Bayliss v Central Hawkes Bay District Council HC Auckland CIV 2009-441-593

[2010] NZHC 275

IN THE HIGH COURT OF NEW ZEALAND

NAPIER REGISTRY

CIV 2009-441-000593

BETWEEN  WARREN JAMES BAYLISS AND

SUSAN MARY BAYLISS Appellants

ANDCENTRAL HAWKES BAY DISTRICT COUNCIL

Respondent

Hearing:         18 November 2009

Appearances:  M Courtney for Appellants

S Thodey for Respondent

Judgment:      22 February 2010 at 11:00am

(RESERVED) JUDGMENT OF ANDREWS J

This judgment is delivered by me on 22 February 2010 at 11am

pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors:

Davidson Armstrong & Campbell, PO Box 54, Waipukurau  4242 (for Appellants)

Heaney & Co, PO Box 105391, Auckland City 1143 (for Respondent) Counsel:

M A Courtney, PO Box 12022, Ahuriri, Napier 4144

BAYLISS AND BAYLISS V CENTRAL HAWKES BAY DISTRICT COUNCIL HC NAP CIV 2009-441-

000593  22 February 2010

Introduction

[1]      On 16 August 2009 Judge G A Rea granted an application by the respondent

(as  defendant)  for  summary  judgment  against  the  appellants  (as  plaintiffs)  in  the appellant’s  proceeding  against  the  respondent.[1]     The  appellants  appeal  against  the grant of summary judgment against them.

[1] W J Bayliss and S M Bayliss  v  The  Mayor  and  Councillors  of  the  Central  Hawkes  Bay

District Council, DC Waipukurau CIV 2007-081-72 6 August 2009

[2]      The  central  issue  on  appeal  is  whether  the  District  Court  Judge  erred  in holding that the appellants’ claim is barred by the Limitation Act 1950.

Background

[3]      In February 1999 the appellants entered into an agreement to buy a house at

1 Ruataniwha  Street, Waipawa (“the property”). The  purchase  was  settled  on  23

March 1999.

[4]           Prior  to  entering  into  the  agreement  to  buy  the  property,  the  appellants requested  a  “LIM  report”  from  the  respondent,  in  relation  to  matters  affecting  the property,  pursuant  to  s 44A(1)  of  the  Local  Government  Official  Information and Meetings Act 1987. In their claim against the respondent, the appellants alleged that the respondents had a mandatory statutory duty to include  in  the  LIM  report information identifying any special features or characteristics of the property relating to subsidence which were known to the respondent at the time.

[5]      I record that counsel asked that I accept, for the purposes of this appeal, that a claim for breach of statutory duty can be founded on a LIM report.  Counsel advised that the issue as to whether a Local Authority has a statutory duty in relation to the provision of a LIM report is presently before the Court of Appeal for determination.[2]

[2] North Shore City Council v Body Corporate 188529 & Ors, CA673/2008.

[6]      The respondent issued the LIM report on 28 January 1999.   The appellants allege that the report failed to  disclose  or  include  information  about  actual  or

potential  subsidence  at  the  property.        In  particular,  the  appellants  allege  that  the following matters were known to the respondent but not disclosed:

a)        In  1992  the  then  owners  of  the  property  reported  to  the  respondent their concerns about settlement of foundations.  The respondent’s staff investigated the concerns.

b)In  1995  new  owners  of  the  property  complained  to  the  respondent, and a claim was lodged against the respondent. In 1996 the respondent instructed a consulting engineer, Mr Robinson, to provide

a report on the property. The report focused on the owners’ concerns regarding  a  de-commissioned  stormwater  drainage  pipe  beneath  the property  and  the  pile  foundations  beneath  the  house.   Mr  Robinson made  recommendations  as  to  remedial  work.  The  owners  and  the respondent entered into a settlement deed dated 12 November 1997, in relation to the owners’ claim.   The respondent agreed to pay for the remedial work recommended by Mr Robinson.  That work was carried out in November 1997.

[7]      As  noted  earlier,  the  appellants  agreed  to  buy  the  property  in  early  1999. Their  agreement  was  subject  to  finance,  a  builder’s  report,  and receipt of  a satisfactory LIM report.  The LIM report included the following:

a)        Under the heading “Building”:

5/12/97 BUILDING  CONSENT  970408 :  RELEVELLING ON EXISTING PILES.  :

Code Compliance Certificate issued 11/12/97

b)Under the heading “Special Land Features”: No information located.

[8]      In March 2001 the appellants contacted the respondent about cracks that had appeared in the  walls  and  back  porch  of  the  house. The  respondent  engaged  Mr Robinson  to  provide  a  report.   Mr  Robinson’s  report,  dated  1  May 2001,  was  not provided to the appellants, and they were not aware of it until 2006.

[9]      In July 2010 the appellants again wrote to the respondent about cracks and movement   beneath   the   house.  The   respondent   engaged   Opus   International Consultants Limited (“Opus”) to inspect the property and provide a report.   Opus’ report  was  provided  to  the  respondent  in  October  2001  and  to  the  appellants  in December  2001.         On  the  basis  of  the  Opus  report  (and  being  unaware  of  Mr Robinson’s 1996 and 2001 reports) the appellants concluded there were no issues of concern.

[10]     In March 2003 the appellants went to live in the United Kingdom. The house was tenanted. In May 2006 they were advised of deterioration in the house, with the cracks having become much worse. They sought advice from an engineer. Quite coincidentally, that engineer was Mr Robinson. The appellants then became aware

of Mr Robinson’s  1996   report   and,   subsequently,   other   documents   on   the respondent’s  file  for  the  property,  including  the  settlement  with  the  then  owners which  led  to  remedial  work  being  undertaken  in  November  1997. The  appellants allege that it was not until 2006 that they realised the full extent of damage to the house, and the repairs that would be required.

The appellant’s claim

[11]     The  appellant’s  original  statement  of  claim  was dated  3  October  2007,  and filed in the District Court at Waipukurau on 4 October 2007.  They filed an amended statement of claim on 1 April 2008. In essence, their claim is that the respondent breached a mandatory statutory duty by  failing  to  include  in  the  LIM  report information identifying  any special features of the property relating to subsidence: in particular,  by failing  to disclose Mr  Robinson’s 1996  report,  and the  settlement deed of 12 November 1997.

[12]     The appellants allege that once a person intending to purchase the property became aware of the subsidence issue described  in  Mr  Robinson’s  1996  report, and/or became aware of the information held by  the  respondent  relating  to  the history of  the  property,  the  market  value  of  the  property  would  decrease. They claimed a total of $125,000, comprising repair, remedial, and reinstatement costs of $95,000 and $30,000 for a permanent loss in value of the property.

[13]     The  respondent  has  filed  statements  of  defence  to  both  the  original  and amended statements of claim.  As relevant to this appeal, both statements of defence plead that the appellant’s proceeding is barred by the Limitation Act 1950.

Application for summary judgment

[14]     The  respondent  applied  for  summary  judgment  in  its  favour  against  the appellants,  on  the  grounds  that  the  appellant’s  claim,  being  statute-barred,  cannot succeed. The  respondent  submitted  that  the  appellants’  proceeding  for  breach  of statutory duty (a  tort)  was  required  to  be  brought  within  six  years  of  the  cause  of action  accruing,  and  that  this  occurred  either  on  the  date  of  the  LIM  report  (28 January 1999) or on the date the appellants settled the purchase (26 February 1999). The proceeding was filed on 4 October 2007, some 8½ years after either date.

[15]         The  appellants  opposed  the  application  for  summary  judgment,  on  the grounds that the limitation period did not start to run until 2006, when the appellants became  aware  of  Mr Robinson’s 1996 report or,  alternatively,  when  they received the Opus report in December 2001.   If their argument were accepted in  respect of either date, their proceeding would not be statute-barred.

District Court judgment

[16]     The Judge referred first to the judgment of the Court of Appeal in Williams v Attorney-General[3]  in which it was held that a cause of  action  accrues  on  the  date when every fact exists which it would be necessary for the plaintiff to prove in order

[3] [1990] 1 NZLR 646 (CA) at 678.

to support his or her right to the judgment of a court. The Judge then held at [21]

that:

... the cause of action in this case arose when [the appellants] entered into the agreement to buy the house or at the latest when they settled the purchase. At  that  point  in  time  they  suffered  a  loss  that  was  not  dependent  on  any further contingencies.  No cause of action arose when [the appellants], or an objective  observer  became  aware  of  the  situation,  nor  when  the  problem became “reasonably discoverable”.

[17]     In  reaching  that  conclusion  the  Judge  referred  to  two  judgments  of  the Supreme Court:  Thom v Davys Burton (“Thom”),[4]  and Trustees Executors Ltd v P J Murray & Ors (“Trustees Executors”).[5]   These judgments will be discussed in detail later in this judgment.   The Judge found support from both judgments for holding that the appellants’ cause of action accrued when they entered into the agreement to buy the property, not at some later date.

[4] [2008] NZSC 65, [2009] 1 NZLR 437 (SC).

[5] [2007] NZSC 27, reported as Murray v Morel [2007] 3 NZLR 721 (SC).

[18]     Further, the Judge considered that because the appellants had restricted their claim against the respondent to a cause of action of breach of statutory duty, it was not necessary to consider authorities such as the Privy Council’s judgment in Hamlin

v Invercargill City Council (“Hamlin (PC)”).[6]

[6] [1996] 1 NZLR 513 (PC).

Grounds of appeal

[19]     The  appeal  was  on  the  grounds  that  it  was  inappropriate  that  summary judgment be given for the respondent, because there were disputed issues of material fact  and  difficult  questions  of  law  to  be  determined.   In  particular,  the  appellants contend that the Judge erred in finding that:

a)        The limitation period began to  run when the appellants received the

LIM report;

b)The   appellants   had   argued   that   there   should   be   a   “reasonable discoverability” proviso read into the limitation test;

c)        Because of the manner in which the appellants had pleaded their case,

it was not necessary to consider authorities such as Hamlin (PC);  and

d)It  was  necessary for  the  appellants  to  nominate  one  of  two  possible dates put forward by them as the dates from which they argued that the limitation period began to run.

[20]     The appeal turns on the Judge’s decision that time began to run either on the date  of  the  LIM  report,  or  on  the  date  the  appellants  settled  the  purchase  of  the property.

The Limitation Act 1950

[21]     Section 4 of the Limitation Act 1950 provides:

4Limitations  of  actions  of  contract  and  tort,  and  certain  other actions

(1)Except as otherwise provided in this Act or in subpart 3 of Part 2 of the Prisoners’ and Victims’ Claims Act 2005, the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say, -

(a)      Actions founded on simple contract or on tort:

...

[22]     The appellants’ proceeding was commenced on 4 October 2007.   Therefore,

in order to escape any challenge as to the cause of action being statute-barred, the cause of action must have accrued after 4 October 2001.

[23]     A cause of action accrues when the elements necessary to prove the claim all exist.  In his judgment in the Court of Appeal in Invercargill City Council v Hamlin (“Hamlin (CA)”)[7]  McKay J said:

[7] [1994] 3 NZLR 513, at 536-537.

The ordinary time limit for an action in contract or in tort is thus calculated from the date on which the cause of action accrued.   The phrase “cause of action” has been defined as meaning every fact which it will be necessary for the  plaintiff  to  prove,  if  traversed,  in  order  to  support  his  right  to  the judgment of the court:  Cooke v Gill (1873) LR8 CP107 at p106 and Read v Brown (1888) 22 QBD128 (CA). In contract the cause of action accrues as soon as there has been a breach of contract. In an action in tort based on a wrongful act which is actionable per se without proof of actual damage, the cause of action will accrue at the time the act was committed. Where the claim is based on negligence, however, damage is an essential part of the case of action, and until the damage has occurred the cause of action is not complete.

This is described as ‘familiar law’ in the judgment of this Court delivered by

Cooke P in Askin v Knox at p 254.  ...

[24]     In  order  to  make  out  a  claim  for  breach  of  statutory  duty,  a  plaintiff  must prove:

a)        The existence of a statutory duty enforceable by private action;

b)        That the statutory duty lies on the defendant;

c)        The duty is owed to the plaintiff;

d)       There has been a breach of the duty;  and

e)        The breach caused or materially contributed to the plaintiff’s loss.[8]

[8] See Stephen Todd (ed) The Law of Torts in New Zealand (5th ed, Brookers, Wellington) at 395-415

[25]     Thus,  if  the  respondent  owed  a  statutory  duty  to  the  appellants,  and  if  the respondent  breached  it  by  providing  a  defective  LIM  report,  then  the  first  four elements of a claim for breach of statutory duty would exist at the time the appellants received the  LIM  report.   The accrual of the  cause of action therefore depends on when the appellants suffered a loss which was caused or materially contributed to by the breach.

Approach on appeal

[26]     The  appellants  are  exercising  a  general  right  of  appeal  under  s 72  of  the District Court’s Act 1947.  As such the approach to be followed is that set out by the Supreme Court in Austin, Nichols  & Co Limited v Stichting Lodestar.[9]    The Court held that, in a general appeal, the appeal court has the responsibility of arriving at its own  assessment  of  the  merits  of  a  case,  even  where  the  appeal  Court’s  opinion involves an assessment of fact and degree and entails a value judgment.

[9] [2008] 2 NZLR 141 at [5] and [16].

[27]     In deciding whether to  grant  the  respondent’s  application  for  summary judgment, the District Court Judge in this case was exercising a discretion.   In such

cases the principles  set  out by the Court of  Appeal in May v  May[10]  apply, and an

[10] (1982) 1 NZFLR 165 (CA).

appellant must show that the Judge acted  on a  wrong principle,  failed to take into account a relevant matter, took into account an irrelevant matter, or was otherwise plainly wrong.[11]

[11] At 170 per McMullin J.  See Blackstone v Blackstone (2008) 19 PRNZ 40 (CA).

[28]     In this case, the appellant’s appeal was argued on the basis of errors of law

(as  to  when  time  ran  for  limitation  purposes)  so  essentially  they  approached  the appeal as being against the exercise of a discretion.

Preliminary matters

[29]     It has already been noted that this appeal turns on the question of when the appellants’ cause of action accrued.   It is appropriate to record that counsel agreed that:

a)        The  appellants’  claim  against  the  respondent  is  not  that  there  was  a “latent  defect”  in  the  property.            Accordingly,  the  Privy  Council’s judgment in Hamlin (PC) does not apply directly although, as will be discussed  later,  Mr  Courtney submitted  that  it  should  be  applied  by analogy;

b)Determination of the question  as  to  when  the  appellants’  cause of action accrued involves   consideration   of   Hamlin   (PC) and the judgments of the Supreme Court in Trustees Executors and Thom;

c)        Accrual of a cause of action is an occurrence-based, not a knowledge- based, concept.[12]   To determine when the cause of action accrued, it is necessary to ask when the appellants’ loss occurred;  and

[12] See Trustees Executors at [69], per Tipping J.

d)If it is decided that the date the appellants’ cause of action accrued is not either the date of the LIM report (28 January 1999) or the date the appellants  settled  the  purchase of the property (26 February  1999), then assessment of the date the cause of action accrued must  be

remitted back to the District Court for determination on the evidence.

Summary of submissions

Appellants

[30]     Mr Courtney submitted that the appellants’ claim is for economic loss, thus their cause of action did not accrue until the market value of the property fell. He submitted that had the appellants sold the property immediately after they purchased

it, there would have been no loss, because a subsequent purchaser would have had the same information as did the appellants.   The appellants’ loss occurred when the defects in the property became apparent to the market.

[31]     Mr Courtney submitted that although the appellants’ claim was not of a latent defect in the property (the alleged breach  is the provision of the  LIM report), it is analogous  to  the  latent  defect  cases  in  that  the  appellants’  cause  of  action  did  not accrue until the appellants (and the market) knew that the LIM report was defective.

Respondent

[32]     Ms  Thodey  submitted  that  the  District  Court  Judge  was  correct  in  law  in holding   that   the   “occurrence”   from   which   the   limitation   period   ran   was   the transaction  –  the  appellants’  purchase  of  the  property. She  submitted  that  the appellants suffered loss when they committed themselves to buying the property.

[33]     Ms  Thodey  submitted  that  the  court  should  not  apply  Hamlin  (PC)  by analogy,  and  that  the  Privy  Council’s  reasoning  with  respect  to  latent  building defects should not be taken out of the confines of those cases and applied elsewhere. She submitted that there would be major implications of doing so, not the least of which is that the “longstop” modification to the limitation period for latent building defect claims enacted in the Building Act 1991[13]  would not apply outside of those claims.

[13] Building Act 1991, s 91(2).  Continued in the Building Act 2001 as s 393(2)

The authorities:  approaches to accrual of causes of action

[34]     Because Mr Courtney submitted that the court should apply Hamlin (PC) by analogy,  it  is  appropriate  to  start  with  the  judgments  of  the  Court  of  Appeal  and Privy Council in Hamlin.

Hamlin (CA)

[35]     Mr Hamlin claimed against the Invercargill City Council for negligence by a building inspector who approved the foundations of the house built for him.   Some

17 years later the foundations were found to be defective.  The trial Judge found that

a   reasonable   ordinary   prudent   home-owner   in   New   Zealand   would   not   have discovered  that  the  true  cause  of  cracks  in  walls  and  jamming  of  doors  was subsidence of foundations until an expert builder was engaged.  Hence, a Limitation Act defence failed.  The Council appealed to the Court of Appeal.

[36]     Five separate judgments were delivered by the Court of Appeal. The judgment  of  the  majority  (Cooke P, Richardson, Casey, and Gault JJ)  applied reasonable discoverability to the latent defect in  Mr Hamlin’s house. Cooke P, at

520,  suggested  that  a  strict  occurrence  test  could  result  in  injustice  and,  at  522, suggested that in latent defect cases the loss only occurred when the market became aware of the defect.  Similarly, at 534, Gault J held that, as the house could be sold with  no  loss  until  the  defect  became  reasonably  discoverable,  the  cause  of  action would only accrue when the defect was reasonably discoverable, not before.

Hamlin (PC)

[37]     The Council appealed to the  Privy Council.   In  delivering  the  judgment  of

Their Lordships Lord Lloyd said:[14]

[14] Hamlin (PC) at 526

Once it is appreciated that  the  loss  in respect  of  which  the  plaintiff  in the present case is suing is loss to his pocket, and not for physical damage to the house  or  foundations, then most, if not all the difficulties  surrounding the limitation question fall away. The plaintiff’s loss occurs when the market

value of the house is depreciated by reason of the defective foundations, and not  before.  If  he  resells  the  house  at  full  value  before  the  defect  is discovered,  he   has  suffered   no  loss.  Thus  in   the   common   case   the occurrence of the loss and the discovery of the loss will coincide.

...

In other words, the cause of action accrues when the cracks become so bad,

or the defects so obvious, that any reasonable homeowner would call in an expert.  Since the defects would then be obvious to a potential buyer, or his

expert,  that  marks  the  moment  when  the  market  value  of  the  building  is

depreciated,  and  therefore  the  moment  when  the  economic  loss  occurs. Their  Lordships  do  not  think  it  is  possible  to  define  the  moment  more accurately.  ...

...   The approach is consistent with the underlying principle that a cause of action accrues when, but not before, all the elements necessary to support the plaintiff’s  claim  are  in  existence.   For  in  the  case  of  a  latent  defect  in  a building the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the house is unaffected.  Whether or not it is right to describe an undiscoverable crack  as  damage,  it  clearly  cannot  affect  the  value  of  the  building  on  the market.   The  existence  of  such  a  crack  is  thus  irrelevant  to  the  cause  of action.  It follows that the Judge applied the right test in law.

Their Lordships repeat that their advice on the limitation point is confined to the  problem  created  by  latent  defects  in  buildings.    They  abstain,  as  did Cooke  P,  from  considering  whether  the  ‘reasonable  discoverability’  test should be of more general application in the law of tort.

Trustees Executors

[38]     This   case   concerned   an   allotment   of   securities   (shares   in   a   forestry partnership) said to have been invalid and of no effect.  Members of the public (“the investors”)  who  had  purchased  units  in  the  partnership  had  issued  proceedings against  Morel  &  Co  and  Trustees  Executors  when  the  venture  failed  and  they suffered loss.  The investors claimed under ten causes of action.

[39]     Two matters were at issue.  The first was whether there had been a breach of

s 37(2) of the Securities Act 1978.   The investors alleged that the amount stated in the registered prospectus as the minimum amount which needed to be raised had not been  paid  to,  and  received  by,  the  issuer  within  four  months  after  the  date  of  the prospectus.   Determination of that issue depended on whether a cheque supplied to the issuer by the relevant subscribers qualified as a payment and receipt in terms of s 37(2)(a).

[40]     The second issue was whether the proceedings had been brought out of time. The allotment of securities had occurred  in December 1994, but proceedings were not brought until 2003.

[41]     The High Court struck out all causes of  action,  finding  that  the  allotments were valid and that the causes of action were time-barred under the Limitation Act. The  Court  of  Appeal  reinstated  all  but  two  causes  of  action.  The  Supreme  Court held that all causes of action against Trustees Executors were to be struck out, on the basis that the allotment was valid. The Court held that five causes of action against Morel & Co could not be sustained, again on the basis that the allotment was valid. A sixth cause of action, based  on  breach  of  fiduciary  duty,  remained  and  a  final cause of action against Morel & Co was struck out as time-barred.

[42]     It is the Supreme Court’s consideration of the limitation issue that is relevant

to  the  present  case. The investors had  argued  that  the  proper  construction  of references in the Limitation Act to the accrual of a cause of action were not to the time when the events constituting the cause of action occurred, but rather to the time when  a  plaintiff  acquired,  or  ought  to  have  acquired,  knowledge  that  those  events had  occurred. That is, it was  submitted  that  a  cause  of  action  does  not accrue  on “occurrence” of events but on “reasonable discoverability” of those events.

[43]     The investors submitted that the approach of the New  Zealand  Courts  to cases  involving  latent  defects  in  buildings  (Hamlin)  sexual  abuse  (for  example,

S v G[15]), and bodily injury (for example, G D Searle v Gunn[16]), should lead logically

to  reasonable  discoverability  being  applied  “across  the  board  in  the  limitation field”.[17]   That argument was rejected by the majority of the Supreme Court.[18]

[15] [1995] 3 NZLR 681 (CA).

[16] [1996] 2 NZLR 129 (CA).

[17] Trustees Executors at [38] per Tipping J.

[18] Blanchard, Tipping, McGrath and Henry JJ.  Gault J dissented.

[44]     The judgment of Tipping J includes a detailed discussion of the judgments of the Court of Appeal and Privy Council in Hamlin and the judgments of the Court of Appeal in S v G and G D Searle, both of which referred to Hamlin. At [41] he noted

that the Privy Council in Hamlin had abstained,  as had the Court of Appeal, from

considering whether the “reasonable discoverability test” should be of more general application than to latent defects in buildings.   At [42] he commented on the Privy Council’s judgment in Hamlin as follows:

The reasoning of the Privy Council means that cases of the Hamlin kind do not involve any departure from the conventional approach to when a cause

of action accrues.  The element of knowledge or discoverability affects when

the  loss  occurs.   Only  through  that  issue  does  it  affect  when  the  cause  of action accrues.   The focus remains upon occurrence of loss rather than on discoverability of a loss which has already occurred.  ...

[45]     Tipping J referred again to the Hamlin judgments in his discussion of S v G

and G D Searle.  At [53] he observed that:

The discoverability issue [in Hamlin] related to an element of the cause of action.  No cause of action accrued until loss occurred and loss did not occur until it was discovered or was reasonably discoverable.

[46]     Then at [55] Tipping J said:

... Hamlin cannot, however, for reasons already identified, be regarded as a case   which   logically   supports   a   general   extension   of   the   reasonable discoverability test.  The reasoning of the Privy Council keeps Hamlin-type cases within the mainstream.

[47]     At [63] Tipping J discussed the relevance of knowledge or discoverability.

...  Unless  the  element  of  knowledge  or  discoverability  can  properly  be regarded as forming a part of the cause of action itself, as the Privy Council did in Hamlin, it is difficult to view reasonable discoverability as affording a general extension of the period of time which the legislature has prescribed from accrual.   The concept of accrual for limitation purposes can hardly be “construed” as involving knowledge in some circumstances but not in others.

[48]     Tipping J’s conclusion as to a general test of “reasonable discoverability” is

at [69] and [74]:

[69]     In my view the numerous references in the Limitation Act to accrual

of a cause of action can only be construed as references to the point of time

at which everything has happened entitling the plaintiff to the judgment of the  court  on  the  cause  of  action  asserted. Save when the Limitation  Act

itself makes knowledge or reasonable discoverability relevant, the plaintiff’s state of knowledge has  no  bearing  on  limitation  issues.  Accrual  is  an

occurrence-based, not a knowledge-based, concept.  The Limitation Act as a whole is structured around that fundamental starting point.   The periods of time selected for various purposes must have   been   chosen   on   that

understand.    The   circumstances   of   postponement   and   extension   have themselves been similarly framed.

...

[74]     Against  this  background  and  the  factors  I  have  discussed,  the introduction, by decision of this Court, of such a fundamental change as that proposed  in  this  case  would  be  to  alter  in  a  substantial  way  the  balance which   Parliament   has   struck   between   the   interests   of   plaintiffs   and defendants.      That   change   would  be  substantially  to  the  advantage   of plaintiffs and substantially to the disadvantage of defendants.  ...

[49]     Blanchard J did not touch on Hamlin, but agreed (at [2]) that recognition of a general doctrine of reasonable discoverability is properly a matter for Parliament.

[50]     McGrath J agreed that the investors’ final cause of action against Morel & Co should be struck out as time-barred.  At [101] he rejected reasonable discoverability

as a generally-applicable principle in New Zealand tort law for deciding whether a cause of action had occurred.  However, he went on to say:

... In the continuing absence of New Zealand of legislative reforms enacted by  other  jurisdictions,  the  application  of  reasonable  discoverability,  to determine whether a cause of action has accrued in tort, remains a matter of judgment to be made in particular situations having regard to decided cases and analogies that can be fairly drawn from them.   In that regard it must be borne in mind that the unfairness to plaintiffs, if damages treated as arising before they knew or ought to have known of it, in some situations will be matched  and  outweighed  if  allegations  of  wrongful  conduct  can  be  raised many years after what is complained of happened.   I understand this to be the concern of Cooke P in Hamlin when he said that his preference was to proceed step by step.  Provided the Hamlin principle is applied on this basis, I regard it as sound in principle and a valuable development in New Zealand law.  I would affirm it.

[51]     At  [102]  McGrath  J  observed  that  he  saw  “little  analogy  between  the circumstances of the present case and those in the cases where the Court of Appeal has applied the approach it first took in Hamlin”.

[52]     Henry  J  (at  [142])  also  rejected  reasonable  discoverability  as  a  general proposition.

[53]     Gault J, dissenting, observed at [112] that, in his view, the Privy Council’s reasoning in Hamlin was “unconvincing”.  He went on to say, at [113],:

By characterising the damage in Hamlin as economic loss so it did not occur until discovered, the Privy  Council,  in  effect,  was  upholding  a  reasonable

discoverability approach.  That approach put claimants for economic loss in

a better position than those suffering other forms of damage or injury.

[54]     Then at [115], Gault J said:

In my view it is preferable to adopt some flexibility in interpreting when the cause  of  action  accrues  under  s 4  of  the  Limitation  Act  according  to particular  causes  of  action  where  that  serves  the  ends  of  justice.   That  is essentially what the Privy Council did in its decision in Hamlin.  Of course, the matter must be approached in a principled way but I find no difficulty in the proposition for New Zealand that a cause of action has not arisen when the prospective plaintiff does not know and cannot reasonably ascertain that a claim exists.  I am well aware that the position of potential defendants must be  considered  but  in  my  view  the  balance  is  in  favour  of  the  ignorant plaintiff.

[55]     It  is  clear  that  he  majority  of  the  Supreme  Court  in  Trustees  Executors rejected the submission that “reasonable discoverability” can be applied as a general test as to when a cause of action has accrued.   However, it appears that Blanchard, Tipping, and Henry JJ agreed that in cases of claims for economic loss, reasonable discoverability is an element of the accrual of part of the cause of action. Thus, in a latent defect case such as Hamlin economic loss (a necessary element of the cause of action)  does  not  occur  until  the  market  value  of  the  property  is  affected  on  the defects’ becoming reasonably discoverable.  Thus reasonable discoverability applies where it is a pre-requisite for loss.

Thom

[56]     In March 1990, Mr Thom  hired  a  lawyer  to  prepare  a  pre-nuptial  property agreement, to contract out of the provisions of the Matrimonial Property Act 1976.[19]

Mr  Thom  took  the  agreement  to  the  United  States  for  execution  by  his  wife,  an American citizen. The Notary Public who witnessed her signature to the agreement felt unable to explain to her the “effect and implications of the agreement” because of  lack  of  familiarity  with  New  Zealand  law,  and  therefore  did  not  give  the certificate required by s 21(6) of the Matrimonial Property Act.   In the absence of compliance  with  those  requirements  (non-compliance  with  the  requirement  for  a certificate  being  apparent  on  the  face  of  the  agreement),  the  agreement  was  void under s 21(8)(a).

[19] Now renamed the Property (Relationships) Act 1976.

[57]     Mr Thom’s marriage broke down in 1998.   Mrs Thom then brought a claim under   the   Matrimonial   Property  Act   for   determination   of   her   interest   in   the matrimonial  property  and  Mr  Thom  applied  to  have  the  agreement  given  effect pursuant to s 21(9) of the Act, pursuant to which the Court can declare a defective agreement to have effect in whole or in part if “satisfied that the non-compliance has not materially prejudiced the interests of any party to the agreement”.   The Family Court  declined  to  exercise  its  discretion  to  treat  the  agreement  as  effective. Mr Thom  then  brought  a  claim  in  negligence  against  the  solicitors  who  had  acted  for him in preparing the agreement and advising as to his wife’s execution of it.

[58]     The District Court found that the solicitors had been negligent, but that Mr Thom’s claim was out of time.  On appeal to the High Court, Simon France J found that Mr Thom only suffered loss when the Family Court refused to give effect to the “prima facie void” agreement.   The Court of Appeal allowed the solicitors’ appeal, finding that Mr Thom had suffered loss immediately upon entry into the agreement. The  Supreme  Court  unanimously  dismissed  Mr  Thom’s  appeal. Judgments  were delivered by Elias CJ; Blanchard J; and Tipping, McGrath, and Wilson JJ (delivered by Wilson J).

[59]     Elias J found (at [15]) that it was not necessary to consider whether the cause

of  action  should  be  treated  as  arising  only  when  the  damage  was  reasonably discoverable by Mr Thom (in extension of the Hamlin approach) because the District Court had found that the defect in the agreement was reasonably discoverable by Mr Thom  from  the  time  the  agreement  was  executed. She  found  (at  [19])  that  Mr Thom’s loss was “based on the immediate consequences of the defendant’s solicitors not doing their duty”. Immediate quantifiable damage  had  arisen, even  though further damage arising from the flawed transaction remained contingent. However, those further contingencies went only to quantum and did not affect the fact that his loss  was  suffered  on  the  date  of  the  breach of duty, because Mr Thom  had  not received what he should have received.[20]

[20] At [21].

[60]     Wilson J summarised his conclusions as to when a cause of action in tort for negligence arises at [46], as follows:

In summary, a cause of action in tort for negligence does not exist and hence time does not start running for the purposes of the Limitation Act unless and until  the  plaintiff  has  suffered  some  actual  and  quantifiable  loss,  harm  or damage  as  a  result  of  the  breach  of  duty  involved. Damage  will  be contingent, and hence not actual for limitation purposes, if the plaintiff will suffer no damage at all unless and until a contingency is fulfilled.  That will be  so  if  the  damage  results  from  the  plaintiff  being  exposed  to  a  liability which is contingent on the occurrence of a future uncertain event.   A good example is where the liability is that of a guarantor and is contingent on a default by the principal debtor, in contrast to the undertaking (as in [Gilbertv Shanahan [1998] 3 NZLR 529 (CA)]) of a direct and present liability which falls due in the future. The distinction may well be thought to be a fine one, but in any regime of limitation apparently similar cases may fall on opposite sides of the line which divides those which are barred from those which are not. A reduction in the value of an asset, whether tangible or intangible, constitutes actual damage and exists as soon as the asset becomes less valuable.

[61]     Blanchard  J  agreed  (at  [29])  that  Mr  Thom  had  received  a  flawed  asset, namely  an  agreement  which  was  void  unless  validated. He  had  suffered  an immediate detriment, which could be measured.

The present case

[62]     As set out in Trustees Executors, it is necessary to establish when the events comprising the cause of action occurred.  As discussed by Tipping J in his discussion

of Hamlin, the appellants’ cause of action for economic loss involves an element of loss.  Accordingly, the question is when loss first occurred.

[63]     Mr Courtney submitted that the appellants did not suffer any immediate loss

on  receiving  the  LIM  report,  or  on  relying  on  it  to  purchase  the  property. He submitted that, like Mr Hamlin, they owned a defective property, but not a property that was manifestly defective.  They could have on-sold without loss.  Accordingly, he submitted, Hamlin (PC) should be applied by analogy, and the court should find that loss occurred when the appellants and the market discovered the problems with the house.

[64]     Ms  Thodey  submitted  that  Hamlin  (PC)  could  not  be  applied  by  analogy. However, the reasons put forward for distinguishing Hamlin (PC) do not  take account of the analysis of that judgment in Trustees  Executors. In  Trustees Executors the majority found that the Privy Council had determined Hamlin on the

grounds that no economic loss occurred until the market value of Mr Hamlin’s house had fallen.

[65]     Nor do Ms Thodey’s submissions with respect to the “long-stop” provisions

of the Building Act provide grounds for not applying Hamlin (PC) by analogy.  The long-stop  provision  was  introduced  after  Hamlin  to  protect  potential  defendants  in “latent defect” cases from facing liability long after their last action in relation to a building.   It is clear that the long-stop provisions of the Building Act do not apply in the present case.

[66]     However, the fact that the present case is  not  covered  under  the  long-stop provisions is not indicative of any intention on the part of Parliament that Hamlin (PC) should not be applied by analogy. There is no indication that the possibility of

a claim for breach of statutory duty for a defective LIM report was considered when the long-stop provision was introduced, nor that Parliament considered the possibility  of  the  reasoning  in  Hamlin  (PC)  being  applied  to  cases  outside  the Building Act.

[67]     It follows that I have concluded that the District Court Judge was in error in concluding that it was not necessary to consider Hamlin.

[68]     I accept that it is arguable (and certainly not able to be rejected on a summary judgment application) that the plaintiffs did not suffer any loss immediately on receiving the LIM report and relying on it to settle the purchase. I also accept that it

is arguable (and again not able to be rejected on summary judgment) that the defect

in  the  LIM  report,  and  the  loss  in  value  in  the  property,  were  not  reasonably discoverable on receipt of the LIM report and purchase of the property.

[69]     Accordingly, I accept that it could not be concluded, on a summary judgment application, that the appellants were not in a similar situation to that of Mr Hamlin,

or  that  the  Privy Council’s  reasoning  in  Hamlin  could  not  be  applied  to  them,  by analogy.

[70]     The  appellants’  case  is,  of  course,  different  from  that  of  Hamlin  and  the “latent defect” cases.   However, the factor in Hamlin (PC) that is applicable is the kind and timing of the loss.   The loss discussed in Hamlin (PC) is economic loss, which occurs when the market value of the property falls.  The loss being claimed by the appellants is, in effect, identical:   a permanent fall in market value and costs of repair.  Both losses claimed are economic loss.

[71]     Application of the Hamlin (PC) reasoning by analogy is not precluded by the Supreme Court’s judgment in Trustees Executors.  While the Supreme Court clearly rejected  a  general  application  of  reasonable  discoverability,  it  did  not  overrule Hamlin  (PC),  nor  confine  it  to its precise  facts.   Rather,  the  majority affirmed  the reasoning   of   the   Privy   Council,   finding   that   discoverability  was   an   essential component of loss.

[72]     Further,  I  have  concluded  that  the  District  Court  Judge  erred  in  applying Thom,  in  particular  in  finding  that  the  LIM  report  was  similar  to  Mr  Thom’s defective pre-nuptial agreement.  The two can be distinguished:

a)        Mr Thom suffered loss  in  entering  into  the  pre-nuptial  agreement.

From the moment that Mrs Thom signed the agreement, Mr Thom had

a  defective  asset,  which  would  have  cost  him  (in  legal  fees)  to remedy.  In contrast, the appellants suffered no loss until the value of the property fell.

b)It was held in Thom that the pre-nuptial agreement he received was a defective  asset.             In  contrast,  the  LIM  report  was  not  “an  asset” received by the  appellants; the asset the appellants received  was the house. Until  the  market  discovered  the  defects  in  the  house,  no economic loss would occur.

c)        Mr Thom could not sell the defective pre-nuptial agreement to escape loss. In  contrast,  until  the  market  discovered  the  defects  and  the property’s  value  fell,  the  appellants  could  sell  the  property,  thereby escaping any loss.

d)       The damages claimed by the appellants reflect the diminution in value

of the house, not any flaws in the  LIM report itself. The appellants suffered loss not in receiving a defective asset from the Council, but

in relying on the  LIM report to buy a house that (assuming the loss was not already reasonably discoverable) lost its value  later. Mr Thom had a defective asset (the pre-nuptial agreement) from the start.

e)        The pre-nuptial agreement was defective on its face.   Whether it was void or not was a legal question.   In contrast, the accuracy of a LIM report  is  a  factual  question.  It  may  be  inaccurate,  incomplete,  or erroneous, but it could not be legally void.

f)        More  fundamentally,  the  present  case  may  be  distinguished  from Thom on the basis that, in that case, the loss was held to be reasonably discoverable immediately.[21]   Here, there is dispute as to when the loss was discoverable.

[21] Thom at [15] per Elias CJ

Conclusion

[73]         I have, therefore, concluded that the District Court Judge erred in granting the respondent’s  application  for  summary  judgment  on  the  basis  that  the  appellant’s cause  of  action  accrued  either  on  the  date  of  the  LIM  report,  or  on  the  date  the appellant’s settled the purchase, and that their claim is therefore time-barred under the Limitation Act.  For the reasons set out above, I am not able to conclude that the District Court Judge was correct in concluding that the appellants cannot succeed in their argument that the cause of action accrued at a later date.

[74]     I have  concluded  that  it  is  appropriate  for  the  appellant’s  claim  against  the respondent to be remitted back to the District Court, for determination on a defended basis.

[75]     It  would  seem  appropriate  that  costs  should  follow  the  event,  and  that  the appellant’s are entitled to costs in their favour. If there is any dispute as to costs,

then memoranda are to be submitted:   that for the appellants within 21 days of the

date of this judgment and that for the respondent within a further 21 days.

Andrews  J