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better late than never – ensuring lenders can recover old debts

27 July 2021
cathy russo
Read Time 3 mins reading time

The recent High Court case of Price v Spoor [2021] HCA 20 has emphasized the importance of getting proper advice on loan documentation. This case has affirmed that parties can effectively contract out of some statutory limitation periods with a lender entitled to sue to recover a debt some 20 years after the mortgage was first signed.

facts

The facts of the case were:

  • the mortgagee and the mortgagor signed two mortgages in 1998;
  • the principal loan amount was $320,000;
  • the loan was due to be repaid in July 2000;
  • each of the mortgages included a term to the effect that the mortgagor contracted out of the right to plead any statutory limitation period defence, now or in the future;
  • the mortgagor failed to repay the loan in July 2000; and
  • in 2017, the mortgagee brought proceedings to sue the mortgagor for over $4 million, and for recovery of possession of the properties the subject of the mortgage.
  • the mortgagor sought to rely on the Limitations of Act 1974 (Qld) to prevent the mortgagor from bringing a claim.

the court decision

The Limitation of Actions Act 1974 (Qld) (Limitation Act) which is largely mirrored across States provides:

  • a claim for breach of contract cannot be brought more than 6 years after the claim arose;
  • a person cannot bring an action to recover land more than 12 years after the right to bring that action arose; and
  • where a person cannot bring an action to recover land because the limitation period has expired, that person’s title to the land is extinguished.

Relying on past decisions, the Court held that the above provisions of the Limitation Act do not act as a statutory bar to bring proceedings or operate automatically to extinguish title, but instead gives a party a defence to plead.

The Court further held that a person on whom a statute confers a right may waive that right unless it would be contrary to the statute to do so. To assess this, the Court will look at any express ‘contracting out’ prohibition contained in the legislation or whether the statutory rights are conferred in the public interest rather than for individual benefit.

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 mortgagor waived its rights under the Limitation Act was indeed effective.

practical implications

Following this decision, lenders can feel more confident that properly drafted loan documentation will protect their right to recover debts, even if there has been a delay in taking action. However, the case did not rule out the possibility that the type of contractual provision in question in this case may be held void if ultimately found to be an unfair contract term under the Australian Consumer Law.

Macpherson Kelley acts for many large and listed non-bank lenders and seek to include appropriate provisions to minimise the chance of borrower’s avoiding their obligations or pleading statutory time limit defences. We also advise and incorporate appropriate acknowledgements regarding unfair contract legislation to minimise the chance of any loan provisions being void.

Contact Cathy Russo to discuss drafting appropriate loan documentation and safeguard your right to recover debt.

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better late than never – ensuring lenders can recover old debts

27 July 2021
cathy russo

The recent High Court case of Price v Spoor [2021] HCA 20 has emphasized the importance of getting proper advice on loan documentation. This case has affirmed that parties can effectively contract out of some statutory limitation periods with a lender entitled to sue to recover a debt some 20 years after the mortgage was first signed.

facts

The facts of the case were:

  • the mortgagee and the mortgagor signed two mortgages in 1998;
  • the principal loan amount was $320,000;
  • the loan was due to be repaid in July 2000;
  • each of the mortgages included a term to the effect that the mortgagor contracted out of the right to plead any statutory limitation period defence, now or in the future;
  • the mortgagor failed to repay the loan in July 2000; and
  • in 2017, the mortgagee brought proceedings to sue the mortgagor for over $4 million, and for recovery of possession of the properties the subject of the mortgage.
  • the mortgagor sought to rely on the Limitations of Act 1974 (Qld) to prevent the mortgagor from bringing a claim.

the court decision

The Limitation of Actions Act 1974 (Qld) (Limitation Act) which is largely mirrored across States provides:

  • a claim for breach of contract cannot be brought more than 6 years after the claim arose;
  • a person cannot bring an action to recover land more than 12 years after the right to bring that action arose; and
  • where a person cannot bring an action to recover land because the limitation period has expired, that person’s title to the land is extinguished.

Relying on past decisions, the Court held that the above provisions of the Limitation Act do not act as a statutory bar to bring proceedings or operate automatically to extinguish title, but instead gives a party a defence to plead.

The Court further held that a person on whom a statute confers a right may waive that right unless it would be contrary to the statute to do so. To assess this, the Court will look at any express ‘contracting out’ prohibition contained in the legislation or whether the statutory rights are conferred in the public interest rather than for individual benefit.

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 mortgagor waived its rights under the Limitation Act was indeed effective.

practical implications

Following this decision, lenders can feel more confident that properly drafted loan documentation will protect their right to recover debts, even if there has been a delay in taking action. However, the case did not rule out the possibility that the type of contractual provision in question in this case may be held void if ultimately found to be an unfair contract term under the Australian Consumer Law.

Macpherson Kelley acts for many large and listed non-bank lenders and seek to include appropriate provisions to minimise the chance of borrower’s avoiding their obligations or pleading statutory time limit defences. We also advise and incorporate appropriate acknowledgements regarding unfair contract legislation to minimise the chance of any loan provisions being void.

Contact Cathy Russo to discuss drafting appropriate loan documentation and safeguard your right to recover debt.