In its recent decision in Price v Spoor, the High Court of Australia has clarified when a party can “contract out” of its statutory rights. That is, when can a party, by agreement with another party, waive or renounce a right that it has under legislation.
Facts in Price v Spoor
In Price v Spoor, the parties entered into a mortgage contract that included the following term:
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.
Although unnecessarily verbose and confusing, the intent of the clause was to contract out of the provisions of any relevant limitation legislation.
The Limitation of Actions Act 1974 (Qld) (Limitation Act) (the relevant legislation) provided:
- 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.
The respondents, as the mortgagees of the land, brought legal proceedings against the appellants, who were the mortgagors, claiming $4 million as monies owing under the mortgage and seeking to recover the land subject to the mortgage.
The mortgagors claimed that the Limitation Act prevented the respondents from bringing the claim and that the mortgagees’ title to the land had extinguished.
The mortgagees relied on the clause in the contract above arguing the mortgagors could not rely on their rights under the Limitation Act. In response, the mortgagors argued that clause of the contract was void and unenforceable because it was contrary to public policy. It was this last argument that was considered and determined by the High Court.
The High Court’s decision
The Chief Justice and Justice Edelman referred to a previous decision of the High Court in Westfield Management Ltd v AMP Capital Property Nominees Ltd, where the Court stated 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.
The Court in Westfield Management explained it would be contrary to the statute where the statute expressly prohibits “contracting out” of rights or where the statute is inconsistent with a person forgoing their statutory rights. Contractual arrangements will not be enforceable where they operate to defeat a statutory purpose where statutory rights are conferred in the public interest, rather than for individual benefit alone.
The Chief Justice and Justice Edelman relied on Chief Justice Mason’s judgment in The Commonwealth v Verwayen where His Honour concluded that the equivalent Act in Victoria gave parties a right to plead the expiry of the relevant time period as a defence and therefore conferred a benefit on individuals, rather than meeting some public need. The Chief Justice and Justice Edelman concluded that the mortgagors could, therefore, agree to waive their right not to rely on the provisions of the Limitation Act and the clause of the contract was enforceable.
Justices Gaegler and Gordon substantially agreed with the Chief Justice and Justice Edelman and went on to explain that, while the Limitation Act gave effect to the public policy objective of ensuring finality in litigation, the Limitation Act gave effect to that purpose by conferring a right on an individual to elect to plead that limitation period in a particular case.
Justices Gaegler and Gordon therefore concluded that enforcing an agreement not to plead a limitation period was compatible with the Limitation Act, because it was always left to an individual to choose whether to forgo the right under the Act.
Justice Steward agreed substantially with the other Justices.
Where you are a party to a contract that purports to waive or renounce your statutory rights or another party’s statutory rights , you should take legal advice as to whether that term of the contract is likely to be enforceable and consider how that may affect your commercial position.
In Price v Spoor, the mortgagees were correct to think that the mortgagors’ agreement to waive their rights under legislation, including the Limitation Act, meant that the mortgagors could not defend their claims by asserting those claims were time-barred.
We note that in Western Australia, the Limitation Act 2005 expressly provides that a party may agree to shorten or lengthen a limitation period.1 However, Price v Spoor now clarifies the position in other Australian jurisdictions where the limitation legislation does not contain an express “contracting out” provision.
By contrast, a term in an employment contract, for example, that purports to waive an employee’s rights under the Fair Work Act 2009 will be unenforceable because, amongst other reasons, the Act serves a public purpose in providing for minimum terms and conditions for employees.