Trending Now
Commercial Special Features

Can defendants avoid or limit their liability through contractual provisions?

The following article was contributed by Valerie Blacker and Jon Na, of Piper Alderman.

Applicants often confront the proposition, which respondents typically use in their defense, that terms in consumer contracts will effectively exclude or restrict the claims that have been brought. The High Court of Australia recently weighed in on this issue, deciding that a mortgage contained an enforceable promise by the borrowers not to raise a statutory limitation defense in relation to a claim by the lenders, which was commenced out of time.

Price v Spoor [2021] HCA 20

In a slight twist to the typical scenario, the lenders were the plaintiffs who brought recovery proceedings after the expiry of the period stipulated in Queensland’s Limitation of Actions Act 1974. The borrowers argued no monies were owed because the claim was well and truly statute barred. Proceedings should have been brought by 2011, but the lender did not file a claim until 2017. In reply, the lender relied on this clause in the contract:

“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.”

The effect of which was said to be a promise not to take the limitation point. The lender’s argument failed at first instance (before Dalton J) but was overturned on appeal (by Gotterson JA on behalf of Sofronoff P and Morrison JA) and then ultimately vindicated by the High Court (Kiefel CJ and Edelman J, with whom Gageler, Gordon and Steward JJ agreed).

The public policy principle

Part of their Honours’ reasoning was that what is conferred by a limitations statute is a right on a defendant to plead as a defense the expiry of a limitation period. A party may contract for consideration not to exercise that right, or to waive it, as a defendant. That is not contrary to public policy. This, in our view, is akin to agreements frequently entered between prospective parties to a litigation to toll a limitation period (suspend time running) for an agreed amount of time.

That can be contrasted with a clause in an agreement that imposes a three- year time limit instead of six, for bringing a claim for misleading and deceptive conduct under the Australian Consumer Law.[1] Clauses of that kind are unenforceable based on a well-established principle that such clauses impermissibly seek to restrict a party’s recourse to his or her statutory rights and remedies, contrary to law and public policy.

The “public policy principle” was first identified by the Full Court of the Federal Court in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546. Henjo has been referred to and applied in numerous cases since, and cited with approval in the High Court.[2]

This is not to say that contractual limitations can never be effective in limited circumstances – this much was shown in Price v Spoor. The question of whether commercial parties to a contract can negotiate and agree on temporal or monetary limits while not completely excluding the statutory remedies for misleading and deceptive conduct claims under section 18 of the ACL remains debatable[3]  – but those specific circumstances do not arise here.

About the Authors:

Valerie Blacker is a commercial litigator focusing on funded litigation. Valerie has been with Piper Alderman Lawyers for over 12 years. With a background in class actions, Valerie also prosecutes funded commercial litigation claims. She is responsible for a number of high value, multi-party disputes for the firm’s major clients.

Jon Na is a litigation and dispute resolution lawyer at Piper Alderman with a primary focus on corporate and commercial disputes. Jon is involved in a number of large, complex matters in jurisdictions across Australia.

For queries or comments in relation to this article please contact Kat Gieras | T: +61 7 3220 7765 | E:  kgieras@piperalderman.com.au

—

[1] For example in Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246

[2] For example in IOOF Australia Trustees (NSW) Ltd v Tantipech [1998] FCA 924 at 479-80; Scarborough v Klich [2001] NSWCA 436 at [74]; MBF Investments Pty Ltd v Nolan [2011] VSCA 114 at [217]; JJMR Pty Ltd v LG International Corp [2003] QCA 519 at [10]; JM & PM Holdings Pty Ltd v Snap-on Tools (Australia) Pty Ltd [2015] NSWCA 347 at [55]; Burke v LFOT Pty Ltd [2002] HCA 17 at [143].

[3] For example in G&S Engineering Services Pty Ltd v Mach Energy Australia Pty Ltd (No 3) [2020] NSWSC 1721.

Commercial

View All
Case Developments Commercial

Discovery Application Filed by Russian Billionaire Over Litigation Funding

By Harry Moran and 4 others |

The sanctioning of Russian business owners since 2022 has led to a plethora of litigation, as one ongoing case in Florida sees two Russian nationals in a dispute over the funding of litigation between them.

Reporting by Bloomberg Law covers ongoing proceedings in a Florida court, where sanctioned Russian billionaire Andrey Guriev is seeking discovery on the funding of claims brought against him by Alexander Gorbachev. The discovery application relates to a series of cases brought against Guriev by Gorbachev over his claimed partial ownership of Guriev’s company, with Gorbachev’s legal costs, insurance and additional expenses having been paid by Sphinx Funding LLC, a subsidiary of 777 Partners. 

Gorbachev failed in his claim brought against Guriev in the UK, but has since claimed that he does not have the £12 million that he has been ordered to pay to Guriev in court costs. Mr Guriev’s counsel from Boies Schiller Flexner, explained the reasoning behind the discovery application in a memorandum of law, stating:

“Mr. Guriev hopes to discover information relevant to the identities and ultimate sources of the funds provided by the third-party funders who financed Mr. Gorbachev’s failed, frivolous, and potentially fraudulent claims, as well as the true motives and objectives in bringing those claims.”

In response to a prior application by Guriev to have the two funders added as parties to the case, Joshua Wander, managing partner and co-founder of 777 Partners, stated that even though the company had covered some of Gorbachev’s legal costs, it had no stake in the result of the litigation. Furthermore, Wander had claimed that his companies had no paid any of Gorbachev’s legal costs after May 2023, following a “breakdown in the relationship between Alexander and the funders”.

Case Developments Commercial

£16m Settlement Reached in Dispute Between Funder and Investor’s Estate

By Harry Moran and 4 others |

The funding of arbitration claims brought against nation states represent challenging opportunities for legal funders, with the potential of a large return balanced against the complicated nature and prolonged timelines of these disputes. A new settlement in the High Court demonstrates that these issues can even extend to disputes between the claimant and funder, even when a valuable settlement is secured.

Reporting by the USA Herald covers the move by the High Court of Justice of England and Wales to finalise the settlement in a dispute between litigation funder Buttonwood Legal Capital, and the estate of late Finnish mining investor Mohamed Abdel Raouf Bahgat. The £16.74 million settlement which was approved by the court on Tuesday ended the legal action that Buttonwood began in 2022 to recover a share of the award won in Bahgat’s arbitration case against Egypt.

As Mr Bahgat died on 8 October 2022, the settlement was reached with his estate. The arbitration claim dated back to 2000 when Bahgat was arrested by the new government and had his assets frozen and his mining operations project seized. The arbitration ended in 2019 at a tribunal in The Hague where Bahgat was awarded $43.8 million, which following two years of interest and an enforcement dispute, finished as a $99.5 million payout in November 2021. Buttonwood brought a claim to the High Court in the following year to retrieve its share of the amount, further complicated by a prior renegotiation of terms between Buttonwood and Bahgat in 2017.

Neither Buttonwood Legal nor the Estate of Mr Bahgat have publicly commented on the settlement.

Commercial Regulatory Issues

LSB Director Argues Funding Should Move to a “Mandatory Model” of Regulation

By Harry Moran and 4 others |

With next Monday set as the deadline for the Civil Justice Council’s (CJC) Interim Report and Consultation on litigation funding, we are beginning to hear more vocal arguments about the approach the government should take towards regulating the litigation funding industry.

An article in Legal Futures provides an overview of remarks given by Richard Orpin, Director, Regulation & Policy at Legal Services Board, at a consultation event for the CJC review in Oxford. In his speech, Orpin advocated for “moving away from the voluntary model of regulation to a mandatory model” for litigation funding, suggesting that it should be brought “into the remit of the FCA (Financial Conduct Authority).

Orpin argued that the rise in the use of litigation funding had “coincided with an increase in poor practice by some law firms in receipt of that funding,” and that “this pattern of behaviour undermines trust confidence in the ‘no win, no fee’ sector.” Orpin put forward the view that regulators needed to take a “more proactive” stance, highlighting his organisation’s concerns over “poor standards of client care, short-term financial gain being put above the interests of client and duty to the court.”

Other speakers at the event varied in their perspectives, with Richard Blann, head of litigation and conduct investigations at Lloyds Banking Group, similarly arguing that the current model of self-regulation was “ineffective and inadequate” and that the Association of Litigation Funders (ALF) “has no teeth”. 

Adrian Chopin, managing director and founder of Bench Walk Advisers, offered a dissenting view and questioned some of the preconceptions about funding, saying that the suggestion there are “waterfalls where the funders take everything and the client gets nothing” demonstrated a “gross level of ignorance”.