Standstill agreements for limitation periods: get on board, Australia

This article was first published by LexisNexis in the Australian Construction Law Bulletin in October 2021.

1. Abstract

In June 2021, for the first time, the High Court of Australia authoritatively decided that a contractual provision was effective to prevent one of the parties raising a limitation defence.¹ This ground breaking decision confirms that agreements not to raise a limitation defence are legally binding and are not (as had been suggested) contrary to public policy and void. A key ramification of the decision is that it gives the ‘green light’ to standstill agreements, by which parties agree to stand limitation periods still – allowing them to take their time to explore whether an amicable settlement is possible rather than needing to commence proceedings right away. These agreements are common in other jurisdictions (such as England and Wales²), and now that the ‘green light’ has been given to their use in Australia, they can provide parties with more flexibility, options and control in the dispute resolution process. This article also discusses the 10-year limitation periods that (in most States and Territories) apply in respect of defects claims, and identifies some factors that may weigh upon whether, following Price v Spoor, parties are free to stand these particular limitation periods still.

2. Price v Spoor

The decision of Price v Spoor³ concerned a claim for sums due under certain mortgages. The mortgages provided that all statutes that may defeat the mortgagee’s remedies are excluded insofar as this can be lawfully done (the Provision). When the mortgagee commenced proceedings to recover the relevant sums, the borrower attempted to raise a limitation defence. Accordingly, the Court had to decide (i) whether, as a matter of principle, a contractual provision that seeks to exclude a limitation defence would be contrary to public policy and void, and (ii) if such a provision would be valid and enforceable, whether, as a matter of interpretation, the Provision in this case precluded the borrower from raising a limitation defence.

The Court noted that the public policy behind the Limitation of Actions Act 1974 (Qld) was finality of litigation, i.e. disputes being settled as quickly as possible.⁴ The Act achieved this policy by conferring on individuals a purely private benefit, being the ability to raise a limitation defence.⁵ As, for about 400 years, it has been the law that if a defendant wishes to avail itself of a limitation defence, the defendant must raise the defence, the Court found that whether or not to raise the defence is at the defendant’s discretion, and accordingly that a defendant may contractually agree, in a binding way, not to raise it.⁶ The Court found that, by the Provision, the borrower in this case agreed not to raise a limitation defence, and accordingly was not permitted to raise the defence in these particular proceedings.⁷

In 1990, in the decision of Commonwealth v Verwayen,⁸ the High Court of Australia found that, due to certain statements made by certain Ministers, the Commonwealth had adopted a policy not to plead the Statute of Limitations and accordingly was estopped from doing so. Whilst, in Verwayen, the Court established that an estoppel can prevent government from raising a limitation defence, it went further in Price v Spoor, in deciding that private individuals can enter into binding agreements not to raise a limitation defence.

Moreover, as the Provision was agreed prior to any cause of action arising, the decision puts beyond doubt that parties may agree in advance not to raise a limitation defence (i.e. not only once a cause of action has arisen).

The Provision in Price v Spoor was not a conventional standstill, and the dispute involved sums due under certain mortgages. However, the principle that the Court decided (namely whether parties may contractually agree not to raise a limitation defence), applies much more broadly than the particular circumstances of Price v Spoor. Subject to the comments in the following section, it applies to a wide range of commercial disputes. It gives the ‘green light’ to standstill agreements, by which the parties agree that the limitation periods are stood still pending the parties’ attempts to resolve the dispute.

3. Limitation periods for defects claims

In the Australian Capital Territory,⁹ New South Wales,¹⁰ the Northern Territory,¹¹ South Australia,¹² Tasmania¹³ and Victoria,¹⁴ there is a 10-year limitation period (the 10-Year Limitation Period) applicable to actions for damages for defective building works (Defects Claims).

Key features of the 10-Year Limitation Period

In each of the jurisdictions referred to above, the key features of the 10-Year Limitation Period are as follows:

1. it applies to actions for damages for defective building works (however described in the relevant legislation);
2. it is a ‘long-stop’ on the commencement of an action, as the limitation period starts to run upon completion¹⁵ of the relevant works, rather than upon the relevant defects first becoming manifest (which may occur may years after completion);¹⁶
3. it encompasses a range of different causes of action (including breach of contract and tortious negligence); and
4. it sits alongside the ordinary limitation period applicable to the cause of action. Accordingly, whilst plaintiffs cannot commence an action in respect of a Defects Claim more than 10 years after completion, they may, due to the ordinary limitation periods, have even less time in which to commence their action (except for in Victoria, as discussed further below).¹⁷

Is the notion of a long-stop inconsistent with that of a standstill?

It is submitted that:

1. there is nothing in the notion of a long-stop limitation period which is inconsistent with the notion of the parties agreeing to stand a long-stop limitation period still;
2. to the contrary, as a matter of principle, it would be incongruous if parties could agree (on the authority of Price v Spoor) to stand ‘ordinary’ limitation periods still but not a long-stop period;
3. no injustice arises where, because a builder, consultant or developer has voluntarily entered into a standstill agreement, its liability is prolonged past 10 years after completion of the relevant work; and
4. as the State and Territory legislatures chose to express the 10-Year Limitation Period as being a limitation period, unless the relevant legislation suggests otherwise (as discussed further below) it can be inferred that they intended it to have the essential character of a limitation period. As confirmed by the High Court of Australia in the decision of Price v Spoor, by reference to case law going back as far as 400 years,¹⁸ this essential character includes the fact that a purely private benefit (i.e. a limitation defence) is conferred on defendants which they are free to raise or not, and accordingly, as the Court found, parties may contract out of limitation defences.

State and Territory legislation

It is necessary to consider whether the legislation in a given State and Territory which provides for the 10-Year Limitation Period has displaced the principles set out above, such that parties are not permitted to contract out of the relevant 10-Year Limitation Period. As the wording of the relevant statutory provisions differs from jurisdiction to jurisdiction, the position in one jurisdiction may not necessarily be the same as in another.

Australian Capital Territory

In the Australian Capital Territory, the 10-Year Limitation Period is expressed as not applying where a shorter limitation period applies.¹⁹ Evidently, this emphasises the long-stop nature of the Period. As (it is argued) the notion of a long-stop is not inconsistent with the parties agreeing to stand a limitation period still, it is submitted that the discussion of the High Court of Australia in the decision of Price v Spoor applies to the 10-Year Limitation Period in the Australian Capital Territory. Accordingly, it is reasonably arguable that parties may enter into enforceable standstill agreements in respect of Defects Claims in this jurisdiction.

New South Wales

In New South Wales, the 10-Year Limitation Period is expressed as applying ‘despite any other Act or law’.²⁰ A question arises as to whether these words mean that the 10-Year Limitation Period applies despite the principles enunciated in the decision of Price v Spoor.

In New South Wales, both the relevant explanatory note²¹ and the case law²² confirm that the 10-Year Limitation Period was enacted in this jurisdiction in 1997 as a response to the perception at the time²³ that builders and building professionals would have a potential liability for latent defects for an indeterminate period.²⁴ Accordingly, the Period brought about a ‘long-stop’ that was tied to completion of the work, not to the relevant defects first becoming manifest (which may occur many years after completion).²⁵

In the 2020 decision of Bandelle Pty Limited v Sydney Capitol Hotels Pty Ltd,²⁶ Leeming JA of the New South Wales Court of Appeal observed that, as the provision’s predecessor was stated to apply ‘despite any Act or law to the contrary’, this meant that (i) the 10-Year Limitation Period applies even if the ordinary six-year limitation period has not expired, and (ii) upon expiry of the Period, entitlements at general law and under statute are defeated.²⁷ It may be inferred from his Honour’s comments that the words ‘despite any Act or law to the contrary’ are directed towards emphasising the long-stop nature of the limitation period, not towards imposing an absolute bar or extinguishment that cannot be modified by agreement.

It is also worth noting that, in Bandelle, the Court found that a regulation qualified the application of the 10-Year Limitation Period notwithstanding the words ‘despite any Act or law to the contrary’.²⁸ Accordingly, the 10-Year Limitation Period was found not to be ‘of universal application’.²⁹ Its application has limits.

For the reasons set out above, it is reasonably arguable that, in New South Wales, parties may enter into an enforceable standstill agreement in respect of a Defects Claim.

Northern Territory

In the Northern Territory, the 10-Year Limitation Period is expressed as prevailing to the extent that it is inconsistent with any other law in force in the Territory.³⁰ For the reasons given above in relation to New South Wales, it is submitted that these words merely emphasise the long-stop nature of the limitation period and do not displace the principle (confirmed in Price v Spoor) that parties are permitted to contract out of limitation periods. Accordingly, parties are likely to be permitted to enter into standstill agreements in the Northern Territory in respect of Defects Claims.

Queensland

Queensland does not have a 10-Year Limitation Period. The decision of Price v Spoor related to the limitation periods under the Limitation of Actions Act 1974 (Qld). The Court’s decision that parties are permitted to contract out of these limitation periods also confirms that parties are permitted to enter into standstill agreements in Queensland in respect of Defects Claims.

South Australia

As with New South Wales, the Northern Territory and Victoria, in South Australia, the 10-Year Limitation Period is expressed as applying to a Defects Claim ‘despite… any other Act or law’.³¹ However, the South Australian legislation goes further, in expressly stating that the Period ‘cannot be extended’.³²

No qualification of this prohibition is apparent on the face of the provision. The prohibition may have been intended to direct the courts not to use their general power pursuant to section 48 of the Limitation of Actions Act 1936 (SA) to extend the time for instituting an action in relation to a Defects Claim, although this intention is not expressed in the relevant provision. Accordingly, we will need to wait for guidance from the courts as to whether the effect of the prohibition is to displace the principles set out in the decision of Price v Spoor, with the result that parties are precluded from entering into standstill agreements in South Australia in relation to Defects Claims.

Tasmania

In the Tasmanian legislation,³³ the 10-Year Limitation Period is set out in a fairly non-descript way. As there is nothing on the face of the legislation that would suggest the 10-Year Limitation Period in this jurisdiction ought to be treated any differently than the ordinary limitation periods, it is reasonably arguable that parties may enter into standstill agreements in Tasmania in relation to Defects Claims.

Victoria

In Victoria, the 10-Year Limitation Period is expressed as applying ‘despite any thing [sic] to the contrary in the Limitation of Actions Act 1958 or in any other Act or law’.³⁴

In the Second Reading Speech to the relevant legislation,³⁵ the Minister explained that the 10-Year Limitation Period was introduced for the purpose of correcting a ‘great deal of confusion over when the existing six-year limitation period starts and ends’, as ‘a logical and responsible solution to a profoundly deficient and uncertain area of the law’.

In the decision of Brirek Industries Pty Limited v McKenzie Group Consulting (Vic) Pty Limited³⁶ the Victorian Court of Appeal found that the 10-Year Limitation Period was enacted to ‘address the unsatisfactory consequences for property owners flowing from the limitation period for contract breaches’.³⁷

These factors explain the introduction of a limitation period in Victoria for Defects Claims that is tied to completion rather than when the defects first become manifest.

However, in contradistinction to other jurisdictions such as New South Wales, the Court in Brirek held that the 10-Year Limitation Period in Victoria displaces the ‘ordinary’ limitation periods under the Limitation of Actions Act 1958 (Vic) and accordingly that Defects Claims (whether in contract or in tort) may be brought at any time within 10 years from the date of the issue of the occupancy permit. Depending on the circumstances, this may result in the plaintiff having more time³⁸ or less time³⁹ to commence proceedings, compared with the ordinary limitation periods.

Whilst the Court in Brirek considered the term ‘long-stop’ to be inapt to describe the 10-Year Limitation Period in Victoria,⁴⁰ it is submitted that there is nothing in a legislative policy concerned with (i) tying a limitation period to completion or (ii) allowing a plaintiff 10 years (but 10 years only) to commence proceedings, which is inconsistent with the notion of parties voluntarily standing the limitation period still. Accordingly, it is reasonably arguable that parties are permitted to enter into standstill agreements in Victoria in respect of Defects Claims.

Western Australia

Western Australia does not have a 10-Year Limitation Period. Section 45 of the Limitation Act 2005 (WA) expressly permits parties to agree to extend the limitation periods under the Act (i.e. the ‘ordinary’ limitation periods).

The decision of Dalla Riva (Aust) Pty Limited v Bestbar (Vic) Pty Limited⁴¹ involved an alleged agreement with the hallmarks of a standstill, which the Court said was arguably permitted by section 45 of the Limitation Act 2005 (WA).

The case involved a builder who carried out works pursuant to an agreement for lease. When the tenant vacated the premises, the builder claimed damages for termination consequent upon an alleged repudiation.

The builder commenced proceedings in the Supreme Court of Western Australia. The tenant applied for summary judgment on limitation grounds. The builder’s answer to this challenge was to allege that, during the course of the parties corresponding and meeting with each other in an attempt to resolve their various legal claims, they had reached an agreement:

“to delay a reckoning (or in other words preserve legal rights by extending the time within which the legal rights may be pursued) until it is reasonably ascertainable whether there are any damages or losses to fight over”.⁴²

The builder submitted that an agreement of this nature was permissible under section 45 of the Limitation Act 2005 (WA). In the course of dismissing the summary judgment application, Master Sanderson said that this answer by the builder was arguable,⁴³ and accordingly the issue of whether the limitation period was extended by agreement should be considered in the course of a full hearing.

Accordingly, in Western Australia, as the legislation expressly permits parties to agree to extend limitation periods, parties are permitted to do so by entering into standstill agreements in respect of Defects Claims.

Other jurisdictions – England and Wales

The position in England and Wales provides further support for the proposition that, in principle, there is nothing inconsistent between a long-stop limitation period and the ability of the parties to contract out.

In 1983,⁴⁴ the House of Lords decided that, in England and Wales, a cause of action for tortious negligence in relation to defective work accrued from the time physical damage occurred, irrespective of whether the plaintiff was aware of the damage at the time. The perceived harshness of this position was remedied with the enactment of the Latent Damage Act 1986 (UK), which introduced the following limitation periods for certain negligence actions:

1. a ‘special’ limitation period of three years, commencing once the plaintiff has knowledge of material facts about the relevant damage;⁴⁵ and
2. an ‘overriding’ limitation period of 15 years, commencing on the date of the act or omission which is alleged to constitute negligence.⁴⁶ This is a long-stop limitation period, as the statute states that, on expiry of the 15-year period, the action is barred even if the plaintiff has not yet become aware of the relevant damage.⁴⁷

The long-stop nature of the ‘overriding’ limitation period does not appear to impede the practice, in England and Wales, of entering into standstill agreements in respect of defects claims.

In the decision of Oxford Architects Partnership v The Cheltenham Ladies’ College,⁴⁸ Ramsey J of the Technology and Construction Court stated the general proposition that, in England and Wales:

“It is possible for a party to agree that it will not rely on a statutory limitation defence or for the parties to agree that a statutory limitation defence will apply from an agreed date, for instance in a standstill agreement.”

His Lordship also referred in his judgment to the ‘overriding’ limitation period, without any suggestion that his statement above was qualified by it, or inapplicable to it.⁴⁹

Conclusion on 10-Year Limitation Periods

Whilst the legislative framework in each State and Territory is unique, it is reasonably arguable in many of these jurisdictions that the principles the High Court of Australia discussed in Price v Spoor apply not only to the ‘ordinary’ limitation periods but also to the 10-Year Limitation Periods. In such jurisdictions, it is likely that parties are permitted to enter into standstill agreements in relation to Defects Claims, although we will need to wait for confirmation from the courts that this is the case.

4. Standstill agreements

The key components of standstill agreements (also known as ‘tolling agreements’) are as follows:

1. they ‘stop the clock’ on limitation during a standstill period that either has an agreed duration (such as twelve months) or continues until the standstill is terminated by either party giving an agreed amount of notice (such as two months) in writing;
2. limitation, for these purposes, may be defined as including not only the statutory limitation periods, but also any contractual time bar or similar concept found in the general law (such as laches);
3. the standstill period is to be used by the parties to engage in settlement discussions;
4. time starts running again upon the termination of the agreement, and the time that elapsed during the standstill period does not count for limitation purposes;
5. sometimes (but not always) it is agreed that neither party will commence proceedings against the other during the standstill period;
6. whilst the doctrine of consideration is less restrictive now than it once was,⁵⁰ parties may still wish to execute standstill agreements as a deed to avoid arguments as to whether the defendant supplied consideration.

As standstill agreements involve foregoing statutory rights, it is necessary for the relevant instrument to state in clear terms the parties’ intention to forego (or modify) the right to raise a limitation defence.⁵¹

5. Conclusion

Standstill agreements provide commercial parties with substantially greater flexibility as to how and when to resolve their disputes. This benefit, which is enjoyed by commercial parties in other jurisdictions is now, following the High Court of Australia’s decision in Price v Spoor, likely to be available to commercial parties in many Australian jurisdictions. Practitioners may need to consider whether, in the absence of judicial authority specifically confirming the enforceability of standstill agreements to Defects Claims (particularly given the State and Territory 10-Year Limitation Periods), the decision of Price v Spoor provides sufficient comfort that parties can enter into these agreements nonetheless.

This article was written by Alex Ottaway, Special Counsel.

Publication Editor: David Jury, Partner. 

¹ This finding has particular ramifications for the Australian Capital Territory, the Northern Territory, New South Wales, Queensland, South Australia and Tasmania and Victoria. In Western Australia, section 45 of the Limitation Act 2005 (WA) expressly permits parties to agree to extend limitation periods provided for under the Act.
² Supported by decisions in that jurisdiction such as Lade v Trill (1842) 11 LJ Ch 102 and Oxford Architects Partnership v Cheltenham Ladies College [2006] EWHC 3156 (TCC).
³ [2021] HCA 20.
⁴ Price v Spoor at [14] per Kiefel CJ and Edelman J, citing Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551–553 per McHugh J.
⁵ Price v Spoor at [87] per Steward J, citing Graham v Ingelby (1848) 1 Exch 651 at 655 per Pollock CB, quoted in Kammins Ballrooms Co Limited v Zenith Investments (Torquay) Limited [1971] AC 850 at 876–877 per Lord Pearson.
⁶ Thursby v Warren (1628) 79 ER 738, cited in Price v Spoor [2021] HCA 20 at [85] per Steward J. See also Commonwealth v Mewett (1997) 191 CLR 471 at 534–535 per Gummow and Kirby JJ and WorkCover Queensland v Amaca Pty Limited (2010) 241 CLR 420 at 433 per French CJ, Gummow, Crennan, Kiefel and Bell JJ.
⁷ Price v Spoor at [29] and [31] per Kiefel CJ and Edelman J.
⁸ (1990) 170 CLR 394.
⁹ Building Act 2004 (ACT), section 142.
¹⁰ Environmental Planning and Assessment Act 1979 (NSW), section 6.20.
¹¹ Building Act 1993 (NT), section 160.
¹² Planning, Development and Infrastructure Act 2016 (SA), section 159.
¹³ Building Act 2016 (Tas), section 327.
¹⁴ Building Act 1993 (Vic), section 134.
¹⁵ Or certification: e.g. Building Act 2004 (ACT), section 142(3).
¹⁶ Bandelle Pty Limited v Sydney Capitol Hotels Pty Limited [2020] NSWCA 303 (Bandelle) at [8] per Leeming JA and at [116] per Emmett AJA.
¹⁷ Bandelle at [113] per Emmett AJA; Brirek Industries Pty Limited v McKenzie Group Consulting (Vic) Pty Limited [2014] VSCA 165 at [113]–[136] per Redlich, Whelan and Santamaria JJA.
¹⁸ Thursby v Warren (1628) 79 ER 738, cited in Price v Spoor [2021] HCA 20 at [85] per Steward J. See also Commonwealth v Mewett (1997) 191 CLR 471 at 534–535 per Gummow and Kirby JJ and WorkCover Queensland v Amaca Pty Limited (2010) 241 CLR 420 at 433 per French CJ, Gummow, Crennan, Kiefel and Bell JJ.
¹⁹ Building Act 2004 (ACT), section 142(3).
²⁰ Environmental Planning and Assessment Act 1979 (NSW), section 6.20(4).
²¹ Explanatory note to the Environmental Planning and Assessment Amendment Bill 1997 (NSW), page 11.
²² Dinov v Allianz Australia Insurance Limited [2017] NSWCA 270 at [9] per Meagher JA (Beazley P and McDougall J agreeing); Bandelle at [8] per Leeming JA and [116]–[117] per Emmett AJA.
²³ Following the 1995 decision of the High Court of Australia in Bryan v Maloney (1995) 182 CLR 609 at 617 per Mason CJ, Deane and Gaudron JJ.
²⁴ By reason of the Court’s decision in Bryan v Maloney that an action for tortious negligence involving pure economic loss caused by defects accrues upon the defects first becoming manifest.
²⁵ Bandelle at [8] per Leeming JA and [116] per Emmett AJA.
²⁶ [2020] NSWCA 303.
²⁷ Bandelle at [18] per Leeming JA.
²⁸ Leeming JA provided detailed analysis on this point at [12]–[19]. The other two Justices proceeded on the basis that the conclusion was correct: White JA at [47]; Emmett AJA at [99].
²⁹ Leeming JA at [12]–[19]; see also White JA at [47] and Emmett AJA at [99].
³⁰ Building Act 1993 (NT), section 161.
³¹ Planning, Development and Infrastructure Act 2016 (SA), section 159(1).
³² Planning, Development and Infrastructure Act 2016 (SA), section 159(3).
³³ Building Act 2016 (Tas), section 327.
³⁴ Building Act 1993 (Vic), section 134(1).
³⁵ Second Reading Speech to the Building Bill 1993 (Vic), 11 November 1993. It is worth noting that the legislation pre-dated the decision of the High Court of Australia in Bryan v Maloney (1995) 182 CLR 609. Nonetheless, the clear intention of the Victorian parliament was to address perceived injustice in the law pertaining to limitation periods applicable to defects claims.
³⁶ [2014] VSCA 165 (Brirek).
³⁷ Brirek at [118] per Redlich, Whelan and Santamaria JJA.
³⁸ For example, where, in a Defects Claim, the plaintiff claims:
ㅤ(i)      breach of a simple contract; or
ㅤ(ii)     tortious negligence, where the defects first became known or discoverable in the first four years after the issue of the occupancy permit.
Consequently, the Victorian Court of Appeal in Brirek found that a breach occurring on 27 May 2004 of a simple contract was maintainable where a pleading was amended on 2 September 2010, i.e. more than six years later.
³⁹ For example, where, in a Defects Claim, the plaintiff claims:
ㅤ(i)      breach of a deed; or
ㅤ(ii)     tortious negligence, where the defects first became known or discoverable more than four years after the issue of the occupancy permit.
⁴⁰ Brirek at [126]–[128] per Redlich, Whelan and Santamaria JJA.
⁴¹ Dalla Riva (Aust) Pty Limited v Bestbar (Vic) Pty Limited [2016] WASC 36 (Dalla Riva) at [8] and [14] per Master Sanderson.
⁴² Dalla Riva at [8] per Master Sanderson.
⁴³ A likely reference to the standard that is applicable on a summary judgment application: Dalla Riva at [14] per Master Sanderson.
⁴⁴ Pirelli General Cable Works Limited v Oscar Faber & Partners [1983] 2 AC 1.
⁴⁵ Limitation Act 1980 (UK), section 14A.
⁴⁶ Limitation Act 1980 (UK), section 14B.
⁴⁷ Limitation Act 1980 (UK), section 14B(2).
⁴⁸ [2006] EWHC 3156 (TCC).
⁴⁹ Oxford Architects Partnership v The Cheltenham Ladies’ College [2006] EWHC 3156 (TCC) at [18] per Ramsey J.
⁵⁰ In particular, the departure from the rule in Foakes v Beer (1884) 9 AC 605 brought about by the decision of the English Court of Appeal in Williams v Roffey Bros and Nicholls (Contractors) Limited (1990) 1 All ER 512, applied by the Supreme Court of New South Wales in the decision of Musumeci v Winadell Pty Limited (1994) 34 NSWLR 723.
⁵¹ Oxford Architects Partnership v The Cheltenham Ladies’ College [2006] EWHC 3156 (TCC) at [15] per Ramsey J.