Recent case is stark warning not to delay legal action - particularly in construction cases

13 Aug 2024

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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.

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Building & Construction Law Dispute Resolution