WESTLAND DISTRICT COUNCIL Appellant. PETER CHARLES YORK First Respondent

Transcription

1 IN THE COURT OF APPEAL OF NEW ZEALAND CA774/2013 [2014] NZCA 59 BETWEEN AND WESTLAND DISTRICT COUNCIL Appellant PETER CHARLES YORK First Respondent ALPINE GLACIER MOTEL LIMITED Second Respondent Hearing: 17 February 2014 Court: Counsel: Judgment: Wild, Miller and Dobson JJ D J Neutze for Appellant J E Bayley for Respondents 10 March 2014 at am JUDGMENT OF THE COURT A The appeal is allowed. The claim is struck out as having no prospects of success. B The respondents must pay the appellant costs in this Court for a standard appeal on a band A basis. REASONS OF THE COURT (Given by Miller J) WESTLAND DISTRICT COUNCIL v YORK & ANOR CA774/2013 [2014] NZCA 59

2 Introduction [1] In September 2005 the respondents settled the purchase of a motel at Franz Josef, having first obtained from the appellant Council a Land Information Memorandum (LIM). The LIM is said to have been negligently prepared, in that it omitted information known to the Council about the location of the Alpine Fault, the damage that the town might suffer from a large earthquake, and a Government suggestion that local authorities should create fault avoidance zones along fault lines. The respondents say that not before November 2010, when the Council first mooted such a zone, did they discover these omissions. A zone was formally notified in It would affect the motel. [2] The respondents sued in July The Council met them with an application to strike the claim out on limitation grounds. David Gendall J dismissed the application, and the Council now appeals. 1 [3] The respondents say they suffered economic loss through diminution in the motel s market value. The appeal turns on when they suffered it. The Council says, accepting the pleaded facts for present purposes, that they must have suffered loss by 30 September 2005, when they paid more for the motel than it was worth. If so, the six-year limitation period in the Limitation Act 1950, which still governs this case, bars their claim. 2 The respondents say that they suffered no loss until the property market responded to the information omitted from the LIM, and that did not happen until, at earliest, November If so, they brought their claim within time. The pleadings [4] The amended statement of claim pleads that: Mr York bought the motel as agent for Alpine Glacier Motel Ltd, which had yet to be formed, and later nominated it as purchaser; the price was $2,400,000 for the land and buildings and, under a separate but collateral agreement, $800,000 for the business; the land sale agreement was conditional upon a LIM, which the Council provided on 19 August 2005; under 1 2 York v Westland District Council [2013] NZHC The Limitation Act 2010 does not apply since the Council s alleged omission occurred before 1 January 2011: Limitation Act 1950, s 59.

3 the heading Special Land Features the LIM stated no information located ; and the transaction settled on 30 September [5] The notion of special features doubtless came from s 44A(2) of the Local Government Official Information and Meetings Act 1987, which required that the Council record in a LIM any known information identifying special features or characteristics of the land, unless such information was already apparent from the district scheme. Special features included potential erosion, avulsion, falling debris, subsidence, slippage, alluvion, or inundation.... The Council is said to have owed the respondents a duty of care to gather and hold relevant information that was reasonably obtainable, and to include it in the LIM. [6] A good deal of information about the Alpine Fault is said to have been in the Council s possession when it issued the LIM. The substance of this information comprises the approximate location of the fault, which is said to lie close to the motel, the likely impact of a major earthquake having regard to existing building standards, and a recommendation from the Ministry for the Environment that local authorities establish fault avoidance zones 20 metres either side of known faults. The LIM disclosed none of this. The respondents say that it all amounted to special features of the motel land, and that if given disclosure they would not have bought the motel. [7] The respondents next say that they first learned of the possibility of a fault avoidance zone in Franz Josef about November The Council proposed such a zone in The necessary change to the District Plan is still negotiating its way through planning processes. [8] It is said that the zone and change to the Plan caused the market value of the land and business to fall by $2,850,000: Property Value Business Value Total Pre-Fault Avoidance Zone (November 2010) $2,700,000 $925,000 $3,625,000 After Plan Change Announcement $550,000 $225,000 $775,000 Diminution in Value $2,150,000 $700,000 $2,850,000

4 It will be seen that the respondents claim the value of the motel assets had increased since [9] The Council denies most of the allegations. Notably, it says that it did not know in 2005 just where the Alpine Fault lay, nor could it estimate with any precision where a fault avoidance zone might be established, nor had it proposed such a zone; further, the respondents loss, if any, was actually caused by the proposal to create the zone, in respect of which a duty of care could not possibly be owed. Strike-out [10] We need not rehearse the settled principles governing strike-out applications, 3 but two points should be made: limitation is ordinarily a trial issue, so a claim should be struck out on that ground only when it is plainly statute-barred, 4 and courts hesitate to strike claims out in developing or unsettled fields of law. 5 We make the latter point because Mr Bayley relied on Invercargill City Council v Hamlin, which concerned the still-developing field of local authority liability for building defects. 6 The issue [11] We turn to isolate the issue for decision. [12] The respondents sue in tort, relying on a local authority s duty of care when completing a LIM. The cause of action is negligent misstatement. 7 We will assume that the pleaded information about fault location and zoning was negligently omitted from the LIM so as to found a cause of action. That happened on 19 August 2005, High Court Rules, r 15.1; Attorney-General v Prince v Gardner [1998] 1 NZLR 262 (CA) at 267, approved by the Supreme Court in Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33]. Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33]. Body Corporate No v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 [Spencer on Byron] at [4]. Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC). Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 [Altimarloch] at [98]. We recognise that a plaintiff who pleads breach of a local authority s duty to ensure that dwellings are properly built may plead negligence simpliciter, so obviating the need to prove specific reliance, but this is not such a case: see Johnson v Auckland Council [2013] NZCA 662.

5 when the LIM was provided. The respondents do not say that the Council did anything actionable after that date. [13] A cause of action accrues only when the material facts necessary to establish all of its elements are present. 8 Loss attributed to the breach of duty is an element of this cause of action. For accrual purposes the loss must be material, but it need not be complete, or readily measured. 9 We assume that the omitted information affected the market value of the motel, but the loss was not experienced, as a matter of fact, until the information was first revealed in November [14] The respondents claim that they suffered loss not with the transaction but later, when the market learned of the omitted information: put another way, until the information became public the motel was not worth less than what they paid for it. They characterise the case as one of contingent loss, the contingency being the market s discovery of the omitted information. The Council responds that the case is materially indistinguishable from Marlborough District Council v Altimarloch Joint Venture Ltd, in which the Supreme Court held that the purchasers loss from a negligently prepared LIM was suffered when they committed themselves to a price exceeding the property s actual worth. 10 The occurrence that caused loss having happened, the Council says, time began to run whether or not the respondents knew it. [15] So the issue is narrow: whether the respondents suffered economic loss by 30 September 2005, when they paid for the motel. If on the pleaded facts they must have done so, their cause of action is statute-barred. But if the loss was arguably delayed until the omitted information became public, the limitation defence must be reserved for trial Limitation Act 1950, s 4(1)(a); Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 (HL) [Nykredit] at Altimarloch, above n 7, at [49]. At [9], [48] and [49] per Elias CJ, [69] [71] per Blanchard J, [122] per Tipping J and [200] per McGrath J.

6 Altimarloch [16] We begin with Altimarloch, which established that a local authority which negligently issues a LIM is liable in negligent misstatement to recipient purchasers who rely on it to their detriment. The LIM stated that the vendors could take 1,500 cubic metres of water per day from a stream for irrigation. Known to the Council, but overlooked in the LIM, was the vendors transfer of half of their rights in a previous transaction. By lamentable coincidence the vendors agents independently misrepresented the water rights, with the result that the vendors, who knew nothing of all this, were liable in contract. 11 The misrepresentations led the purchasers to pay more for the property than it was worth. 12 [17] The Supreme Court had to decide how damages ought to be assessed against the Council in tort when the vendors must make good the loss in contract. The Council argued that the purchasers suffered no loss attributable to the LIM, for their contractual right to compensation from the vendors must be valued and brought into account when determining whether the Council caused them loss. This required that the Court decide when the purchasers cause of action against the Council accrued. Its decision on the point is express or plainly apparent from the four substantive judgments; the purchasers suffered loss, and their cause of action accrued, when they committed in ignorance to pay more than the property s actual worth. 13 The Chief Justice put it in this way: [48] Here, actual damage was suffered by Altimarloch when, in reliance on the Council s negligent misinformation, it paid more for the land than it was worth. This is the simple case, giving rise to no difficulty, given by Lord Nicholls in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) as an illustration of the principle. A similar illustration is provided by the entry into the flawed matrimonial property agreement in Davys Burton v Thom. Actual damage was suffered immediately the transaction was entered into. [49] Although there may be cases where it is difficult to determine when loss has been suffered, this is not such a case. As Lord Nicholls made clear in Nykredit, for the purposes of identifying when a cause of action in tort or The representation sounded in contract damages under s 6 of the Contractual Remedies Act In the special circumstances of the case, however, the better measure of their loss was held to be the cost of cure ; that is, the reasonable cost of making good the shortfall by buying water rights and building a dam. See above n 10.

7 contract arises loss includes any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency. The only limit is that the loss must be relevant loss : loss falling within the measure of damage applicable to the wrong in question. Here, the loss was suffered and the cause of action arose when the purchaser became committed to payment of the purchase price. The question in this case is not when loss was suffered and the cause of action arose. There was undoubted immediate detriment for the purpose of the cause of action. The question, rather, is the measurement of the loss ultimately suffered by Altimarloch as purchaser for which it is entitled to damages. (Citations omitted.) [18] The facts of this case are relevantly similar to Altimarloch, as Mr Neutze emphasised. He argued that the case disposes of this appeal. [19] Mr Bayley resisted, pointing out that Altimarloch was not a limitation case. That is true, but the Court was required to decide when the plaintiffs suffered loss so as to acquire a cause of action against the Council. Reasonable discoverability [20] Mr Bayley next invoked the line of New Zealand authorities dealing with latent defects in dwellings, seeking despite Altimarloch to show that loss may not have been suffered at once. He referred to Invercargill City Council v Hamlin, 14 emphasising the following passage from the speech of Lord Lloyd: 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. [21] But the proposition that the respondents suffered loss from the Council s negligent omission only when the land s special features were discovered leads inexorably, as it did in Hamlin, to the doctrine of reasonable discoverability. A plaintiff in tort cannot otherwise meet a limitation defence by saying that it knew nothing of the damage at the time, for the law has long held that a cause of action 14 Hamlin, above n 6, at 526.

8 accrues when the material facts occur, not when the plaintiff first learns of them. 15 Reasonable discoverability was foreclosed, so far as this case is concerned, by Murray v Morel Co Ltd. 16 In that case the Supreme Court declined to extend reasonable discoverability beyond the few classes of case one being latent defects in buildings in which it had already been recognised. Counsel did not try to characterise this as a building defect case. [22] Any attempt to invoke reasonable discovery here would encounter a second difficulty. The damage was not latent. In the dwelling cases which Hamlin exemplifies the owner s economic loss stemmed from physical defects that were at first covered up and hence latent or undiscoverable. 17 That is why the market value of the Hamlin house was held to have been unaffected by the defendant s negligence in failing, long before, to identify the defects. In this case the omitted information was in the Council records all along, and it was not unique to this property. It may even have been a matter of public record. [23] It is true that local authority liability for building defects remains a developing or uncertain field of judge-made law. Decisions in cases marking the boundaries of such a field often turn on the facts found at trial. For that reason we recently declined to strike out a claim in negligence, in Blain v Evan Jones Construction Ltd. 18 [24] But the question here is not whether local authorities owe a duty to a purchaser to whom they supply a LIM; that was established in Altimarloch. 19 Only in one detail, the extent to which a local authority must search out information that might affect the property, is there anything novel about the claim, and we have assumed for present purposes that the duty extends so far. The question is whether limitation bars the action. [25] As to that, there is no reason to suppose that the courts will develop the law in any way that might aid these plaintiffs. For cases predating the Limitation Act Murray v Morel & Co Ltd, above n 4, at [69]. At [69]. At 526. Blain v Evan Jones Construction Ltd [2013] NZCA 680. At [98].

9 2010, we have referred to Murray v Morel, in which the Supreme Court declined to extend reasonable discovery and urged reform upon the legislature. For the law generally, the answer is now to be found in legislation: the Building Act 2004 in building defect cases, and the 2010 Act otherwise. Both statutes provide for reasonable discoverability and its necessary corollary, a longstop. [26] Mr Bayley sought support in Bayliss v Central Hawkes Bay District Council, in which the High Court held that the District Court had wrongly granted summary judgment for the defendant on a claim for economic loss founded on a negligently prepared LIM. 20 The plaintiff argued that time did not run until the market value of the property fell, and that proposition was found arguable. But Bayliss predated Altimarloch, and we have not gained assistance from it. Contingent liability [27] Mr Bayley next invoked the contingent liability cases, in which time does not run until some other event happens to cause the plaintiff loss. Indemnity and loan cases typically fall into that category. 21 Counsel cited one such case, Law Society v Sephton & Co, seeking to draw from it a general rule that time does not run where economic loss is possible but not certain. 22 [28] Sephton establishes no such general rule. The Law Society sued accountants for negligently auditing the books of a lawyer who misappropriated clients money over a period of about six years. The Law Society s compensation fund reimbursed the clients, as it must. The House of Lords held that the Law Society s liability to the clients did not arise, and time did not run on its claim against the accountants, until a claim was made on its compensation fund. Their Lordships took care to emphasise that Sephton was a contingent liability case. Lord Mance observed that at the time of the accountants negligent acts there had been no transaction changing the plaintiff s legal position and no diminution in value of any particular asset Bayliss v Central Hawkes Bay District Council (2011) 11 NZCPR 843 (HC). Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514. Law Society v Sephton & Co [2006] UKHL 22, [2006] 2 AC 543 [Sephton] at [77]. At [78].

10 [29] This is not a contingent liability case. It is what the authorities class as a transaction case, meaning that through some wrong the plaintiff suffered diminution in the value of an existing asset such as a home, a business arrangement, or a claim for damages or disappointment in the value of an asset acquired. 24 The plaintiff s damage happens with the transaction, although the loss may not be quantifiable at once. [30] We accept that until 2010 a contingent quality attached to the respondents loss. Until then the market did not know the omitted information and the respondents say they could have sold the motel without experiencing a loss. This proposition assumes that a hypothetical purchaser on the open market would not bother with a LIM or, a LIM having been sought, the Council would again negligently omit the information, and further that the information would not meantime become public by other means. Therein lies the element of contingency. [31] But in a transaction case contingency about loss does not ordinarily prevent time running, as Nykredit Bank v Edward Erdman Group (No 2) demonstrates. 25 The plaintiff was a financier who lent money the relevant transaction on the strength of negligent valuations. The debtor defaulted at once, forcing the lender to look to its security. The question for the House of Lords was whether the financier s cause of action arose only when the negligently valued security was sold. It mattered because the answer would quantify the valuers liability for interest. The answer was that loss happened when the lender was worse off from breach of the valuers duty of care than it would otherwise have been and, applying that principle to the facts, the valuers liability for interest commenced when the money was lent and the borrower defaulted. [32] Delivering the principal speech, Lord Nicholls adopted a statement that damage in economic loss claims includes contingent damage: Sephton, above n 22, at [46] and [48]; Shore v Sedgwick Financial Services Ltd [2008] EWCA Civ 863, [2008] PNLR 37 at 882; Davys Burton v Thom [2008] NZSC 65, [2009] 1 NZLR 427 at [46]. Nykredit, above n 8. At 1630.

11 [actual damage]... is any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has not control; things like loss of earning capacity, loss of a chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases.... [33] The point made in that passage is well illustrated by Davys Burton v Thom, which may establish something of a high water mark in this respect. 27 On his marriage the plaintiff instructed his lawyers to prepare a relationship property agreement. They obliged, and the agreement was executed in Through the lawyers negligence his wife did not receive the necessary independent legal advice, so the agreement was void and the law soon conferred upon her an interest in a home which the agreement had declared his separate property. His loss was affected by two contingencies which were substantial and by no means inevitable: the marriage failing, which happened in 1998, and the Family Court refusing to validate the agreement, which happened in He sued his lawyers in negligence, but not until They successfully pleaded limitation, the Supreme Court holding that his cause of action accrued in The Chief Justice cited Lord Hoffmann s speech in Sephton for this proposition: 28 If the liability is for the difference between what the plaintiff got and what he would have got if the defendant had done what he was supposed to have done, it may be relatively easy to infer that the plaintiff has suffered some immediate damage, simply because he did not get what he should have got. [34] The plaintiff was held to have suffered loss in 1990 because he did not get what he would have got at that time, had his lawyers taken proper care. Through their negligence he incurred a liability upon marriage, in the form of the statutory matrimonial property regime, and with that liability came loss. Quantifying the loss would have been difficult, since the assessment must reflect the two contingencies mentioned, but that mattered not. The High Court judgment [35] There is no suggestion that Gendall J misdirected himself on the correct approach to striking out applications. He thought that Altimarloch might arguably be distinguished on the ground that the purchasers there could not use the water to Davys Burton, above n 24. At [19] citing Lord Hoffmann in Sephton, above n 22, at [21].

12 which they thought they had acquired rights. 29 We acknowledge that one might analyse their loss in that way, but the Supreme Court did not, and it would remain true that because the Council s negligence caused the purchasers to pay too much they suffered relevant loss when they committed to the transaction; loss was not delayed until they ran out of water or took remedial steps. [36] The Judge also concluded that it cannot presently be said for sure that loss was suffered when the respondents bought the motel; it might have happened only when the omitted information became public, or the loss might have been contingent. 30 His reasons are fairly reflected in the submissions advanced by Mr Bayley before us. For the reasons given above we have respectfully reached a different conclusion: if the Council s omission caused the respondents any loss of market value, it must have done so with the transaction under which they paid more for the property than it was actually worth. Decision [37] Altimarloch is not relevantly distinguishable. This is a transaction case, and on the pleaded facts the respondents must have suffered material loss when they bought the motel at a price which exceeded its worth. That loss was suffered, at the latest, on 30 September It follows that the claim is out of time. [38] The appeal is allowed. The claim is struck out as having no prospects of success. [39] The respondents must pay the appellant costs in this Court for a standard appeal on a band A basis. Solicitors: Brookfields Lawyers, Auckland for Appellant Rhodes & Co, Christchurch for Respondents York, above n 1, at [56]. At [56] [57].