Contract and negligence claims - How late is too late?

Every time a lawyer is approached by a client about a dispute that they need assistance with, one of the first questions that should be asked is whether or not there are any limitation periods that may apply.  A limitation period can be an absolute defence, which could either prevent a plaintiff from making a claim or get a defendant out of a claim.

There are various limitation periods to consider.  The main "go tos" for civil matters are the Limitation Act 1950 (“1950 Act”) and the Limitation Act 2010 (“2010 Act”).  In contract claims or tort claims (e.g. negligence) the Act that will apply will depend on when the act or omission the claim is based on occurred.  If it occurred on or before 31 December 2010 then it will be the 1950 Act that will apply.  If it occurred on or after 1 January 2011, the 2010 Act will apply.  Determining which Act will apply is a key first step as there are certain advantages to a plaintiff of having a claim fall under the 2010 Act.

1950 Act

Under the 1950 Act, the limitation period for contract or tort claims is six years “from the date on which the cause of action accrued”.  The date the cause of action accrued is different in each case.  For example, for a claim based on breach of contract, the period starts from the date of breach, regardless of whether or not any loss has been suffered at that date.  With negligence, however, the limitation period starts from the date damage is caused as a result of a breach of duty.

There are limited exceptions under the 1950 Act.  Except in the case of specific acknowledgements or part payments that may have been made, the only exception in the 1950 Act is in the case of fraud or mistake.  If fraud or mistake is proven, the limitation period does not begin to run until the plaintiff has discovered the fraud or the mistake, “or could with reasonable diligence have discovered it”.  It is difficult to prove fraud or mistake to the extent necessary for the limitation period under the 1950 Act to be extended – there is a high test to meet.  Fraud, in particular, is a serious allegation, which should not be made without strong evidence.

2010 Act

With the 2010 Act, however, although the limitation period is still six years for claims in contract and tort, the Act also includes a “late knowledge date”, which is the date on which the claimant “gained knowledge … or ought reasonably to have gained knowledge of” certain facts.  These include the fact that the relevant act or omission has occurred, and that either the defendant was responsible in some way, or involved.  If the late knowledge date applies, this will be the case even if the six year limitation period has expired.  There is, however, a 15 year longstop limitation period, which means that a claim cannot be brought after 15 years have passed from the date of the relevant act or omission (“2010 Act longstop”).

Limitation periods in construction matters

Aside from determining which Limitation Act applies, there can also be issues with reconciling the general limitation periods under the Limitation Acts with limitation periods prescribed in other Acts.  For example, in construction matters, there are two other relevant additional limitation periods to consider – the 10 year longstop limitation period in the Building Act (“the Building Act longstop”) and the 10 year eligibility period in the Weathertight Homes Resolution Services Act.

The Building Act specifically states that the 2010 Act applies to civil proceedings arising from “building work” and the performance of a function under the Building Act (or a previous Act) relating to building work.  Therefore, on the face of it, the limitation periods for contract and negligence claims of this nature are no different to other types of contract and negligence claims – six years from the date of breach/the date of damage (depending on late knowledge, which, as noted, extends the limitation period for up to 15 years after the date of the relevant act or omission).  What is not clear from the Building Act, however, is how that fits with the Building Act longstop provision.  That is the provision in the Building Act that “no relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based”.

Essentially, the New Zealand Courts have applied a “reasonable discoverability” test to negligence claims involving latent building defects.  With those claims, because they are to do with economic loss, time runs from the date that the defect or damage is discovered, or should reasonably have been discovered.  That is because that is when the value of the building is affected.  The Building Act longstop was created to put a limit on how late a claim could be made based on the reasonable discoverability test.  The 2010 Act longstop does not affect this.   

Finally, there is also the 10 year eligibility period under the Weathertight Homes Resolution Services Act (“WHRS Act”).  This is essentially to do with whether or not a leaky building claim can be brought in the Weathertight Homes Tribunal – a specialist tribunal set up to resolve leaky building claims faster than possible in the Courts.   To be eligible, the dwellinghouse/unit, for example, must have been “built” (or the relevant alterations must have been made) before 1 January 2012, and within 10 years before an application for a WHRS assessor’s report is made (which is the first step in the Tribunal process). 

There has been much debate around when a property is “built” for the purposes of the WHRS Act.  This has resulted in numerous WHRS Act applications being denied, at least initially, resulting in the need for further submissions/litigation in order to get claims accepted.  However, the Supreme Court has recently determined that the eligibility period under the WHRS Act should only exclude claims that are barred by the longstop period.  This will result in fewer issues around eligibility.

Conclusion

As can be seen from this article, figuring out which limitation period(s) apply to a particular matter is not necessarily straightforward.  Whether you think you may have a claim or a claim has been made against you, we recommend that you seek legal advice to make sure there are no limitation periods that apply.  We can assist with this and also guide you through making or defending claims under the Building Act and WHRS Act.

If you would like further information please contact Daniel Shore on 07 958 7477.