actions to recover money secured by a mortgage or to recover proceeds from the sale of the land.

In WorkCover Queensland v Amaca Pty Ltd [2010] HCA 34, five members of this Court 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. 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 (1990) 170 CLR 394. Speaking there of then s 5(6) of the Limitation of Actions Act 1958 (Vic)("the Victorian Limitation Act"), 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. These statements have been applied with approval on a number of occasions in this Court.

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 Victorian Limitation 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.

Public Policy

In Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54 it was accepted that a person upon whom a statute confers a right may waive or renounce that right unless it would be contrary to the statute to do so. Most clearly this may be the case where the statute contains an express prohibition against "contracting out" of rights or where the statute, properly construed, is inconsistent with a person's power to forgo statutory rights. The joint judgment continued:

"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".

The appellants rely upon the public interest in the finality of litigation as the policy which the Limitation Act pursues. The finality of litigation, they contend, was the mischief to which the Jacobean statute of 1623, which is the origin of statutes such as the Limitation Act, was directed.

There can be no doubt that a policy of finality of litigation accounts for the provision made by the legislatures for limiting the period within which certain actions should be commenced in the courts. Provisions of this kind are conducive to the orderly administration of justice and are in the public interest, as it may be expected many statutes are. But as Mason CJ explained in Verwayen, the issue concerning whether a statutory right is capable of waiver, or abandonment by other means, is not whether the provisions in question are beneficial to the public, but rather whether they are "not for the benefit of any individuals or body of individuals, but for considerations of State". The "critical question", he said, "is whether the benefit is personal or private or whether it rests upon public policy or expediency".

Mason CJ concluded 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.

Extinguishment

Section 24 of the Limitation Act 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". The time for bringing such an action is prescribed by s 13. The title to the land here in question is that of a registered mortgagee of land. "[L]and" is defined to include "any legal or equitable estate or interest therein", which encompasses a registered mortgagee's interest.

By contrast with provisions such as s 13, s 24 operates to extinguish rights, not create them. The appellants contend that the respondents' title to the land was extinguished by the operation of s 24 before the proceedings in the Supreme Court were commenced. The argument was not fully developed but the appellants may be understood to suggest that s 24 operated automatically at the end of the limitation period to extinguish the respondents' interest in the land as mortgagee regardless of whether the appellants pleaded the limitation period by way of defence. That is to say, s 24 is to be understood to operate independently of s 13, rather than providing for what follows from a successful plea.

Textually there are strong indications that s 24 operates by reference to the plea. Section 13 says that "[a]n action shall not be brought" to recover land after the expiration of 12 years. Consistently with the authorities earlier referred to, in Brisbane City Council v Amos (2019) 266 CLR 593, Keane J observed that the term "shall not be brought" has been given a special meaning by the courts, one which is to be understood to refer to the defence provided by the statute, but which must be pleaded if effect is to be given to the limitation on bringing the action. The point presently to be made is that s 24, in its terms, proceeds upon the same footing. It also refers to the limitation period as that within which a person "may bring an action" to recover land. It contemplates a plea of the time-bar being made under s 13 and being given effect.

Further support for the view that s 24 is not intended to operate automatically and independently of s 13 at the expiry of the limitation period is provided by considerations of utility. If a provision such as s 24 automatically extinguished title there would seem to be no utility to the requirement affecting s 13 that a defendant must raise the defence in order to defeat a claim. If s 24 operated in the way contended for, there would remain no right or title in respect of which a remedy could be given. This appears to be the point made by the New South Wales Law Reform Commission in its 1971 Report on the Limitation of Actions.

The construction of cl 24

Clause 24 of each mortgage provides:-

"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."

An objective approach is required to determine the rights and liabilities of a party to a commercial contract, by reference to its text, context and purpose. The meaning to be given to its terms is determined by reference to what a reasonable business person would have understood those terms to mean.

Clause 24 is expressed to apply to all statutes affecting the mortgagee's rights and remedies and the obligations of the mortgagor. The effects spoken of include the defeat or extinguishment of rights. Where this occurs, the parties agree that the statute "shall not apply hereto" and shall be regarded as "expressly excluded".

Damages only?

Because the respondents are not confined here to a claim for damages for breach of cl 24, it is unnecessary to consider whether they had made an election not to sue on that basis or whether they should otherwise be estopped from pursuing such a claim.

Order:-

The appeal should be dismissed with costs.