‘Contracting out' of limitation periods – a guide for Government entities
In her article, ‘Contracting out’ of limitation periods - against public policy?, Partner Anna Scannell discussed the recent High Court decision in Price v Spoor concerning the ‘contracting out’ of a statutory limitation period, and whether such a clause is contrary to public policy, and therefore unenforceable.
This decision is of particular relevance for government entities, as we discuss below.
The Respondents (Spoor & Ors (Spoor)) are the trustees of a small pension fund which is the successor in title to Law Partners Mortgages Pty Ltd (LPM). In July 1998, LPM lent $320,000 to the Appellants (members of the Price family (Price)). That loan was secured by mortgages over three plots of land. The loan was due to be repaid a year later, but Price defaulted.
The parties entered into a new agreement, extending the repayment date by a year and lowering the interest rate. However, by July 2000, the money remained unpaid. Price sold some of the land for $116,157 which it paid to Spoor. Once interest and fees were taken into account, that payment reduced the principal sum outstanding by $50,000. No further repayments were made after 30 April 2001, at which time the sum outstanding was $270,000.
In 2017, Spoor commenced proceedings in the Supreme Court of Queensland claiming:
- $4,014,969.22 in respect of monies owing (having regard to interest accrued on a compounding monthly basis, at a rate of 16.25 per cent under the original terms of the loan); and
- recovery of possession of the land.
Price pleaded, as a defence, that:
- Spoor’s claims were statute-barred pursuant to ss.13 and 26 of the Limitation of Actions Act 1974 (Qld) (Limitation Act); and
- as a result of the statutory time limit elapsing, Spoor’s title under the mortgage had been extinguished by operation of s.24 of the Limitation Act.
Spoor replied that Price had agreed, in cl.24 of the Bill of Mortgage (Mortgage), that they would not plead any defence under the Limitation Act in those proceedings. Relevantly, cl.24 of the Mortgage stated:
The Mortgagor [Spoor] covenants with the Mortgage[e] [Price] 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.
At first instance, the Queensland Supreme Court found in favour of Price, holding that:
- cl.24 of the Mortgage, correctly construed, did not prevent Price from pleading the statutory limitation period in respect of Spoor’s claims for the money and possession of the land; and
- in respect of the possession claim, s.24 of the Limitation Act had extinguished Spoor’s title to the land.
The Court of Appeal of the Supreme Court of Queensland disagreed; finding in favour of Spoor.
Price appealed to the High Court of Australia. The appeal was dismissed, as discussed in the article linked.
Some government contracts will span a term of many years, if not decades, while the government programs for which key inputs are procured might also run for very long periods of time.
Further, government entities typically consider litigation as a means of last resort. Relevantly, under s.4.2 of the Legal Services Directions 2017, non-corporate Commonwealth entities (NCCEs) must not start legal proceedings unless satisfied that litigation is the most suitable method of dispute resolution.
Accordingly, government entities often dedicate substantial periods of time to alternative dispute resolution processes in an attempt to settle contractual disputes. This is sometimes notwithstanding the delay or reluctance in engaging in those processes by the other party(s).
The factors outlined above heighten the chances of a statutory limitation period coming into effect, in respect of claims brought either by or against government entities.
As a consequence, government entities need to be cautious of a limitation period presenting a bar to successfully pursuing any claim the government might wish to bring against another party, or in preventing another party from claiming against the government.
These factors are compounded in long-term engagements, in which a government entity might have compelling practical reasons for maintaining a good working relationship with its supplier – while remaining responsible for appropriately handling disputes over breaches of the contract as they arise over the years. In such circumstances, it might be appropriate for a government entity to seek to have its supplier contract out of a statutory limitation period which might otherwise apply.
For these and other reasons, s.8 of the Legal Services Directions 2017 (Directions) explicitly addresses limitation periods. It requires a non‑corporate Commonwealth entity (NCCE) to always:
- plead a limitation period based defence whenever it is available (s.8.1); and
- oppose any application for an extension of a limitation period (s.8.2),
- unless the Commonwealth Attorney-General has approved otherwise.
When deciding to give approval, the Commonwealth Attorney-General may take into account:
- when considering a request to approve the Commonwealth not pleading the defence of a limitation period: whether the Commonwealth has through its own conduct contributed to the delay in the plaintiff bringing the claim (such as occurred, for example, in the Verweyan ‘Voyager’ Case); and
- when considering a request to approve the other party’s application for an extension of time to proceed despite a limitation period: whether the other party is likely to be successful in seeking that extension in any case (in which case contesting the application would likely result in unnecessary costs and delay).
This firm adherence to limitation periods may also softened to some extent by the Commonwealth’s obligation to act as a model litigant (set out in Appendix B of the Directions). Further, s.8.3 of the Directions permits settlement of a legal claim (even if a limitation argument is available) if legal advice has been obtained that recommends settlement, having regard to the prospects of success.
While the Directions do not explicitly require NCCEs to obtain the Attorney-General’s approval to contract out of a statutory limitation period (i.e. agree terms that could constrain the Commonwealth in pleading a limitation defence), NCCEs should carefully consider whether it is appropriate to do so, in view of the Directions. If an NCCE has contracted out of a statutory limitation period, it is likely to be a relevant consideration in any request for the Attorney-General’s approval under s.8 of the Directions.
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