Body Corporate 325261 v Stephen Mitchell Engineers Limited [2014] NZHC 761 (14 April 2014)

Last Updated: 1 May 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-8000 [2014] NZHC 761

IN THE MATTER known as "C-VU APARTMENTS"

BETWEEN BODY CORPORATE 325261

First Plaintiff

AND RODNEY WILLIAM COOKE AND OTHERS

Second Plaintiffs

AND STEPHEN MITCHELL ENGINEERS LIMITED

Sixth Defendant

AND STEPHEN ROBERT MITCHELL Seventh Defendant

Hearing: 31 March 2014; further submissions 1 and 3 April 2014

Appearances: SJ Mills QC and B O'Callahan for 6^th and 7^th

Defendants/Applicants

G Kohler QC and C Baker for Plaintiffs/Respondents

Judgment: 14 April 2014

JUDGMENT OF TOOGOOD J

[Application for leave to bring an application for review of a decision of an

_{Associate Judge]}

This judgment was delivered by me on 14 April 2014 at 3:30 pm

Pursuant to Rule 11.5 High Court Rules

_{Registrar/Deputy Registrar}

BODY CORPORATE 325261 v STEPHEN MITCHELL ENGINEERS LTD & ORS [2014] NZHC 761 [14 April 2014]

Table of Contents Paragraph

Number

Introduction and result [1] Procedural background [6] Defendants’ submissions [10] Plaintiffs’ submissions [11] Defendants’ reply [13] Relevant law [15]

_{Consideration of the relevant factors} [19]

Is there a reasonable prospect that the Associate

_{Judge’s decision will be held to be wrong?}

[20]

The defendants’ arguments for striking out [22]

The plaintiffs’ arguments [31]

_{The Associate Judge’s reasons [32]}

Was the Associate Judge’s view of the defendants’ legal

arguments correct?

Additional consideration: the Court of Appeal’s subsequent judgment in Westland District Council v York

[35] [40]

Conclusion on strength of defendants’ legal arguments [46] Other factors [47] Decision and costs [50]

[1] The sixth and seventh defendants, Stephen Mitchell Engineers Ltd (SML) and Stephen Robert Mitchell (“the defendants”), have applied for leave to review a decision¹ in which Associate Judge Christiansen dismissed an application to strike out part of the plaintiffs’ claims. It occurs as part of a wider proceeding concerning alleged defects in the construction of a unit title development in Auckland known as C-Vu Apartments (“C-Vu”). The plaintiffs allege that C-Vu suffers from numerous

defects relating to both watertightness and structural integrity.

[2] SML was responsible for preparing the structural design and specifications for the construction of C-Vu and also for confirming C-Vu was compliant with the building code. Mr Mitchell is the principal and director of SML.

[3] Leave for review of the Associate Judge’s decision is required because the

defendants filed their application out of time.

[4] The plaintiffs are Body Corporate 325261 and the individual owners of 130 units at C-Vu (“the plaintiffs”). The trial is set down for 10 weeks beginning on 14

July 2014.

[5] For the reasons given below, I dismiss the application.

Procedural background

[6] In a judgment issued on 3 March 2014, Associate Judge Christiansen considered the defendants’ submissions that certain of the plaintiffs’ claims in negligence were time-barred and should be struck out as disclosing no reasonably arguable cause of action.² The Judge said the defendants’ arguments were novel,³

_{inconsistent with existing authority}⁴ _{and better left for resolution at trial.}⁵ _{The Judge}

¹ _{Body Corporate 325261 v McDonough [2014] NZHC 331.}

² _{High Court Rules, r 15.1.}

³ _{At [94].}

⁴ _{At [85].}

⁵ At [95].

said⁶ the Court is hesitant to use the robust jurisdiction of a strike-out application to preclude a potential inquiry into issues which are shortly to be the subject of a lengthy trial. He noted there was nothing to stop the defendants advancing the same strike-out arguments in their defence before the trial Judge who has the opportunity of hearing all of the relevant evidence.

[7] On 5 March, the defendants applied to have the judgment recalled. On 13

March, the defendants filed a notice of appeal with the Court of Appeal, but it was rejected for want of jurisdiction.

[8] The strike-out application had been set down for hearing before Ellis J, but a late rostering change meant that it was heard by Associate Judge Christiansen in open court; the Judge and counsel were robed. It appears counsel concluded inadvertently that this was not a decision of an Associate Judge in Chambers susceptible to review and decided that any challenge should be by way of an appeal

under s 26P(2) of the Judicature Act 1908. In Talyancich v Index Developments Ltd,⁷

however, the Court of Appeal held that when an Associate Judge is determining such an application, he or she is necessarily exercising the powers of a Judge sitting in Chambers. This is so “regardless of matters of form such as the use of a Courtroom, the wearing of robes, or the allowing of access to the public”.⁸

[9] The challenge to Associate Judge Christiansen’s decision should have been made by application for review under s 26P(1) of the Act. The time period for filing such an application is set at five working days by r 2.3(2) of the High Court Rules. On 14 March 2014 – four days outside the five-working-day period – the defendants filed their application for review. A tentative fixture for the review, to be confirmed

_{if leave is granted, has been allocated for 26 and 27 May 2014.}

⁶ _{At [98].}

7. Talyancich v Index Developments Ltd (1992) 4 PRNZ 509 (CA). See also the High Court Rules, r 7.34; Rewi v Attorney-General [2010] NZCA 238 at [5].

⁸ Talyancich v Index Developments Ltd, above n 7, at 517.

[10] Rule 2.3(2) contains an implied discretion for a Judge or an Associate Judge to permit an extension of the time to apply for review. The defendants submit that the following factors should persuade the Court to exercise its discretion under the rule by allowing the application for leave:

(a) Four working days is a very small delay and no prejudice has been shown to arise from it.

(b) The delay was caused by an honest error on the part of counsel and the correct application was filed as soon as possible upon learning of the error. The defendants always evinced an intention to challenge the decision, having applied for its recall on 5 March 2014 and then filing the erroneous notice of appeal.

(c) The points raised are of substance and are capable of bona fide and serious argument on review. In making this submission, they refer particularly to what is said to be a highly relevant decision of the Court of Appeal,⁹ delivered on 10 March 2014.

(d) The defendants say they will abandon their recall application if leave is given to bring the review application. They have also undertaken, through counsel, not to appeal the Court’s decision on the review if leave is granted.

Plaintiffs’ submissions

[11] The plaintiffs oppose the application for leave. They say that for the review to proceed the Court must not only extend time under r 2.3 but also grant leave under r 7.7, which prohibits the making of any interlocutory application or the taking of any step after the close of pleadings date without leave. They submit further that the

_{defendants could have brought their strike-out application sooner and that the Court}

⁹ Westland District Council v York [2014] NZCA 59.

should weigh the delay against granting leave. More forcefully, they submit that, given that a review of Christiansen AJ’s decision cannot be heard until 26 and 27

May 2014, and that the substantive trial is set down to start on 14 July 2014, they will not have any time to appeal a decision striking out part of their claim against the defendants without forfeiting the fixture. An appeal against a strike-out would be likely, if not inevitable, because the claims at issue are significant and the plaintiffs would be severely prejudiced if they were not permitted to pursue them. Adjournment of the trial would be highly disruptive to many parties. The plaintiffs are the individual owners of 130 units in the C-Vu apartments and the body corporate; there are nine defendants and six third parties named in the proceeding. The defendants will be required to have served their briefs of evidence before the tentative date for the review hearing, and the parties will be well advanced in their preparation for trial by that date.

[12] In terms of prejudice to the defendants if they are required to face the disputed allegations at trial, the plaintiffs point out that, even if the defendants’ strike-out application succeeds, they will nevertheless be required to participate in the trial in respect of other causes of action not affected by these interlocutory issues.

Defendants’ reply

[13] The defendants submit in response that, having been permitted to bring the strike-out application after the close of pleadings date, it would be inconsistent to interpret r 7.7 as barring an application for leave to review the strike-out decision. There may be some force in that point: r 2.3(3) provides that, unless a Judge or an Associate Judge directs otherwise, an application for review does not operate as a step in the proceeding.

[14] However, I approach the matter first on the basis of the discretion under r 2.3(2); it is only if I decide in favour of the defendants under that rule that I will need to address the plaintiffs’ alternative argument under r 7.7.

[15] The Court’s discretion to extend a time limit for review was addressed in Sutton v New Zealand Guardian Trust Co Ltd,¹⁰ where Gault J held that the approach to be taken is the same as when the Court is considering whether to extend time for an appeal: that is, the Court should consider the lapse of time; the explanation for the delay; and the substance or merit of the proposed review application. I do not understand Gault J to have intended the list to be exhaustive. The essential question in any such case, as it is in other instances where leave of the Court is required before a step may be taken, is to consider where the interests of justice lie. This

involves weighing the prejudice which would be suffered by an unsuccessful applicant for leave against that which would be suffered by an unsuccessful opponent.

[16] In the present case, that balancing exercise must be undertaken against the background that the trial date has been fixed since mid-February 2014 (the plaintiffs having “reluctantly” consented to an adjournment from the original start date of

28 April 2014), and that strict compliance with time limits under the High Court Rules is required so that interlocutory matters can be disposed of promptly to allow a matter to proceed to substantive determination.¹¹ Rule 7.7 is directed to supporting that latter proposition.

[17] Further, it is relevant that the defendants have lost their right to apply for review and are seeking an indulgence. As Lord Guest said in an often cited passage:¹²

The rules of court must prima facie be obeyed, and in order to justify a court in extending the time during which some step in procedure requires to be taken there must be some material upon which the court can exercise its discretion [in favour of the applicant]. If the law were otherwise, a party in breach would have an unqualified right to an extension of time which would defeat the purpose of the rules, which is to provide a time table for the conduct of litigation.

¹⁰ _{Sutton v New Zealand Guardian Trust Co Ltd (1989) 2 PRNZ 111 at 113 (HC).}

¹¹ _{McGechan on Procedure (online looseleaf ed, Brookers) at [HR2.3.03].}

¹² Ratnam v Cumarasamy [1965] 1 WLR 8 (PC) at 12.

[18] To the factors listed by Gault J in Sutton as weighing in the balance, therefore, I would add the need to ensure that a proceeding as a whole is dealt with expeditiously and the consideration that a party seeking an indulgence carries the burden of justifying it.

Consideration of the relevant factors

[19] I accept that the application was filed only four days out of time and that the delay was caused by a mistake on the part of counsel. Those considerations weigh in favour of leave: the plaintiffs do not claim to have suffered any particular disadvantage they would have not suffered had the application been made within time, and the courts are reluctant to penalise a party because of the default of counsel.

Is there a reasonable prospect that the Associate Judge’s decision will be held to be

wrong?

[20] I turn to consider next the merits of the proposed application for review. In doing so in the context of a leave application, I am not required to undertake the review itself but to decide whether there is a reasonable prospect that, upon review, the decision of the Associate Judge would be found to be wrong.

[21] First, it is worth repeating the well-known principles governing strike-out applications that are found at [93] of Associate Judge Christiansen’s judgment:

(a) The Court assumes that the facts pleaded in the statement of claim are true, whether or not they are admitted.

(b) The Court may only strike out proceedings where the causes of action are so clearly untenable that they cannot possibly succeed.

(c) The strike-out jurisdiction is to be exercised sparingly.

(d) The jurisdiction is not excluded by the need to decide difficult questions of law, but the Court should be particularly cautious in striking out claims where the law is confused or developing.

(e) Developments in negligence need to be based on proved rather than hypothetical facts.

(f) Courts will not usually attempt to resolve generally disputed issues of fact.

The defendants’ arguments for striking out

[22] To understand the defendants’ arguments as to why some of the plaintiffs’ claims should be struck out, it is necessary to set out some of the complicated history of the pleadings in this case. The defendants were first joined to these proceedings when the plaintiffs filed their third amended statement of claim on 7 May 2012. In that statement of claim, the plaintiffs alleged defects in C-Vu’s construction, most of which suggested some connection between the construction and weathertightness issues that the plaintiffs alleged caused damage. However, there were two defects noted which had no connection with C-Vu’s weathertightness, namely:

(oo) The stair flights have no allowance for lateral movement between floors, contrary to the requirement of the loadings code NZS4203:1992.

(pp) There is insufficient confinement reinforcement in the columns.

[23] The plaintiffs alleged that both defendants were engaged to ensure C-Vu was built without structural defects, and that they breached both those obligations through negligence.

[24] At that stage, there were already close to 100 plaintiffs in the proceeding. When the eighth amended statement of claim was filed on 30 August 2013, another

34 second plaintiffs were added; the new plaintiffs had apparently only recently become registered proprietors of C-Vu units. In their eighth and ninth amended statements of claim (the latter filed on 8 November 2013), the plaintiffs also

expanded the list of structural defects for which the defendants were alleged to be responsible. The list now included:

(pp) The spacing of the column transverse reinforcement, on columns at all levels, exceeds the maximum allowed by NZS3101:1995 ...

(qq) Columns between levels 9 and roof level have insufficient longitudinal reinforcement under seismic loads ...

(rr) Most of the beam/column joints have insufficient horizontal shear reinforcement under seismic loads and some joints under gravity loads, to meet the requirements of NZS3101, 1995 ...

(ss) Most of the beam/column joints have insufficient confinement reinforcement to meet the requirements of NZS3101:1995 ...

(tt) The shear wall on grid X, between levels 3 and 4, has insufficient horizontal shear reinforcement under seismic loads ...

(uu) The spacing of the horizontal reinforcement in the shear walls on grids

4 and 6 exceeds the maximum allowed by NZS3101:1995....

[25] Before Associate Judge Christiansen, the defendants argued that the aspects of the plaintiffs’ claim relating to the structural-design issues that were not related to weathertightness should be struck out for limitation reasons.

[26] First, they argued that any design-related causes of action accrued no later than 9 June 2004, the date when C-Vu’s code compliance certificate (CCC) was issued, because on or about that date the defective structural design was incorporated into the building. Because the plaintiffs only brought their claim against the defendants on 7 May 2012, they were outside the six-year limitation period prescribed in the Limitation Act 1950. On that basis it was submitted that the Court should strike out all the plaintiffs’ claims against the defendants in respect of structural-design issues.

[27] Alternatively, the defendants relied on the long-stop period under s 393(2) of the Building Act 2004, which bars claims in respect of acts or omissions that occurred more than 10 years earlier. They said the alleged negligence occurred at the latest on 12 June 2002, when C-Vu’s structural-design drawings were submitted to the council. Any defects in C-Vu’s design were, said the defendants, readily apparent on those drawings – they were not latent, but patent, defects and time ran from the date of submission. Although further drawings were made for C-Vu,

including construction drawings created for the purpose of the CCC, the later drawings were effectively just copies of the early ones.

[28] It followed, in the defendants’ submission, that:

(a) The claims of the 34 plaintiffs who joined the proceedings after 12

June 2012 should be struck out; and

(b) Any structural-design issues that were added to the eighth and ninth amended statement of claim (i.e. added after 12 June 2012) should be struck out in respect of all plaintiffs. The defendants said these were fresh causes of action and therefore time-barred by r 7.77 of the High Court Rules, which says an amended pleading may introduce relief in respect of a fresh cause of action only if it is not statute-barred.

[29] Central to the defendants’ claims was an argument that the damage in this case was not like that in a routine leaky-building case, where defects are said to be “latent”. In Invercargill City Council v Hamlin, the Privy Council held that where a building contains latent defects, a plaintiff sues not for the physical damage to the

building but for the financial loss suffered.¹³ Because no cause of action in

negligence arises until loss occurs, time does not usually start running in the case of a latent defect until the market actually discovers the defect. This can be years after the building is completed and the CCC is issued (subject to the 10-year long-stop period in the Building Act). By contrast, the defendants here argued that the structural defects alleged were discoverable immediately from looking at the design of the building – that is, these were not latent defects; they were obvious.

[30] The defendants argued this situation was analogous to Davys Burton v

Thom,¹⁴ in which a solicitor failed to properly execute a pre-nuptial agreement in

1990. The Family Court found the agreement was void in 1999. The Supreme Court

held that the plaintiff’s claim against the solicitor was time-barred, because the loss had occurred when the plaintiff married without a valid pre-nuptial agreement. He

¹³ _{Invercargill City Council v Hamlin [1996] 11 NZLR 513 (PC) at 526.}

¹⁴ Davys Burton v Thom [2008] NZSC 65, [2009] 1 NZLR 437.

had received a “flawed asset” and suffered an immediate detriment capable of measurement on receipt.¹⁵ The defendants argued that the design drawings for C-Vu were similarly flawed assets.

The plaintiffs’ arguments

[31] The plaintiffs argued that the structural-design flaws were a latent defect and that their loss did not occur until much later than 12 June 2002. They submitted that at that time there was no physical damage to the buildings themselves, and no financial loss to the owners. In response to the defendants’ claims that the eighth and ninth amended statements of claim contained fresh causes of action, the plaintiffs also argued that these were merely particularisations of existing causes of action.

The Associate Judge’s reasons

[32] Associate Judge Christiansen found that when damage occurred would be a trial issue. The Judge noted that, while arguing that any structural-design defects were readily apparent from the beginning, the defendants had also pleaded that the plans were not defective at all.¹⁶ He said there was no evidence of observable defects or damage in the sense of cracking or water damage, and noted that the defendants did not suggest that anyone other than an expert could have formed an opinion as to the adequacy of the engineer’s drawings.

[33] The Judge noted that the defendants’ arguments were novel.¹⁷ In the case law, he said, the accrual of a cause of action was invariably an occurrence-based, rather than knowledge-based, concept; the focus was on when loss occurred rather than the discoverability of a loss which had already occurred.¹⁸ Associate Judge Christiansen found that the defendants’ arguments that the defects were not latent as they were apparent from the drawings were not sustainable and were inconsistent with the Hamlin line of authorities.¹⁹ In the Judge’s opinion, a latent defect is one

_{that is hidden from a normally observant person; the test is not what might be}

¹⁵ _{At [29] per Blanchard J.}

¹⁶ _{Body Corporate 325261, above n 1, at [61].}

¹⁷ _{At [79].}

¹⁸ _{At [83], quoting Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.}

¹⁹ At [85].

observed by a specialist charged with examining a matter. In this case there was no observable damage until physical cracking occurred. Furthermore a lay purchaser looking at the drawings would not have been able to observe the design defects.

[34] The Judge noted that a similar argument on a strike-out application had been rejected by Andrews J in Bayliss v Central Hawkes Bay District Council.²⁰ Adopting an analogous approach to the one taken in Bayliss, Associate Judge Christiansen distinguished Davys Burton from the facts of this case, holding that until the market discovered the defects in the building, the plaintiffs had suffered no loss.²¹ The Judge did not accept, therefore, that the plaintiffs had no argument that the structural issues were latent defects.²² As to whether the additions to the eighth and ninth statements of claim amounted to new causes of action, he held this was better left for consideration at trial.²³

Was the Associate Judge’s view of the defendants’ legal arguments correct?

[35] The Associate Judge did not rule out the defendants’ arguments as untenable. The Privy Council in Hamlin discussed the nature of a latent defect in respect of defective building foundations and held that:²⁴

... the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert. Since the defects would then be obvious to a potential buyer, or his expert, that marks the moment when the market value of the building is depreciated, and therefore the moment when the economic loss occurs.

[36] The defendants’ argument is that if there are defects in C-Vu’s construction, they were obvious on the plans and that the cause of action accrued when the plans were submitted to the Council or, at the latest, when the design was “incorporated” into the building with the issuing of the CCC. I accept that there may be force in the defendants’ argument that the structural-design flaws of a building are patent defects if they are immediately visible in the plans or in the structure of the building itself

_{(unlike, say, defective foundations or defects that will eventually lead a building to}

²⁰ _{Bayliss v Central Hawkes Bay District Council [2010] NZHC 275; (2011) 11 NZCPR 843 (HC).}

²¹ _{Body Corporate 325261, above n 1, at [90].}

²² _{At [96].}

²³ _{At [95].}

²⁴ Hamlin, above n 13, at 526.

let in water), but in each case that must be a matter of degree, turning on the particular facts.

[37] The English Court of Appeal discussed the definition of a latent defect in a case about the flooding of a property due to its poorly designed gutters.²⁵ The Court held that the architects who designed the gutters were not liable as the defect was patent, because it would have been discovered by the plaintiff’s own surveyors had they exercised reasonable care and skill:

46. The concept of a latent defect is not a difficult one. It means a concealed flaw. What is a flaw? It is the actual defect in the workmanship or design, not the danger presented by the defect... To what extent must it be hidden? In my judgment, it must be a defect that would not be discovered following the nature of inspection that the defendant might reasonably anticipate the article would be subjected to.

47. There is, accordingly, a question here of degree. The consumer of a fizzy drink will not, in the normal course, bring in an expert to inspect the goods he purchased. In marked contrast, the buyer of a building almost invariably would. Certainly in the commercial context, a defect would not be latent if it had been reasonably discoverable by the claimant with the benefit of such skilled third party advice as he might be expected to retain.

(emphasis added)

[38] So, on that view, “a defect is not latent if it is discoverable by the exercise of due diligence whether or not due diligence was in fact exercised”.²⁶ The Court of Appeal agreed with the trial Judge that the plaintiffs had had a reasonable opportunity to inspect the building before they took the lease, and that, in accordance with normal practice, the plaintiffs as incoming tenants had arranged to have the building inspected by a surveyor. Their surveyors did not advise them properly; but the reasonable opportunity for inspection that should have unearthed the defect broke the chain of causation and relieved the architects of liability.²⁷

[39] English authorities on negligence for defective buildings should be treated with caution, however, because of the divergence between the English and New

_{Zealand cases (as discussed by the Privy Council in Hamlin}²⁸_{). If the definition of a}

²⁵ _{Baxall Securities Ltd v Sheard Walshaw Partnership [2002] EWCA Civ 09.}

²⁶ _{At [52].}

²⁷ _{At [54].}

²⁸ Hamlin, above n 13, at 519.

latent defect in Baxall is accepted as sound in New Zealand it might support the defendants’ contention that the defects were patent in that they could have been identified by an expert. That would not be the end of the inquiry, however, because other questions have to be answered. What level of inspection would the defendants have reasonably anticipated purchasers of C-Vu units to undertake? By whom? Is the test what a reasonably informed lay person would notice? Or a duly qualified engineer?

Additional consideration: the Court of Appeal’s subsequent judgment in Westland

District Council v York

[40] In addition to arguing that there was a good prospect that Associate Judge Christiansen’s decision would be overturned on review on the basis of errors in his reasoning, Mr Mills QC submitted for the defendants that the recent judgment Court of Appeal judgment Westland District Council v York,²⁹ delivered after the judgment of Associate Judge Christiansen in this case, justifies further consideration of the defendants’ arguments in a review under r 2.3. Counsel argued that Westland confirms as valid the approach which was rejected by the Associate Judge as to the time at which the plaintiffs’ cause of action arose in this case and that an application

of this approach would have led, and would lead on review, to a different outcome.

[41] The background to the Westland judgment is described by the Court of

Appeal in these terms:³⁰

[1] In September 2005 the respondents settled the purchase of a motel at Franz Josef, having first obtained from the appellant Council a Land Information Memorandum (LIM). The LIM is said to have been negligently prepared, in that it omitted information known to the Council about the location of the Alpine Fault, the damage that the town might suffer from a large earthquake, and a Government suggestion that local authorities should create fault avoidance zones along fault lines. The respondents say that not before November 2010, when the Council first mooted such a zone, did they discover these omissions. A zone was formally notified in 2012. It would affect the motel.

[2] The respondents sued in July 2012. The Council met them with an application to strike the claim out on limitation grounds. David Gendall J dismissed the application, and the Council now appeals.

²⁹ _{Westland, above, n 9.}

³⁰ Footnotes omitted.

[3] The respondents say they suffered economic loss through diminution in the motel’s market value. The appeal turns on when they suffered it. The Council says, accepting the pleaded facts for present purposes, that they must have suffered loss by 30 September 2005, when they paid more for the motel than it was worth. If so, the six-year limitation period in the Limitation Act 1950, which still governs this case, bars their claim. The respondents say that they suffered no loss until the property market responded to the information omitted from the LIM, and that did not happen until, at earliest, November 2010. If so, they brought their claim within time.

[42] The Court made the following general statements of principle:³¹

[13] A cause of action accrues only when the material facts necessary to establish all of its elements are present. Loss attributed to the breach of duty is an element of this cause of action. For accrual purposes the loss must be material, but it need not be complete, or readily measured. We assume that the omitted information affected the market value of the motel, but the loss was not experienced, as a matter of fact, until the information was first revealed in November 2010.

[14] The respondents claim that they suffered loss not with the transaction but later, when the market learned of the omitted information: put another way, until the information became public the motel was not worth less than what they paid for it. They characterise the case as one of contingent loss, the contingency being the market’s discovery of the omitted information. The Council responds that the case is materially indistinguishable from Marlborough District Council v Altimarloch Joint Venture Ltd, in which the Supreme Court held that the purchasers’ loss from a negligently prepared LIM was suffered when they committed themselves to a price exceeding the property’s actual worth. The occurrence that caused loss having happened, the Council says, time began to run whether or not the respondents knew it.

[43] The Court held that the attempt by the plaintiff respondents in Westland to invoke reasonable discoverability as the time at which the cause of action arose, in reliance on Hamlin, failed inevitably because the damage alleged in Westland was not latent. Furthermore, applying ordinary principles, the Court said that, absent latent damage, a plaintiff in tort cannot meet a limitation defence by saying that it knew nothing of the damage at the time because the cause of action accrues when the

material facts occur, not when the plaintiff first learns of them.³²

[44] In Westland, the omitted information was in the Council records all along and was not unique to the property the subject of the proceeding. The defect and the

_{Council’s alleged negligence, therefore, were patent. On that basis, the Court of}

³¹ _{Footnotes omitted.}

³² At [21].

Appeal held that the Supreme Court’s decision in Altimarloch³³ was not distinguishable. On the pleaded facts of what was clearly a transaction case, the Court held that the plaintiff respondents suffered material loss when they bought the motel at a price which exceeded its worth. That loss was suffered, at the latest, on 30

September 2005, meaning that the claim had been brought out of time.

[45] Mr Kohler QC argued for the plaintiffs that the Westland judgment is not directly relevant because, as the Court said, it was a transaction case and this is a building negligence case coming within a different category. The release of the Court’s decision in Westland cannot alter the nature of the defendants’ argument as speculative, because at best the Court of Appeal’s approach would have to be applied by analogy; it is not directly on point. I agree.

Conclusion on strength of defendants’ legal arguments

[46] For these reasons, I consider it to be far from clear as a matter of law and evidence that the plaintiffs’ right to sue on the basis of negligent design accrued when the C-Vu drawings were submitted to the council or incorporated into the building. The defendants point only to arguably analogous decisions to support their point, rather than to any authority which makes it clear that the plaintiffs cannot succeed. The bar for striking out a claim is deliberately set high and the issues in this case are legally and factually complex; they arise in an important and developing area of law. All of this goes to show that the Associate Judge was right to conclude that the points raised by the defendants should properly be left for determination at trial.

Other factors

[47] Looking at the matter on a broad “interests of justice” basis, I take into account the consequences of my decision on the leave application for each of the parties. It is relevant to the exercise of the Court’s discretion under r 2.3 in this case

_{that the refusal to allow leave to review will not deprive the defendants of a pre-trial}

³³ Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR

726.

challenge to Associate Judge Christiansen’s judgment; the defendants have applied for a recall of that judgment, that application being set down for hearing on

28 April 2014. The defendants will have an opportunity at that time to endeavour to persuade Associate Judge Christiansen that he would have decided differently had the Westland case been available to him, or that there are other errors in his judgment requiring him to recall it and come to a different decision.

[48] And it goes without saying that declining the application for review does not deprive the defendants of the opportunity to argue at trial the limitation defence which they regard as so compelling. While I accept that a refusal to strike out these claims is inconvenient for the defendants in that they will have more claims to defend at trial, I do not think that factor outweighs the consequences for the plaintiffs of allowing a review to proceed in circumstances where it does not have a strong prospect of success.

[49] There is a large number of defendants in the proceeding and the plaintiffs will be required between now and 14 July 2014 to continue their preparation for trial. The purpose of limitation periods for bringing interlocutory applications is to ensure that parties have a reasonable time before trial, free of the distraction of interlocutory proceedings, to prepare their case. To adopt a point made by Associate Judge Bell in another case,³⁴ it is wasteful and inefficient for the parties to be involved in interlocutory skirmishing when they should be preparing for a lengthy trial involving a large number of parties which is due to begin in only three months’ time.

Decision and costs

[50] For all of these reasons I am firmly of the opinion that the interests of justice will not be served by granting leave under r 2.3. That being my view, it is unnecessary for me to consider the plaintiffs’ alternative argument under r 7.7. I dismiss the application and direct that the tentative fixture for the review on 26 and

_{27 May 2014 be vacated.}

³⁴ Mu v Body Corporate 31241 [2012] NZHC 22 at [13].

[51] The plaintiffs are entitled to costs in respect of the application for leave to review. They are to be fixed on a category 2B basis, with disbursements as fixed by the Registrar. If the parties cannot agree, the plaintiffs shall file and serve a costs memorandum on or before 5 May 2014; the defendants shall have until 26 May

2014 to file and serve a memorandum in reply. Costs shall then be determined on the papers.

.....................................

Toogood J