Key decision on limitations for civil claims

The Limitation Act 1950 was enacted to protect defendants against “stale claims”. But this begs the question: what is the extent of that protection? On the conclusion that the Court of Appeal has reached in Whangarei District Council v Daisley [2024] NZCA 61, a defendant enjoys the protection unless they knew (or ought to have made / were reckless in failing to make inquiries which would have revealed) an undisclosed breach of duty.

Background

The High Court upheld a claim by Mr Daisley for damages against the Whangarei District Council.[1]

The claim related to the failure of the Council to disclose to Mr Daisley that a rural property in Knight Road near Whangārei, which he acquired in December 2004, enjoyed the benefit of an existing resource consent that permitted commercial quarrying.

At trial, Toogood J found the Council to have been negligent in the storage of its records related to the consent and its failure to locate the records at various times over a five-year period when Mr Daisley requested relevant information. He held also that the Council had been guilty of misfeasance in public office through recklessly misinforming Mr Daisley and others about the existence of the consent and in failing to take steps to make amends after the consent was found.

As to the negligence case, Toogood J rejected the Council’s defence under the LA50. He rejected the plaintiff’s argument that the limitation period ran from the time of reasonable discoverability. But he accepted the plaintiff’s alternative argument that the Council was under an equitable obligation of disclosure sufficient to engage s 28(b) of the LA50 (concealment).

The key finding was the factual one that it was Council who had control and possession of the documents and that it did not matter that the Council had no dishonest motive in not disclosing them. It was enough the Council acted negligently and recklessly in not taking the trouble to ascertain and disclose the existence of relevant documents that supported the cause of action.[2]

Judgment

The parties agreed that fraud includes wilful or reckless concealment of a cause of action, but the Court felt it necessary to address the point as one of law on which the case depended.

The Court began with the basics. Limitation regimes are about balancing fairness to intending defendants, who ought to be protected against “stale claims” as witness testimony becomes inherently unreliable over time, with fairness to intending plaintiffs, who ought not to be deprived of claims they were not aware of because of a defendant’s unconscionable conduct.

In New Zealand this issue has been addressed by section 28(b) of the LA50. That provision postpones the running of any applicable limitation period where any fact relevant to the plaintiff’s right of action has been “concealed by fraud”. This is based on 1939 UK legislation.

This is not an outdated idea. Section 48 of the Limitation Act 2010, for example, provides for the postponement of a limitation period when an action has been concealed by fraud. “Fraud” in s 4 of the 2010 Act includes dishonest or fraudulent concealment.

Fraud in these provisions is not confined to actual fraud.[3] It includes circumstances in which there is a finding of no moral turpitude and yet postponement of the limitation period is deemed appropriate nonetheless.[4] The Court found no Council officer dealing with Mr Daisley actually knew of the 1988 land use consent. So, they could not wilfully have failed to disclose it. Mr Daisley’s misfeasance in public office claim therefore failed.

However, the Court held that the failure to search was unreasonable in the circumstances known to the officers, including credible information indicating Council records might well contain evidence of a land use consent or existing use rights. The question was whether, as a matter of law, that was sufficient to engage s 28(b) (concealment).

The Court found that it was; that where, for reasons of subjective recklessness by the intended defendant, the existence of the grounds for a claim is neither known to or reasonably discoverable by the intending plaintiff, time should be extended.

The Court recognised that establishing recklessness will be more complex than fraud and involve “difficult questions” – questions of fact and degree about the extent to which the defendant must appreciate the significance of the fact or circumstance for the plaintiff’s rights, and about the degree of risk which is sufficient to engage s 28(b).

Whether there is justification or excuse may also be in issue. However, in the Court’s view, none of this was a just reason to exclude cases of subjective recklessness from the coverage of s 28(b).[5]

There are no bright lines. But the Court thought it plain that as a matter of law, subjective recklessness “may amount to unconscionable conduct, through the combination of actual knowledge of a fact or circumstance and the exercise of a choice about its concealment.”[6] Subjective recklessness was defined as “a conscious appreciation of the risk and a deliberate decision to run it” (at [115]).

Comment

Defendants need to know where they stand. But, as the Court observed, a defendant who has fraudulently or recklessly concealed the cause of action cannot reasonably expect to be protected against so-called “stale claims”, as they only have themselves to blame for not being sued within the primary limitation period. This decision has brought much needed clarity to Trial Courts and parties alike in an area where previous cases were difficult to reconcile, indeed required magnifying glasses at times. Equitable fraud remains the touchstone and is now clearly defined as including both fraud in the narrow sense of actual fraud and reckless fraud / reckless concealment. This decision will be hugely significant in New Zealand under the 1950 and 2010 Limitation Acts.

Written by Stuart Dalzell, partner.

[1]Daisley v Whangarei District Council [2022] NZHC 1372.

[2] At paras [396], [399] and [392].

[3] Inca Ltd v Autoscript (New Zealand) Ltd [1979] 2 NZLR 700 (SC).

[4] Kitchen v Royal Air Force Assoc [1958] 1 WLR 563 (CA) at 572-573.

[5] At paras [145]-[149].

[6] At [141].