Australia: Modification of rights under the Trade Practices Act does not amount to contracting out
Landlord and Tenant alert

Introduction

It is well known that parties cannot 'contract out' of the Trade Practices Act 1974 (Cth) ("TPA") (now known as the Competition and Consumer Act 2010 (Cth)).

However, the NSW Supreme Court recently confirmed that the TPA can be modified by agreement between parties, particularly when both parties to the agreement are commercial, sophisticated and capable of negotiating and bargaining an arrangement.

The case

In Firstmac Fiduciary Services Pty Limited & Anor v HSBC Bank of Australia Limited [2012] NSWSC 1122, the NSW Supreme Court (on an application brought by HSBC on a separate hearing) found that a time limitation clause in a sale deed meant that the plaintiffs were out of time in pursuing both contractual and misleading or deceptive conduct claims against HSBC.

Background

On 15 December 2006, HSBC, Firstmac Fiduciary Services Pty Ltd ("Buyer") and Firstmac Limited ("Firstmac") entered into a Sale Deed pursuant to which HSBC sold its broker originated residential mortgages to the Buyer.

Clause 3.16 of the Sale Deed stated that:

"The Buyer and FirstMac each has no right to recover any amount under any Claim for or in connection with a breach of Warranty and the liability of HSBC for any such Claim is absolutely barred, unless within 5 years after the Completion Date, the Buyer or FirstMac gives to HSBC notice of the Claim and legal proceedings for the Claim have been properly issued and validly served upon HSBC within 3 months from the date of notice."

It was not in dispute that notice of the Claim was given in time, however proceedings were not commenced within 3 months from the date of notice, as required by clause 3.16.

By consent the parties agreed to the hearing of the following two separate questions:

1. Whether clause 3.16 of the Sale Deed had the effect that the plaintiffs had no right to recover any amount in respect of the claims for breach of warranty, and the liability of HSBC for such claims is absolutely barred; and/or
2. Whether clause 3.16 of the Sale Deed had the effect that the plaintiffs had no right to recover any amount in respect of the claims for misleading or deceptive conduct in contravention of the TPA, and the liability of HSBC for such claims is absolutely barred.

Arguments

The plaintiffs accepted that the first question should be answered affirmatively, but argued that the second question should be answered in the negative due to the established principle that a cause of action that is enlivened by contravention of the TPA cannot be modified or excluded by contractual provision. Further, the TPA claim was distinct from a breach of warranty claim, and was not brought "for or in connection with" a breach of warranty, and was therefore not caught by clause 3.16.

In response HSBC argued that a monetary or temporal limit can be imposed by contract on a statutory claim of this sort, and that the TPA claim was clearly caught by clause 3.16.

Decision

His Honour Justice Sackar agreed with HSBC and held that a distinction needs to be made between a contractual term purporting to, for example, bar a statutory remedy altogether, and one that purports to impose a monetary or temporal limit on the extent of the remedy.

His Honour held that clause 3.16 did not bar or exclude a right to claim or recover pursuant to s 52 or s 82 of the TPA. The clause imposed a time limit in which such claims must be brought, i.e. 5 years. His Honour noted that 5 years was "a significant period on any view". The imposition of a temporal limit on liability did not amount to a "contracting out" of the TPA but rather, reflected the intentions of the parties that any such claims must be brought promptly.

His Honour could see nothing wrong in principle with parties fixing a shorter time period than that which may be provided by a relevant statute and in particular, could see nothing in the TPA precluding parties from modifying s 82 in the way they had.

His Honour also held that as the alleged misleading or deceptive representations were comprised of the warranties contained in the Sale Deed, those properly should be considered as being "in connection with" a breach of warranty and were therefore caught by clause 3.16.

Conclusion

The decision is precedent for parties being able to, by agreement, limit the time in which a s 52 TPA claim can be brought to a period which is less than the 6 year period allowed under the TPA, without "contracting out" of the TPA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.