The new Limitation Act — will it change anything?
Anyone who has paid attention to the endless line of building defects cases will be familiar with the concept of limitation. It means there’s a time limit after which a plaintiff cannot sue.
The reasons behind limitation periods are that as time goes by evidence may be lost, so prosecuting and defending an action becomes more difficult. The law requires that people take action on any claims promptly.
Limitation periods also give certainty to people (especially businesses and insurers) in arranging their affairs and providing for their liabilities within a definite period.
In New Zealand we have (had) the Limitation Act 1950. Specific limitation periods are also provided in the Building Act 2004 and the Weathertight Homes Resolution Services Act 2006.
A new Limitation Act has just been passed that will take effect from 1 January 2011. Does it change anything?
Limitation in building defects cases
Generally, limitation periods run from the date on which the cause of action accrues, ie, when the wrongful act is done. In negligence cases though, which are actionable only upon proof of damage, the time runs from the date of the damage. That time is generally six years.
In a building scenario, it can take many years for a defect to become obvious, so the law states that the time runs from the date that the damage is “reasonably discoverable” — which means that a claim could be lodged many, many years after the act itself, which runs counter to the reasons above.
Parliament has tried to balance the competing policy considerations by imposing a maximum allowable time for making a claim. Section 393(2) of the Building Act 2004 states that no civil proceedings arising from building work may be brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based (the “longstop”).
Section 14 of the WHRS Act states that for a claim to be eligible, the dwelling must have been built within the period of 10 years immediately before the day on which the claim is brought (the date of lodging the claim stops the clock).
Limitation and third parties
Many builders will be aware that once a claim has been lodged, even if it’s not against them, they can be joined into the proceedings by another defendant.
A plaintiff has always had the right to sue whoever they want to, and that party is usually the one with the deepest pockets.
This can be harsh when the defendant is left to meet the whole judgment when other parties may have contributed to the loss in the first place.
So, again, Parliament acted to allow that party to seek a contribution from any other party that it considers should share the burden. This is found in the Law Reform Act 1936, particularly s 17(1)(c).
There have been many arguments in court about how the limitation periods in the Building and WRHS Acts operate with respect to making an application to court to join other parties.
At first, it was held that the 10-year longstop meant that no other party could be joined if the 10 years was up. Then the Cromwell v De Geest case held that the limitation period for a claim was not governed by the Building Act but by the Limitation Act.
On that basis, many builders and other trades have been joined into building defects cases when the work that they did was longer than 10 years previous.
Other High Court decisions have gone the other way. Decisions such as Dustin v Weathertight Homes Resolution Service and Davidson v Banks have stated that 10 years means 10 years, so no claim for contribution can be made once that time has passed.
These decisions have given primacy to the specific limitation periods in the Building and WHRS Acts.
The issue hasn’t been tackled yet by the Court of Appeal, but on the basis of this trend of decisions it is well worth arguing that no third party joinder is possible if the building work was done more than 10 years ago.
Limitation Act 2009
The new Limitation Act 2009 is intended to clean up the patchwork of case law that has built up in the past 60 years. The new Act sets the clock ticking at the date of the act or omission on which a claim is based, and stopping at six years. This means for negligence cases the limitation period is six years.
However, there is provision for a three-year “late knowledge” extension when the claimant did not know, or could not reasonably have known, that an act or omission had occurred. There is also a new 15-year longstop provision.
However, for the purposes of the Building and WHRS Acts, the new Limitation Act also includes a specific provision which states that any provision in any other Act that provides a limitation is unaffected.