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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2007-404-5832
BETWEEN NATIONAL PACIFIC COMMERCIAL
EQUITIES LIMITED FORMERLY
KNOWN AS HIGHWELL INVESTMENT
GROUP LIMITED
Plaintiff
AND C B RICHARD ELLIS LIMITED
Defendant
Hearing: 18 December 2007
Appearances: Mr Akel for plaintiff
Mr D Mclellan for
defendant
Judgment: 7 February 2008 at 9.30 a.m.
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
07.02.08 at 9.30 a.m, pursuant to
Rule
540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date...............
Counsel:
Simpson Grierson, Private Bag 92518, Wellesley Street, Auckland
Daniel McLellan, Shortland Chambers, P O Box 4338, Auckland
NATIONAL PACIFIC COMMERCIAL EQUITIES LTD V C B RICHARD ELLIS LIMITED HC AK CIV-
2007-404-5832 7 February 2008
Background
[1]
National Pacific Commercial Equities Ltd ("National Pacific") alleges that
CB Richard Ellis Ltd ("CBRE") negligently prepared
a valuation report on an
apartment in a building in Quay Street, Auckland and that National Pacific bought
the property in reliance
on the valuation. It claims damages of not less than $1
million calculated as the difference between the true market value of the
property
and CBRE's valuation.
[2] National Pacific entered into an agreement to purchase the property on 1
March 2000 subject
to conditions. The agreement subsequently became
unconditional and on 3 May 2000 National Pacific settled the purchase
of the
property.
[3] The defendant has filed an application to dismiss the proceeding as an abuse
of process because it says
that National Pacific's cause of action accrued on 3 May
2000 when it became contractually committed to the purchase of the property
and as
a result it suffered loss on that date. Accordingly, the defendant says, the limitation
period expired on 3 May 2006. The
proceeding was issued in September 2007.
National Pacific's statement of claim alleges that it was introduced to the
[4]
Quay Street property and its then owner, Wilfred Johnson, in February 2000. Less
than a year before - in May 1999 - a company controlled
by Johnson had bought the
property for $1.1 million and, apparently contemporaneously, sold the property to
another Johnson controlled
company for $2.65 million. It is alleged in the statement
of claim that the defendant prepared a valuation of the property. The statement
of
claim asserts that the valuation was "prepared for and provided to a mortgage broker
called Property Pack Commercial Limited"
and valued the property as at 29 October
1999 at $2.6 million. The report stated that the purpose of the valuation was "current
market
value for finance purposes".
[5] The statement of claim alleges that Johnson gave the report to a director of
National Pacific
and:
...in reliance on the CB Richard Ellis valuation of the property at $2.6
million, on or about 1 March 2000 [National
Pacific] entered into an
agreement to purchase the property from Johnson Family Trust Limited for
$2.7 million.
[6]
The statement of claim further alleges that Johnson entered into a "lease back
and buy back Agreement" with National Pacific under
which Johnson would rent the
property and buy it back within 3 years of settlement for a price between $2.6
million and $2.8 million
(depending on the year of purchase). This was an incentive
to National Pacific buying the property. It is alleged that National Pacific
then
obtained finance from ASB Bank and Bridgecorp through the mortgage broker,
Property Pack Commercial Limited, and that CBRE's valuation was
used for this
purpose and the valuation report was readdressed to the finance companies.
[7] National Pacific alleges that "in
reliance on the CB Richard Ellis valuation",
it:
(1) obtained first and second mortgage finance from ASB Bank and
Bridgecorp respectively totalling $1,690,000; and
(2) settled the purchase of the property from Johnson
on 3 May 2000.
[8] The statement of claim also says that after settlement Johnson made no rental
payments which resulted in National
Pacific being unable to make mortgage
payments and that in June 2001 ASB Bank made demand under its mortgage and in
November 2001
it sold the property by mortgagee sale for $1,155,000.
[9] National Pacific raises various allegations of negligence against
CBRE. All
are connected with the preparation and contents of the valuation report. Specifically,
National Pacific asserts that if
the valuation had been accurate it would not have:
1. Purchased the property for $2.7 million;
2. Raised
mortgage finance;
3. Contributed equity capital to the purchase;
4. Settled the purchase;
5.
Defaulted under the mortgage because of Johnson's failure to make
lease payments or buy back the property.
[10]
National Pacific alleges that it is entitled to damages of not less than $1
million being:
1. The difference between
the CBRE valuation and the true market
value;
2. Its equity contribution;
3. Unspecified
loss as a result of the mortgagee sale.
[11] National Pacific contends that its cause of action did not accrue until the
property
was sold by mortgagee sale in November 2001 because that is when it
suffered loss. It also alleges in its notice of opposition that
it did not know nor could
reasonably have known of CBRE's negligence until the loss occurred in November
2001. In his submissions,
Mr Akel for National Pacific said:
13.THE defendant contends that the law is so clear cut that the claim should
be
struck out. In particular the defendant relies on the House of Lords
decision in Nykredit plc v Edward Erdman Ltd [1997] 1WLR
1627.
14. [NATIONAL PACIFIC'S] response is:
a) The strike out jurisdiction is to be sparingly exercised.
b) The law is not so clear cut to strike out the claim.
c) The claim is not so clearly
untenable that it cannot succeed.
d) As with other areas of the law, context is everything on
limitation points.
Davys Burton v Campbell Robert Thom [2007] NZCA 215 at
paragraphs 64, 65 & 66.
Para 12 of the Hoogeveen decision
15. THE issue
has recently been reviewed by the Supreme Court in Murray
v Morel & Co Ltd [2007] 3 NZLR 721. The decision was reviewed by
Andrew Beck in "Limitation in the Supreme Court" NZLJ July 2007, 213.
(Plaintiff Tab 4)
Mr Beck notes at the outset of his article that the Supreme
Court was unable to state the law authoritatively for the future,
as the judges
were unable to agree on what the position should be. As a result the law has
not been clarified. ...
Principles applicable to strike-out applications based on limitation defences
[12] I accept Mr McLellan's submission concerning
the correct approach to strike-
out applications where the ground is that the proceeding is limitation barred. He
said:
2.1 CBRE's application relies on Rules 186 and 477 of the High Court
Rules, and on the inherent jurisdiction of the
Court.
2.2 The test under each rule, and the inherent jurisdiction, is effectively the
same, and the principles
are well established. They were recently
confirmed in Walkers Nurseries Ltd v Carlisle Dowling (High Court,
Auckland: CIV 1994-441-57 (ex Napier CP.13/94): 28 June 2007: Frater
J) at [5] [7] as follows:
(1) A limitation defence does not mean that the statement of claim discloses no
reasonable cause of action but
it disentitles a plaintiff to relief. As a result,
National Pacific's claim is frivolous, vexatious and an abuse
of the court
process;
(2) CBRE must show that the claim as pleaded, or with available amendments,
could not possibly succeed. The Court must assume that all the factual
allegations in the statement
of claim can be proven. The essential enquiry is
whether, if so, they would support a legal liability in respect
of the cause of
action and/or relief pleaded;
(3) The discretion to strike out a claim in advance
of trial is to be used
sparingly. But, if the position is quite clear, then the defendant should not
be vexed by having to go to full trial when the answer is obvious and
inevitable.
2.3 The single
issue of determining whether the cause of action accrued on the
competing dates asserted by the parties is well suited
to determination by a
strike out application because it involves only law and undisputed facts.
Issues
[13]
Section 4 of the Limitation Act 1950 says that actions in tort shall not be
brought after 6 years "from the date on which the cause
of action accrued". So the
overarching question here is when the cause of action accrued. Even if (as the
plaintiff contends) the
doctrine of reasonable discoverability applies, it must fit
within the words of s 4, so that the cause of action only accrues when
all the
necessary facts are reasonably discoverable.
[14] In negligence actions the cause of action accrues when damage is suffered
as
this is a necessary element of the negligence cause of action. As negligence is
alleged here the key question answer in establishing
when the cause of action
accrued is when the plaintiff suffered the requisite damage.
[15] Thus, the specific issue that falls
to be considered on this application is when
did the cause of action in negligence accrue? There are a number of possible
alternatives
as to the point of accrual:
a) when the plaintiff settled the property purchase in May 2000; or
b) When
the mortgagee sale took place in November 2001, the harm
only being contingent to that point; or
c)
When all the relevant facts were reasonably discoverable in
November 2001 (applying the doctrine of reasonable discoverability).
When did the cause of action accrue?
[16] As I noted earlier, the plaintiff submitted that the cause of action did not
accrue
until the mortgagee sale took place in November 2001. Alternatively, the
plaintiff's case is that the cause of action did not accrue, and time did not start
running for the purposes
of the Limitation Act, until the cause of action against the
valuers could reasonably have been discovered, and that could not have
occurred
until the mortgagee sale made it clear to the plaintiff that it had suffered loss.
[17] Mr McLellan for the defendant
said that the position was that the plaintiff's
cause of action accrued when the defendant settled the transaction for the sale and
purchase of the apartment. He said that while the plaintiff might not have taken steps
to calculate its loss at that point, that
was beside the point. The loss had accrued at
the point of purchase. Even although the plaintiff had not calculated the loss
it
could have done so. Once the loss accrued, all the necessary elements of a claim for
loss which the defendant's negligence had
caused, were present.
[18] Mr McLellan relied upon the dictum of Lord Nicholls in Nykredit Mortgage
Bank plc v Edward Erdman
Group Ltd (No 2)[1997] 1 WLR 1627 (HL) at 1630:
Take first a simple case which gives rise to no difficulty. A purchaser buys
a
house which has been negligently overvalued or which is subject to a local
land charge not noticed by the purchaser's
solicitor. Had he known the true
position the purchaser would not have bought. In such a case the purchaser's
cause
of action in tort accrues when he completes the purchase. He suffers
actual damage by parting with his money and receiving
in exchange property
worth less than the price he paid.
[19] Later in his speech, Lord Nicholls said:
More difficult
is the case where, as a result of negligent advice, property is
acquired as security. In one sense the lender undoubtedly
suffers detriment
when the loan transaction is completed. He parts with his money, which he
would not have done had
he been properly advised. In another sense he may
suffer no loss at that stage because often there will be no certainty he
will
actually lose any of his money: the borrower may not default. Financial loss
is possible, but not certain. Indeed,
it may not even be likely. Further, in
some cases, and depending on the facts, even if the borrower does default the
overvalued security may still be sufficient.
[20] For reasons that I set out below, the first example given in the above extracts
from Lord Nicholls speech applies to the case now under consideration. The
Nykredit case was concerned with the
second example, namely the valuer having
given negligent advice concerning the value of the property which the plaintiff bank
took
for security. Mr McLellan referred to the second example as belonging to a
class of case where the loss was contingent, as opposed
to actual.
[21] Mr Akel said that the present case was one in which the Court should follow
the decision of the High Court of
Australia in Wardley Australia Limited v State of
Western Australia [1992] HCA 55; (1992) 175 CLR 514.
[22] In that case the plaintiff/respondent claimed damages for loss alleged to have
been suffered by it as a result of misleading
and deceptive conduct on the part of
Wardley. The claim arose out of a loss which the plaintiff had sustained through
giving an indemnity
for a loan granted to Rothwells Limited. Wardley, it was
alleged, had misrepresented that Rothwell had very substantial net assets,
amongst
other things. The representations were not true but they induced the plaintiff to
execute an indemnity. That indemnity was
duly called upon and the plaintiff was
required to pay substantial damages. It was the case, as the High Court concluded,
that before
the bank was entitled to call on the indemnity which the plaintiff had
given to it, it was necessary that Rothwells should fail to
satisfy what it owed under
the facilities that it arranged with its bank. The High Court concluded that the
indemnity on its true
construction was one which created a liability on the part of the
plaintiff to make payment if and when the banks relevant "net loss"
was ascertained
and qualified: page 524. The liability was also contingent but, the High Court said at
524:
The likelihood,
perhaps the virtual certainty, that there would be a loss, in
the light of Rothwell's actual financial position as it stood
when the
indemnity was executed, did not transform the liability into an actual or
present liability at that time.
[23] The High Court accepted that at common law a plaintiff could only recover
compensation for actual loss or damage incurred,
as distinct from potential or likely
damage. The Court acknowledged that risk is itself not a category of loss: page 527.
[24]
An overall reading of Wardley makes it clear that the High Court viewed the
loss in that case being a contingent one and that in
such circumstances a different
approach was justified. The Court considered that there were practical disadvantages
in expecting
the plaintiff to commence proceedings before the contingency was
fulfilled. Then, importantly, the Court said this at page 533:
These practical consequences which would follow from an adoption of the
view for which the appellants contend outweigh
the strength of the argument
that the principle applicable to the cases in which the plaintiff acquires
property (or
a chose in action) should be extended to cases where an
agreement subjects the plaintiff to a contingent loss.
[25] As
I read the decision, there was no intention on the part of the majority in
their judgment to depart from the usual rule as to when
damage or loss is relevantly
suffered in a case concerned with the acquisition of a property.
[26] The Wardley decision was referred
to in the New Zealand Court of Appeal
decision of Gilbert v Shanahan [1998] 3 NZLR 528. The plaintiff in that case
guaranteed the obligations of the company under a lease. The form of the guarantee
resulted in the plaintiff
assuming liability as a principle debtor. The plaintiff's
solicitors did not advise him that he was under no obligation to give a
guarantee.
The company whose liabilities he was liable for became insolvent and a claim was
made on the guarantee.
[27] Tipping
J in his judgment considered both Nycredit and Wardley and then at
542-543 said:
Having considered the views expressed in
Nykredit and Wardley, we are of
the provisional view that the Australian approach is in general terms
preferable to
the English. For the purposes of deciding the present case it is
unnecessary finally to determine the point. The crucial issue
is whether a
person who incurs a contingent liability thereupon immediately suffers loss
or damage for limitation purposes.
If a liability is subject to a condition or
contingency which may or may not be fulfilled, it appears more satisfactory
for limitation purposes to say that the debtor has suffered no loss or damage,
unless and until an event occurs which
converts the liability from a potential
to an actual liability. Until then, all one can say is that the person subject to
the liability may, with a greater or lesser degree of probability, suffer loss or
damage. When a liability is said
to be the loss or damage which the plaintiff
has suffered, it is necessary on this approach to determine whether that
liability is present or contingent. If it is a present liability, there will be loss
or damage when it is incurred, notwithstanding
it may not be dischargeable
in whole or in part until a future date. If the liability is contingent, it will not
amount
to loss or damage unless and until the contingency is fulfilled.
[28] Because the plaintiff in Gilbert had the status of a primary
debtor, his liability
was a present one and he suffered loss or damage at the time he entered into the
guarantee and his claim was
therefore statute barred.
[29] A further discussion concerning the authorities in this area is to be found in
the Court of Appeal
judgment in Davys Burton v Thom (2007) 18 PRNZ 653. In that
case the plaintiff, who was contemplating marriage to his fiancée, arranged for the
appellant legal firm to draw up a pre-nuptial
agreement. It was intended that the
agreement would contain a provision that would exclude from the ambit of
relationship property
a house that the respondent owned in Rotorua. The appellant
solicitors arranged for the plaintiff to execute the agreement after
satisfying the
formalities of s 21(6)(a) of the Property (Relationships) Act 1976. The fiancée did
not sign the agreement in New
Zealand. However, when she was in the United
States the plaintiff arranged for the agreement to be signed before a notary public.
The notary public could not however give the appropriate advice required under
section 21 of the Act. As a result it was likely
that the agreement would be
ineffective, unless a Court ordered its validation. The question arose as to when the
appellant suffered
actionable loss as a result of the solicitor's negligence. The case
was argued on the basis that the Court of Appeal confirmed that
a cause of action
does not accrue until loss or damage is suffered. The question in the case before it
was when the loss or damage
was suffered. The Court reviewed the cases and made
extensive reference to authorities which affirmed the distinction between a legal
liability which was contingent and one which was not.
[30] The Court said:
[64] As is clear from these cases, in this
as in other areas of law, context
is everything. The authorities establish that where a plaintiff alleges that he
or
she has executed a document in accordance with a solicitor's negligent
advice, and has suffered loss as a result, the cause
of action will generally
accrue when the advice is acted upon. This will be so even though the full
dimensions of the
loss may not become apparent until some time later. As
McGee A, Limitation Periods (5th ed), London, Sweet & Maxwell, 2006
says:
[I]n the overwhelming majority of cases the cause of action will
accrue when the negligent
advice is acted upon and ... this will
usually be when the plaintiff executes a document. [Para 5.030]
[65]
Broadly, the rationale for this is that when the document is executed
the plaintiff will have a package of rights that is
less than that which he
sought and should have received. As Lord Walker put it in Law Society v
Sephton:
In all these cases the claimant has as a result of professional
negligence suffered a diminution (sometimes
immediately
quantifiable, often not yet quantifiable) in the value of an existing
asset of his, or
has been disappointed (as against what he was
entitled to expect) in an asset which he acquires, whether it is a
house, a business arrangement, an insurance policy, or a claim for
damages. [Para 48].
[66]
However, this outcome is not automatic. As Neill LJ emphasised in
DW Moore & Co Ltd v Ferrier (see para 28 above), there
is no presumption
that loss arises at the time that the negligent advice from the solicitor is acted
upon it depends
on when in the circumstances of the case actual damage
occurs. It appears from their Lordships' discussion in Law Society
v Sephton
that the critical issue in such a case is whether the plaintiff's legal position
has, through the solicitor's
negligence, been altered to his immediate,
financial disadvantage (see Lord Walker at [43] and Lord Mance at [67]). If
so, loss or damage accrues immediately even if the full measure of that loss
may not become clear until a later point
in time.
[31] As it turned out in the case before them the Court determined that many of
the uncertainties that existed in March
1990 when the agreement was executed were
removed when the respondent and his wife moved into his Rotorua house in 1993.
That was because it was to be their principal family residence and
in the absence of a
validly executed pre-nuptial agreement preserving the house as the respondent's
separate property, it became
matrimonial property and the respondent's wife became
entitled to a share in it. The Court said at [73]:
Presumably when
the couple moved into the house, the respondent did so on
the basis that the agreement preserved it as his separate property.
At this
point, even though it was possible, if unlikely, that a Court would later
validate the agreement, it can fairly
be said that the respondent was
financially worse off as a result of his solicitor's negligence, or that from his
perspective
"burdens outweighed benefits".
[32] Finally I note the following helpful summary in Todd The Law of Torts in
New Zealand (4th
edn, 2005) at 1008:
We can summarise the position in this way. There is actual loss where a
plaintiff incurs an existing
liability or suffers an existing diminution in value
of land or personal property or a chose in action. A cause of action
accrues at
that date even though there has been no demand on the liability, or the loss
has not crystallised, or there
has been no out-of-pocket expenditure. There is
only a potential loss where a right or liability is subject to a contingency
which may or may not occur. A cause of action accrues only when it does
occur and actual damage is suffered.
Application
of authorities to the present case
[33] As noted above, a cause of action in negligence accrues when damage is
suffered. It is
at this point that time begins to run for limitation purposes. The
authorities discussed above reveal that damage may be contingent
as well as actual;
with the former the cause of action accrues when the contingency is fulfilled and
damage is suffered. The question
to be answered here remains, when on the facts did
National Pacific suffer damage such that the cause of action accrued?
[34]
In my judgment, consistent with the weight of the authorities, a trial Court
would conclude that damage or loss was suffered when
the plaintiff acting on and
influenced by the advice of the defendant, settled the agreement for sale and
purchase. At that point,
it paid the price for the property that was substantially
greater than the value of the property. To paraphrase Lord Nicholls in
Nykredit
National Pacific suffered actual damage by parting with its money and receiving in
exchange property worth less than the
price it paid. It then suffered loss, which was
caused by the defendant's negligence. The plaintiff's loss was not a contingency
that
may or may not have been fulfilled. This is a different type of case from the Wardley
category. This is not to say that the
position in Wardley would not apply if the facts
in this case revealed a contingent loss. However, they do not and it is not necessary
for me to consider the applicability of Wardley in the case of a contingent loss here.
3 Subject to one remaining issue, I would
conclude that from the point when the
plaintiff settled the purchase, all the elements were present which enabled the
plaintiff
to sue the defendant and therefore the limitation period began to run.
Reasonable discoverability of cause of action
Introduction
[35] As I understand the plaintiff's argument, the mortgagee sale which occurred
in November 2001 at which the property was sold
for $1.55 million was of dual
significance. First of all, the sale of the property for $1.55 million was the event
which caused the
plaintiff to suffer loss or damage in the plaintiff's submission.
That proposition is at the heart of the submissions which I considered
in the
preceding part of this judgment to the effect that loss or damage was not suffered at
the time when the plaintiff entered
into the agreement for sale and purchase but at
the time when the property was sold at a much reduced price from that which the
valuers had indicated in their report.
The second important dimension to the
mortgagee sale of November 2001, the plaintiff says, is that that date is the first point
at which the fact that it might have a cause of action available to it against the
defendant became or was reasonably discoverable.
The essence of the submissions
made by Mr Akel on behalf of the plaintiff was that the test of "reasonable
discoverability" had been
recognised in the decision of Invercargill City Council v
Hamlin [1994] 3 NZLR 513, 522-523. Mr Akel said:
THE written
submission on behalf of the defendant proceeds on the basis
that the authorities, in particular, Davys Burton and Murray
v Morel have
said that the reasonable discoverability test is no longer good law, except in
some limited circumstances
(as per previous Court of Appeal decisions).
This is not the case. To repeat, all that the Supreme Court has said is that
there is no general rule that reasonable discoverability applies. Each case
must depend on its own facts in its own
context.
[36] Mr Akel's submission was that the proceeding in the present case should not
be struck out because the plaintiff
had an entitlement to invoke the doctrine of
reasonable discoverability and that the proposition that the plaintiff could not
reasonably
have discovered its cause of action against the defendant earlier than
when it commenced the proceedings, was a real issue on the
facts of the case.
[37] I will deal with the question of the state of the law as to reasonable
discoverability first.
Authorities
[38] The two principle authorities that I shall refer to in this part of my judgment
are Hamlin and Murray v Morel [2007] 3 NZLR 721. I shall deal first with the later
of the two cases.
[39] The relevant circumstances of the Murray case were that some investors
in a
forestry scheme sought to bring proceedings against the promoters of a forestry
venture on the grounds that the prospectus contained
untrue statements. They
therefore sought to recover the subscriptions they made as compensation pursuant to
s 56
of the Securities Act 1978. They issued proceedings in 2003. The cause of
action for recovering a sum pursuant to an enactment was
subject to a general six
year period of limitation: s 4 (1)(d) Limitation Act 1950. The investors subscribed to
the scheme in 1994.
The proceedings were therefore statute barred unless the
investors were able to contend that the cause of action did not arise
in 1994 but at
some later date. The investors argued that the point at which their cause of action
arose was 1999, which was the
year when they discovered that the prospectus that
the defendants had issued contained allegedly false statements. The cause of action
was struck out in the High Court. It proceeded to the Court of Appeal and then the
Supreme Court.
[40] Five judgments were
delivered in the Supreme Court. The Supreme Court
upheld the judgment of the High Court striking out the cause of action. I adopt
the
summary of the ratio of the case as it is described by Mr Andrew Beck in his article
in the New Zealand Law Journal July 2007
at p 213, 215:
· There is no general doctrine of reasonable discoverability that applies to
limitation periods in respect
of all causes of action: Blanchard, Tipping,
McGrath and Henry JJ. It is possible that Gault J might have been prepared
to go as far as espousing a general doctrine, but his decision seems to leave
the final decision up to the Court;
· S v G and Searle & Co were legitimate developments of the law by the Court
of Appeal, and remain as valid statements
of the law for the types of sexual
abuse and personal injury cases falling within their ambit: Blanchard,
McGrath,
Gault, Henry JJ;
· It is possible that the use of reasonable discoverability in determination of
limitation periods
might be extended beyond the situations accepted in S v G
and Searle & Co on a case by case basis: McGrath, Gault, Henry JJ.
[41] S v G [1995] 3 NZLR 681 was a case where the plaintiff alleged that she had
been sexually abused by a medical practitioner. The plaintiff who was an adult
brought her claim in respect of sexual abuse perpetrated on her when she was a child.
Although she was aware of the abuse, the plaintiff
had not linked it with the serious
psychological and emotional harm she had suffered. Therefore, as McGrath J put it,
at para 97:
Reasoning by analogy with its decision in Hamlin, the Court of Appeal
decided that the cause of action accrued and
time began to run under the
Limitation Act, only when the damage should have been linked by the
plaintiff to the abuse
she had suffered.
[42] The judgments in Murray also referred to the Court of Appeal decision of G
D Searle & Co v Gunn [1996] 2 NZLR 129. That was a claim for personal injury
where the plaintiff claimed to have suffered pelvic inflammatory disease as a result
of being
fitted with a negligently manufactured intrauterine device. The device was
fitted in 1981 and the plaintiff did not attribute the
later adverse health effects to the
device until many years later.
[43] In both S v G and G D Searle & Co, the Court of Appeal
held that the
plaintiff's cause of action did not accrue until the plaintiff could have reasonably
discovered the facts relevant
to the cause of action. In S v G the damage which the
plaintiff claimed was psychological damage resulting from her abuse. The Court
of
Appeal accepted her submission that the cause of action did not accrue until she had
discovered or ought reasonably to have discovered
the link between the abuse she
had suffered at the hands of the defendant and the psychological difficulties from
which she was now
suffering.
[44] In Searle the plaintiff claimed that she did not become aware until 1991, ten
years after she was fitted with
the intrauterine device, of the link between the fitting
of that device, the pelvic inflammatory disease that she suffered and the
other
consequences including ectopic pregnancies and infertility. The Court of Appeal in
deciding Searle expressly referred to the
Privy Council decision in Invercargill City
Council v Hamlin [1996] UKPC 56; [1996] 1 ALL ER 756 (PC).
[45] In Murray the majority of the Supreme Court, as I have noted at paragraph
[40] above, accepted the validity of both
S v G and Searle & Co. But as I have also
noted, the majority did not accept that there was any general doctrine of reasonable
discoverability.
[46] I accept that on the current state of the law represented by Murray, in general
terms the issue of when a plaintiff ought
reasonably to have discovered the existence
of the facts given rise to his/her cause of action is not a matter that bears upon when
the cause of action accrued. Reasonable discoverability may be applicable in the
types of cases that were the subject matter of Invercargill
City Council, S v G, and
Searle & Co.
[47] The Invercargill City Council type case is concerned with concealed
defects in buildings.
In such cases, the cause of action does not accrue until the
plaintiff ought reasonably to have become aware of the defect. That
may be because
discovery of the defect will be the date at which loss is suffered (because of the
effect on the value of the property
caused by the defect manifesting itself) or it may
be explicable on the more extensive basis that justice requires that a cause of
action
not be viewed as accruing in the case of latent defects on some wider basis such as
that stated in BP Oil New Zealand Limited
v Ports of Auckland Limited [2004] 2
NZLR 208.
[48] It also seems to be that cases in which the factual situation is substantially the
same as that in S v G or Searle & Co
Limited are cases where reasonable
discoverability of the existence of the cause of action will determine when the
limitation period
starts. As well, Murray appears to recognise that reasonable
discoverability will apply to cases that may fairly be judges as being
analogous with
S v G or Searle & Co Limited: see the judgment of McGrath J in Murray at [101].
While there is no general doctrine
of reasonable discoverability, whether the
principle is to be applied has to be decided on a case by case basis. I will consider
in
the next section whether the facts of the present case require the application of the
principle.
Application of the authorities
to the present case.
[49] The plaintiff in the present case submitted that it did not actually know that
there had been a loss
until the mortgagee sale occurred. But that is not the same
thing as saying that the loss could not reasonably have been discovered.
The nature
of the plaintiffs claim was not that loss was masked from view because of the special
circumstances relating to the damage
or that a combination of the nature of the
damage suffered and the personal circumstances of the plaintiff which had been
affected
by that damage were such that the plaintiff could not have been reasonably
expected to have known about the damage.
[50] The
plaintiff did not contend (and could not realistically contend) that it was
in an analogous position to that of the plaintiff in
S v G, who, even if aware of the
harm done, did not make the connection between the actions of the defendant and the
harm she had
suffered. Such considerations may understandably be present in
sexual offending-type cases because of the recognised psychological
repercussions
of a defendant's actions. But such cases are a long way distant from a commercial
transaction of the kind here.
[51]
The essential issue in this case is not whether the defendant can show the
existence of a fact which will give rise to a limitation
defence but rather a question of
law as to whether the doctrine of reasonable discoverability applies in these
circumstances.
[52]
The plaintiff in this case did not say that it could not have discovered the loss
that it claimed to have suffered before the date
when the mortgagee sale occurred.
Such a contention would in any event have been unlikely to succeed. The value the
building had
at the time when the plaintiff entered into the agreement for sale and
purchase is a question of fact. That is to say, the value
of the property could have
been determined by, for example the opinion of a valuer.
[53] It might be arguable that it is not
particularly fair or reasonable for a valuer
who allegedly misinformed his client about the value of a property, to defend the
claim
against himself on the basis that another, competent and responsible valuer,
who did not make the same mistake as the defendant,
would have alerted the plaintiff
to the fact that loss had occurred within the limitation period.
[54] There were two consequences
of the allegedly negligent advice. The first is
that the plaintiff entered into an agreement by which it suffered financial loss.
The
second and less direct detriment which it suffered, was that the very actions of the
defendant lulled the plaintiff into a false
sense of security about a matter concerning
which, had it known the truth, it may well have promptly issued timeos proceedings
against
the defendant.
[55] But the relationship between the defendant and the plaintiff in this case was
not of a kind that would prevent
the plaintiff from discovering the relevant facts
concerning the cause of action. The plaintiff was not under any disability arising
from the actions of the defendant which would inhibit or prevent it from enquiring
into the actual circumstances of its purchase
of the property; it was not disabled as a
result of the defendants actions from making the enquiries which would have
revealed that it had brought the building at a price which
was substantially in excess
of its market value. If that approach is correct, the case is not analogous with the S v
G type of authority.
The present case is not one where the actions of the defendant
created concealed or "invisible" circumstances without which the
plaintiff would not
appreciate that it had suffered loss as a result of the defendant's actions. All the
information that was required
for the plaintiff to understand its position was there to
be had.
[56] If the approach I have adopted is correct, then the
circumstances of the
plaintiff's case do not take it outside the ordinary group of cases to which the
principle of reasonable discoverability
has no application. The cause of action in this
case accrued when the plaintiff settled the purchase of the property. Therefore,
it
must follow that the plaintiff's proceeding has been commenced more that six years
after the accrual of the cause of action and
it is therefore caught by s 4 of the
Limitation Act 1950.
Discovery
[57] The alternative argument that was put forward by
the plaintiff was that the
strike- out application on the limitation point should wait until full trial when all the
evidence can
be considered. If that is not to be the case the plaintiff's counsel
submitted that the application would be deferred until completion
of interlocutories
and in particular discovery.
[58] Dealing with the first point, I am of the view that the sequence in which
various interlocutory steps are to be completed, to the extent that it depends upon the
Court's determination, should be judged by
asking what justice requires in the
particular circumstances of the case. On the one hand, the plaintiff should have
reasonable opportunities
to investigate any material which might assist its case and
which may help circumvent defences, including the Limitation Act. Against
that,
where it is a clear case in which a claim is statute-barred, it would be unfair to the
defendant to require it to undertake
the burdensome process of discovery when there
is not particular reason to assume that it will have any effect on the limitation
defence.
[59] While I accept that the defendant would be required to disclose in the process
of discovery any documents which
related to the issue of limitation, I am far from
clear that it is likely that there would be any such documents. The cause of
action is
in negligence and as I have already mentioned the plaintiff suffered loss because it
entered into the agreement and acquired
property in circumstances where it was
misled by the allegedly excessive valuation which the defendant provided.
[60] The chain
of facts which the plaintiff will wish to establish will be:
a) That it was supplied with a copy of the valuation report;
b) That the report valued the property at $2.6 million as at 29 October
1999;
c) That the
valuation report caused it to confirm finance and make the
agreement unconditional;
d) That it became
the owner of the property 12 May 2000.
[61] The only way that the plaintiff could make head-way on the limitation point
would
be by showing that there are circumstances present which might justify a
departure from the orthodox view as to the date when the
cause of action accrued.
That is there would have to be some ground for supposing that by a process of
analogy with the exceptional
categories represented by cases such as S v G, that there
were circumstances relating to the present case which would justify departure
from
the normal measurement of the limitation period. I have to say that Mr Akel did not
in his submissions suggest any such basis.
No doubt that was because he did not
accept that what I had described as the exceptional cases are in fact that his
submissions
being based on the proposition that reasonable discovery was more a
doctrine of much wider applicability than I have been prepared to admit.
[62]
I accept that in the course of argument there was an exchange between
counsel and the Bench in the course of which Mr Akel alluded
to a possible claim
based on fraud, but at the same time reminded me of the inhibitions that counsel are
subject to including fraud
without a proper basis for so doing: Rules of Professional
Conduct for Barristers and Solicitors, 7th Edition, paragraph 8.04.
[63] In my view having regard to the circumstances of the case so far as they are
disclosed from the chronology of events and
the pleadings, the possibility that the
defendant might be subject to a non-orthodox limitation period is nothing more than
a bare
possibility. Because the foundation for such an argument has not been laid, it
is impossible to envisage what, if any, types of documents
would be turned up by
discovery which might assist the plaintiff on the discovery point. It is this
uncertainty that means I am not
persuaded that there should be a delay in dealing
with the strike-out application until after the completion of discovery.
[64]
Likewise, it is difficult to gauge what evidence might be produced at trial
which would enable the plaintiff to contend for a
non-standard limitation period.
[65] There are no proper reasons for delaying the strike-out application.
Order
[66]
There will be an order striking out the plaintiff's proceeding. The parties
should let me have concise memoranda (no more than three
pages) on the issue of
costs. I will then hear them at the conclusion of a chambers list at a time and date
which the Registrar is
to allocate.
_____________
J.P. Doogue
Associate Judge
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