Court of Appeal upholds dismissal of claim over construction defects

The Court of Appeal upheld the striking out of a claim for negligence on the grounds that the limitation period had expired under sections 11 and 14 of the Limitation Act 2010 (Rea v. Auckland Council (2024) NZCA 313).

In the Court of Appeal (but not in the Supreme Court) the appellants generally accepted that the ‘primary period’ under s 11 of the Act had expired, as the claim was made more than six years after the act or omission on which it was based. However, they maintained that the ‘late knowledge’ provisions of the Act applied.

In finding that the proceedings had been instituted after the period for late notification had expired, the Court endorsed a “plain and ordinary” interpretation of Article 14 of the Act.

Background

The claimants allege that the Council was negligent in relation to a Code Compliance Certificate (CCC) for a residential property issued in 2013. This means that the ‘primary period’ expired in 2019 and the proceedings were commenced two years later, in 2021.

Although they had been aware of some defects in the property as early as August 2014 and had received reports from building inspectors and consultants in March and May 2016, they claimed that they had only become aware of them in March 2019, when they received a further report from engineering and surveying consultants.

The issues on appeal were:

• What is required to be able to speak of ‘late knowledge’ on the part of the appellants?
• When did the appellants acquire actual or constructive ‘late knowledge’?
• Did some of the appellants’ claims constitute a new legal action that was not time-barred?

Decision

What is required to be able to speak of ‘late knowledge’ on the part of the appellants?

The ‘late knowledge date’ of a claim is the date (after the end of the commencement date of the primary claim period) on which the claimant had actual or constructive knowledge (i.e. knew or reasonably should have known) of the facts specified in section 14(1), including:

• the fact that the act or omission on which the claim is based has occurred;
• the fact that the act or omission on which the claim is based was (wholly or partly) attributable to or involved the defendant; and
• iIf the defendant’s liability or alleged liability depends on the plaintiff’s having suffered damage or loss, the plaintiff’s having suffered damage or loss.

It is a defence to the claim if the proceedings were instituted at least three years after the date of late knowledge.

The appellants argued that the term “act or omission on which the claim is based” had a broad meaning and that in this context it meant that the appellants had to know (whether in fact or in construction) that there were breaches of the building regulations, that those breaches were matters which the Council should have identified and that those breaches were the cause of their loss. The Court disagreed and held that the phrase should be given a plain and ordinary meaning (at (56)). Under section 14(1)(a) they only had to know that the CCC had been issued (at (56)) and, under section 14(1)(b), only that the issuing of the CCC was attributable to the Council (at (57)). Furthermore, while article 14(1)(c) requires a claimant to know that he has suffered loss or damage, the Court has held that this does not require knowledge of a causal link between the defendant’s act or omission and the alleged loss or damage – it was sufficient that the appellants knew or ought to have known that the loss or damage alleged existed (at (62)–(63)).

When did the appellants acquire actual or constructive ‘late knowledge’?

In a claim for defective building, loss or damage occurs when latent defects in the building become so apparent that the market value of the building is affected — that is, when the defects become so apparent that any reasonable landlord would engage a surveyor. The Court therefore held that a claimant in a claim for defective building will have constructive knowledge of the facts required by section 14(1) (at (67)) if:

“…they have information that would lead a reasonable person to begin investigating whether there is a right to claim. They cannot close their eyes to the obvious. They cannot delay taking action that a reasonable person in their circumstances would take.”

The appellants were aware of all the required facts by 23 March 2017 at the latest (at (69)). This information would have prompted a reasonable person to initiate an investigation, including seeking legal advice. The period for late notification expired by 23 March 2020 at the latest, so the claim against the Council was time-barred (at (71)).

Did some of the appellants’ claims constitute a new legal action that was not time-barred?

The Court accepted that in some cases uncertainty as to the cause of specific defects may make it premature to dismiss a claim on the grounds of limitation (at (76)). But the Court was not persuaded that the appellants could amend their pleadings to include a new cause of action which was not time-barred.

This was because all but one of the structural deficiencies identified in a March 2019 report had already been identified in the May 2016 report. Other deficiencies identified in the 2019 report were either identified in earlier reports or were too minor to support a new lawsuit.

Our view

The decision brings more clarity to the application of the provisions of the law on late knowledge, in particular with regard to claims for hidden defects. It also emphasises the need to act promptly after the discovery of defects and not risk expiring a limitation period.

This article was co-authored by William Turner, an attorney in our Construction and Infrastructure team.