The High Court rules limitation periods may be waived – relevance for family loans

Price -v- Spoor [2021] HCA 20

Background

In this case the High Court ruled that a person can waive their right to a statutory limitation period.

Facts

A borrower had granted a mortgage in 1998 to be repaid in the year 2000. The mortgage was not repaid and in 2017 the mortgagee brought an action for possession of the mortgaged properties and repayment of the loan and damages.  The mortgage document included a term that provided that the borrower would not try to rely on any statutory limitation period defence.

In Queensland a loan is ordinarily statute barred 6 years after the cause of action arose for the lender to have the loan enforced (usually being the repayment date). There is a further limitation period of 12 years in relation to a transaction effected by a deed, or proceedings for the recovery of possession of land.

The Court refused to allow the mortgagor to rely on the usual 6 year limitation period for the loan and mortgage, and held that it is valid for parties to a contract to waive their rights to statutory limitation periods.

How does this affect succession planning?

It is common in succession planning for long term loans to be entered into. These are usually loans from the bank of Mum & Dad to one of their children.  The loan might be for say 20 years and the parties enter into the loan expecting that it probably won’t be repaid and in fact their will might forgive the loan.  They enter into the loan for asset protection purposes, so that if the child becomes bankrupt or has a separation from their spouse, the parents can then reclaim the money lent to the child.

The problem has often arisen when the parents attempt to enforce their loan when a particular crisis arises affecting their child. Mum and dad find that the loan is statute barred because 6 years has elapsed since the repayment date. This was more of a problem in times gone by when many family loans were repayable on demand and did not have another repayment date at all, meaning the 6 year limitation period commenced on the day the loan was advanced.  Modern practice has almost extinguished the use of loans repayable on demand for this very reason and instead long term repayment dates are included, say a 20 or 30 year loan timeframe.  Making the loan a long term loan means that the statute of limitations does not begin to run until that 20 year period has expired.

However, now we know that a child can waive their right to a statute of limitations applying. Therefore we expect that all loan agreements from the bank of Mum & Dad will now include a term whereby the child agrees not to enforce any defence for the recovery of money under the loan which relies on a limitation period.

It has yet to be seen whether all commercial contracts will now include this waiver of the statute of limitations by all parties to the agreement. There are good policy reasons why the statute of limitations was adopted by Parliament.

In relation to consumer contracts, there has already been commentary that it is unlikely a contract between a corporation and a consumer could properly include a waiver of limitation periods. This is because the unfair term provisions of the Australian Consumer Law prevent the enforcement of a term in a standard form contract with the consumer where that term is unfair.