Can a borrower rely on limitation periods to avoid repaying secured loans?
Litigation: 23 April 2025
Author: Paolo Tatti, Ralph Davies, Sean Richards - Our People
Tick tock – Contract beats the Clock!
Ward v McDonald [2025] VSC 186
https://austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VSC/2025/186.html
The Litigation Team at Aitken Partners recently acted for the successful defendant in a Supreme Court dispute concerning a loan secured by a mortgage – the outcome which hinged on the interpretation of a single clause buried in the mortgage documentation.
In 2004, a relatively common and unexceptional loan was agreed between Ms Ward, her husband and his (now deceased) sister. Ms Ward and her husband borrowed some money from the deceased to buy a property; she would be registered on title as the owner, and a loan agreement executed. The loan would be repayable two years later and would be secured by way of a registered mortgage in the same way any bank would secure monies loaned.
Fast forward over two decades later; the loan had not been repaid, the lender had passed away in 2020, and in November 2023, proceedings were commenced in the Supreme Court of Victoria.
And it is here where the relatively common and unexceptional situation took a sharp legal detour…
Rather than the not uncommon proceedings brought by a lender, alleging default and seeking payment, Ms Ward brought proceedings against the lender’s estate. Given the passage of time, she contended that the clock had run out for the lender, and the mortgage should be discharged. Her argument was based on the Limitations of Actions Act 1958 (Vic) (LAA) which in effect provides that actions to recover land or monies secured by mortgage will be statute barred after 15 years.
But what seemed like a straightforward case of time running out was not just a matter of the clock ticking...
The lender’s estate did not agree that as a result of the LAA, Ms Ward could insist on the mortgage being discharged without having to pay the monies owing. The estate argued that the ticking clock was irrelevant; it was about what the parties had agreed about the clock which was important.
Can a single clause rewrite the rules of time?
A “Memorandum of Common Provisions” (MCP) is a set of standard terms, registered with the Registrar of Titles. Often described as ‘boilerplate’ clauses, they contain standard provisions which can be used by parties to a transaction and are not drafted for a specific transaction. Here, the loan between the parties incorporated MCP “AA429”, a set of standard type clauses relating to mortgages.
Clause 16.1 of that MCP included that the mortgagor (I.e. Ms Ward) “…shall not claim the benefit of any statute… adversely affecting the rights… conferred on the Mortgagee.” Clause 16.2 further provided that was the parties express intention that all of the obligations created by the mortgage would be enforceable by the mortgagee irrespective of legislation.
Time had not run its course – because the parties had agreed it wouldn’t…
Justice Finanzio considered the key question; what did the clause in the MCP actually mean? His Honour looked at a decision of the High Court which considered a similar (but more clearly worded) clause in Queensland, the language of the clause, the effect of particular words used and the purpose of the overall agreement.
Whilst the Court observed that “[i]t would be easier if the clause in the current case had used language like ‘defeated’ or ‘extinguished’…” which had been the case in the clause considered by the High Court, it was not the precise words used which were important; “…the question of construction in each case is whether the language used is ‘apt to capture the effect of the limitation provisions’ in describing the statutes or proclamations, the benefit of which the mortgagor agrees to forego.”
In considering this, his Honour found Ms Ward had agreed she could not rely on the LAA to defeat the lender’s rights. Clause 16 of the MCP provided that “…the Mortgagor will not claim the benefit of any statute or any proclamation …” which would adversely affect the lender’s rights.
This was also found to be consistent with the purpose of the agreement:
[49] … Although it might be said that this was an arrangement as between family members, it is clear that the Mortgagee did not intend to give the money to either her brother or his girlfriend as a gift. Rather, the Mortgagee sought the security of a registered mortgage on the terms set out in the Loan Agreement and the MCP….
In law, even time can be contracted away …
The Judge summarised the effect of his findings as follows:
[58] Accordingly, cl 16 is effective to prevent the Mortgagor from claiming the benefit of the LAA. It follows that it cannot be said that no money is owing to the Mortgagee under the Mortgage, nor can it be said that the Mortgage is extinguished. The Plaintiff is not entitled to a discharge of the Mortgage until the amount due under the Mortgage is paid.
Ultimately, the case illustrates that a single clause has the ability to carry the day and fundamentally impact parties' rights and obligations – even when buried in boilerplate clauses.
Contact Aitken Partners for assistance from our experienced litigation and property lawyers to assist you with property disputes and advice – including historical mortgages, loans and limitations period – irrespective of whether you are a property owner, borrower or lender.