The Court of Appeal in Rea v Auckland Council [2024] NZCA 313 recently dismissed an appeal brought by the owners of a property against a decision for strike out under the Limitation Act 2010 (Act), based on the interpretation and application of section 14’s, “late knowledge date”.

The Court considered what is required for “late knowledge”, helpfully confirming that “a claimant will have constructive knowledge of the requisite facts if they have information that would lead a reasonable person to begin investigating whether a right to claim exists. They cannot close their eyes to the obvious”.

Background

Mr and Mrs Rea purchased a property in Te Atatū, Auckland in February 2014. They became aware of minor aesthetic issues with the property a few months later and made a claim under a Master Build guarantee.

In 2016, Master Build engaged building surveyors Maynard Marks to inspect the property. Maynard Marks identified 31 internal, external and structural defects, and went on to engage ACH Consulting Limited, a civil and structural engineering firm, to carry out a structural review. ACH identified five structural and weathertightness defects.

The Reas then engaged Fraser Thomas. Their March 2019 report recorded further structural defects and extensive workmanship issues.

In September 2021, the Reas filed proceedings against various parties, including Auckland Council, claiming costs to repair defects in their property.

The Reas alleged the Council had been negligent in relation to issuing the Code of Compliance Certificate (CCC) in October 2013.

The Council applied to strike out the claim on the basis that it was time-barred, in that the alleged acts or omissions of the Council occurred on or before the issue of the CCC. The High Court granted the application.

The Reas appealed the High Court decision and maintained that the time in which a claim could be brought was extended by the “late knowledge” provisions in the Act. They said that they were not aware of the extent of the defects until the Fraser Thomas report of March 2019.

Appeal decision

The Court of Appeal dismissed the Reas application and held that they had knowledge of or ought to have had knowledge of the defects by March 2017 at the latest, being the date of the second Maynard Marks report. The court looked at the following issues.

What is required for the appellants to have “late knowledge” under sections 11 and 14?

The Reas argued that section 14(1) required them to know, actually or constructively, that there were breaches of the building code, that those breaches were matters the Council ought to have identified and that those breaches were causative of the losses suffered.

The reports from Maynard Marks and ACH Consulting Limited identified errors by the builders but did not identify errors by Council and therefore it was not until March 2019, the date of the Fraser Thomas report, that the Reas could have known or reasonably have known of the defects at the property.

The Court of Appeal disagreed that the interpretation of section 14(1) requires knowledge of all the facts necessary to bring a claim and held that for the purposes of this section, “the words “act or omission on which the claim is based” have their plain and ordinary meaning”. The Court went on to say:

“The text of s 14(1)(c) makes it plain that the only fact of which knowledge is required under this limb is “the fact that the claimant had suffered damage or loss”. Those words do not convey, even implicitly, any requirement for knowledge of a causal link between the defendant’s act or omission, and the loss or damage.”

When did the appellants gain actual or constructive “late knowledge” for the purposes of s 14(1)?

Considering the conclusions the Court reached in relation to the first point of appeal, the Court held that in this case, the act or omission on which the claim is based for the purposes of this section is the issuing of the CCC by the Council.

The Court went on to say:

“For the purposes of s 14(1), a claimant will have constructive knowledge of the requisite facts if they have information that would lead a reasonable person to begin investigating whether a right to claim exists. They cannot close their eyes to the obvious. They cannot postpone taking action if a reasonable person in their circumstances would take action.”

The Court concluded that by March 2017, the Reas had either actual or constructive knowledge of the relevant facts namely:

• Council had issued the CCC on 18 October 2013;
• the house had defects that were potentially breaches of the building code; and
• repairs would be required.

Knowledge of these facts would have led a reasonable person to undertake further investigation, including obtaining legal advice and therefore it was by this date that the Reas had the required knowledge for the late knowledge date under section 14(1).

Do some of the appellants’ claims against the Council constitute a fresh cause of action that is not time barred?

The statement of claim filed by the Reas did not particularise the loss claimed in relation to the different defects at the Property, rather all defects were pleaded together. The Reas argued some of the defects were sufficiently separate and distinct to amount to a fresh cause of action which is not time-barred.

The Court of Appeal rejected this argument on the basis that no draft pleading showing how the pleading would be amended to show the new causes of action was provided. In addition, all but one of the structural defects identified by Frazer Thomas in their 2019 report were identified by ACH Consulting in 2016. Based on the evidence before the Court, there was nothing to suggest a new cause of action that would not be time-barred.