New Zealand: Understanding limitation periods for claims of building defects

Often property owners with defective buildings do not become aware of the defects until well after the work is complete, meaning that limitation issues and the question of when the defects were discovered can arise. But how much knowledge of building defects is considered sufficient for the clock to start on your limitation period?

A recent decision of the High Court, Rea v 360 Degrees Limited [2022] NZHC 916, provides some guidance as to when a building owner will have sufficient knowledge of any defects to trigger the start of a limitation period.

What is limitation?

Limitation periods prevent people from bringing old claims by setting a time period within which claims must be brought. In New Zealand the Limitation Act 2010 deals with acts or omissions that occurred after 31 December 2010 and gives 6 years for most claims to be brought.

There are also some specific limitation periods for certain types of claims, for example claims under the Fair Trading Act must be brought within 3 years of the date the loss or damage was, or should have been, discovered and the Building Act 2004 imposes a 10 year long stop on claims for defective building work.

In situations where there is a delay in people realising they have a claim, common in construction defect cases, the Act provides a late notice period of 3 years from when the claimant knew (or ought to have known) that a claim had arisen.

What happened in this case?

The plaintiffs owned a property in Auckland which suffered from serious building defects. They sued the Auckland Council, claiming it was negligent in processing the building consent, undertaking inspections and issuing a code compliance certificate.

The Council had issued a building consent in December 2012 and a code compliance certificate was issued in October 2013.

The property had been inspected by a building surveyor and the plaintiffs received their report, which identified 31 defects with the property, in March 2015. In March 2016 the plaintiffs received a report from a firm of engineers which also identified structural and weathertightness defects.

In March 2019 the plaintiffs received another report from a different building surveyor which revealed more structural defects and extensive workmanship issues with the property. Whether those defects were the same ones identified in the earlier reports was a point of dispute between the parties.

The plaintiffs filed their claim in September 2021 and the Council sought to strike it out on the basis that it was time barred. It said that the proceedings had been filed more than 6 years after the code compliance certificate had issued, being the last alleged act or omission of the Council.

The Council also said that the claim fell outside the late knowledge period under the Act. It said that the plaintiffs had 3 years to file proceedings from the late knowledge date when it had, or ought reasonably to have gained, knowledge of the relevant facts. The Council said that the latest date that could be the late knowledge date was May 2016 by which time the plaintiffs had received the first building surveyor's report detailing defects and the Council's role in certifying the construction, and the engineer's report confirming structural issues with the dwelling. On that basis the late knowledge period would have expired in May 2019, more than 2 years before the proceedings were filed.

The plaintiffs alleged that the start date of the primary limitation was March 2019, when the second building surveyor's report was received, and that until they received that report they did not fully appreciate the magnitude of the defects. They relied on English cases which indicated that where the plaintiff has received negligent advice they should not be penalised and attributed late knowledge until they have received proper advice.

What was the outcome?

The Court noted that of the 19 defects listed throughout all of the reports, it was accepted by the plaintiffs that 12 had been identified in the earlier reports received before the March 2019 report.

In terms of the argument that the plaintiffs had received negligent advice from the first building surveyor and firm of engineers, the Court noted that a fundamental assumption underlying this was that the advice received by the plaintiffs was in fact negligently prepared, and that there was no evidence of that before the Court.

The Court found that once they received the engineers report in May 2016, the plaintiffs had sufficient knowledge of the defects and loss resulting from them (the reduction in value of the house due to the defects) to have acquired late knowledge for the purpose of the Act. Consequently, the claim against the defendant was filed after the late knowledge period of three years had expired and was statute barred, and the claim was struck out.

Learnings

This case reinforces the need to act swiftly if limitation may be an issue. Claimants in this situation will not necessarily be able to wait until they have all possible information before bringing their claim, and should take advice at the earliest possible opportunity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.