By Darius Shahtahmasebi - 13 Aug 2024
We regularly see cases where
homeowners have delayed taking legal action against defendants,
particularly in respect of building defects.
The Limitation Act says that it is a
defence to a money claim if the defendant proves that the date on
which the claim is filed at least six years 'after the act
or omission on which the claim is based'. This is known as the
claim's primary period.
However, the above limitation will not apply if the claimant can
show they had 'late knowledge' of the claim. If they can prove
'late knowledge', the claimant will have a further three years from
the late knowledge date to bring their claim.
In any scenario, all civil proceedings relating to building work
are confined to a ten-year longstop.
Usually, for building claims brought under negligence, the start
date is the date that defects or damage affecting the value of the
home can reasonably be identified.
Rea v Auckland Council
With that framework in mind, we can turn our minds to a recent
Court of Appeal case, brought by homeowners (in their capacity as
trustees) against Auckland Council, the building company, the
builder and the developer. The claim related to defective building
work affecting a residential property.
The High Court had previously struck out the proceeding due to
the limitation grounds mentioned above and awarded costs to the
Council.
On appeal, the owners argued that, as far as the claim against
Council was concerned, late knowledge means the owners need to
first have specific knowledge that the 'act' was attributable to
the Council, as well as the specific facts necessary to establish
the Council had breached its obligations. The owners argued that
the late knowledge date only ran from the date that the owners had
this specific knowledge.
The Court rejected this argument, finding that the words 'act or
omission' have their plain and ordinary meaning, and there is no
reason to add any gloss to include the circumstances in which the
act was done. Therefore, for Council, the relevant act is the act
of giving approval for the CCC, nothing more. The Court also said
the only fact of which knowledge is required is the fact that the
claimant had suffered damage or loss.
Affirming that claimants cannot 'close their eyes to the
obvious', the Court said that due to a series of reports the owners
had accumulated by the date of 23 March 2017 (possibly even
earlier), they had acquired either actual or constructive knowledge
of the relevant facts required to bring a claim by that date.
Specifically the following facts:
- The CCC had been issued on 18 October 2013;
- The Council had issued the CCC;
- There was damage to the property that was more than minor;
- Repairs would be required, including knowledge of some of those
repairs.
Therefore, the claim should have filed by 23 March 2020. Because
it wasn't filed until over a year later, it was struck out and the
Council was again awarded costs.
Key takeaway:
The key takeaway from this case is the Court's view that late
knowledge runs not from the date that you have
knowledge of all the facts, but the date in which you know
enough to embark on an investigation. Stating:
…We consider it beyond argument that this information
would have led a reasonable person to begin
investigations, including taking legal
advice. Had they sought legal advice, there can hardly be
any doubt that they would have learned that the matter
required urgent attention because of the limitation
period…
It is important to remember that this is so, even where the
claimants (as in this case) purchase the property after
the building work had taken place.
There are claims that we see which are outside the claim's
primary period by the time a client takes action. When that
happens, the late knowledge provision is the claimant's only saving
grace.
If the Courts are required to calculate a 'late knowledge' date,
it seems highly likely that the Court will look to the earliest
possible date on which the claimant knew enough to start calling in
an expert, and possibly the date that a reasonable person would
seek legal advice.
The warning to potential claimants here is that if you have a
report that suggests there is damage or defective work requiring
further investigation, this might very well be the date that late
knowledge will start from, even if you intend to (or indeed, do)
obtain more detailed reporting at a later stage.
For builders, this decision provides much needed certainty as to
how long you should realistically be expected to endure ongoing
threats from a claimant who sits on their hands and does nothing to
address their supposed loss.
If you have any doubts, we strongly recommend seeking legal
advice as soon as you are aware of any potential issues.