A decision delivered by the Queensland Court of Appeal in late December, 2019 could restore what you may have previously considered to be ‘expired debt’.
The case of Spoor v Price  QCA 297 is concerning for borrowers, but exciting news for lenders. Now is the time to be particularly prudent when entering into borrowing/lending arrangements and writing off debt.
The Case – Spoor v Price  QCA 297
Proceedings were commenced by a lender to recover the principal and interest owing under a registered mortgage. The lender had secured the principal and interest mortgage in July, 1989. The debt was due to the lender in April, 2001. When the lender commenced proceedings against the borrower in June 2017, the debt was more than 16 years old and therefore well outside the statutory limitation period.
Generally, the Limitation of Actions Act 1974 (Qld) (“the Act”) will prevent a creditor from taking action to recover a contractual debt after 6 years and to recover land (i.e. enforcement of a registered mortgage) after 12 years.
Naturally, the borrowers sought to defend the lender’s action to recover the old debt on the basis the claim was “out of time” and statute barred by the Act.
However, the lender relied on a rather ambiguous clause in the mortgage which, it claimed, meant the borrower had waived its right to rely on a limitation defence. The clause was very broad and did not even refer to the limitation period or the Act.
The Supreme Court of Queensland initially found the clause in the mortgage did not prevent the borrower from relying on a limitations defence. As a result, the lender could not enforce the mortgage and take possession of the land to satisfy the debt.
However, the Queensland Court of Appeal disagreed and found the terms of the mortgage prevented the borrowers relying on a limitation defence. As the lending parties’ right to recover the principal and interest never expired, the registered mortgage was not extinguished and the lenders were entitled to take the land to satisfy the (very old) debt.
This decision means that lenders can draft mortgages to include clauses that cause borrowers to waive their right to rely on a limitation defence.
What this means for borrowers
Borrowers should be alarmed that even a broadly expressed clause like the one in Spoor v Price can result in a borrower losing its right to rely on a limitation defence. Even an inattentive lawyer might overlook contractual clauses waiving a borrower’s rights to the limitation defence, which could result in you owing a debt that never lapses.
What this means for lenders
On the other hand, this makes it clear that Lenders can draft their loan and mortgage documents to prevent debts, and rights to enforce them, ever expiring. Lenders should also review their portfolio of debts to see if any ‘expired’ loan and mortgage documents contain clauses that would be interpreted as waving the limitation period. This might convert previously written off debts to recoverable assets that can be recovered. If you want to know more about your rights in recovering or defending debt proceedings, please contact our Commercial Litigation team on (07) 3211 2233 and they’ll be more than happy to help.