Limitation: the importance of searching old paper files
/Daisley v Whangarei District Council [2022] NZHC 1372
Decisions which consider whether a defendant had a continuing duty, and the implications of that for the purposes of a limitation defence do not arise often. The High Court has recently issued such a decision, in a long-running (and high-value) litigation against a local authority. Unfortunately for the Council, a land use consent, going back to 1988, was on their paper files but not recorded in the computer files. It led to the Council overlooking the land use consent, and then prosecuting a landowner for operating a quarry in breach of a resource consent. Ultimately, it also led to the Council being liable in damages to the landowner for in excess of $4m.
In addition to reinforcing the benefit of checking old paper files, the decision also throws up a large number of interesting issues – including causation, quantum of loss and liability for exemplary damages – but this article will focus on the limitation defence. This decision represents one of the few instances where a defendant was found not entitled to raise a limitation defence due to there being breaches of a continuing duty, and/or concealment of the cause of action resulting in the limitation period being postponed.
Background
In 2004, Mr Daisley bought a quarry as part of a farm property near Whangarei. The vendors represented to Mr Daisley, correctly, that the quarry operations had not been challenged or prohibited at any time.
In November 2004, the Whangarei District Council (the Council) provided a LIM to Mr Daisley erroneously stating that no resource consent had been issued. From 2005 onwards the Council continued to deny the existence of a consent, maintaining that the quarry operations were unconsented and unlawful.
From early 2005, it began issuing Mr Daisley with abatement and infringement notices. It took enforcement action in the Environment Court for his asserted breaches of the notices.
In 2006, Mr Daisley applied for a resource consent to carry out quarrying activities and this was opposed by the Council. Meanwhile, the Council also continued with its enforcement action against Mr Daisley.
In 2009, Mr Daisley’s solicitor arranged to inspect the Council’s hard copy files, amongst which a land use consent issued in February 1988 (1988 consent) was found. This was the first time that Mr Daisley knew the consent existed.
In December 2009, the day before an intended mortgagee sale of the farm property, Mr Daisley sold the property to his neighbours at what he said was a “forced sale” price.
Ultimately in 2011, the Council accepted that Mr Daisley did have the necessary consent to operate the quarry and withdrew the enforcement proceedings.
Proceedings against the Council
In August 2015, a month short of six years after the 1988 consent was found, Mr Daisley issued proceedings against the Council alleging various causes of action, including negligence and misfeasance in public office for knowingly and deceptively denying the existence of a valid consent. He claimed that he suffered lost earnings, the loss in value of the business operation, diminution in the value of the farm, and costs associated with resisting the Council’s enforcement actions.
The Council raised a defence under s 4 of the Limitation Act 1950, alleging that the proceeding was time-barred.
High Court Decision
The Council’s duty to keep accurate records was a cornerstone of the High Court decision. Specifically, s 86 of the Town and Country Planning Act 1977 required the Council to keep an adequate and properly annotated record of all consents. When the Resources Management Act came into force in 1991, the statutory obligation to keep proper records was carried over.[1] In addition, the Local Government Act 2002 imposes a general duty on the Council to conduct business in an open and democratically accountable manner.[2]
Mr Daisley argued, as a consequence of these statutory provisions, that the Council had negligently carried out the statutory duty, or was in breach of a common law duty of care. Ultimately, in a detailed judgment, the Court found the Council liable in negligence for failing to exercise reasonable care in keeping the records of the 1988 consent available for inspection, and for failing to provide accurate information about the existence of a consent. It also found the Council guilty of misfeasance in public offence.
Limitation defence
The Court rejected the Council’s limitation defence and held that the Council breached its common law duties to Mr Daisley continuously from 2004 to 2009. The Court considered that the Council first breached its duty to Mr Daisley in 2006, when he applied for a resource consent and the Council failed to discover the 1988 consent. At that point, he sustained immediate damage.
The Court held that it would be artificial to regard the Council’s various denials of the existence of a consent as separate breaches of duty. Therefore, it was satisfied that the Council was continuously in breach of its duties from November 2004 to discovery of the 1988 consent in 2009. Further, the Court was satisfied that Mr Daisley suffered continuing damage or loss from 2006, when the Council required Mr Daisley to notify his resource consent application, until 2011 when the Council withdrew the enforcement proceedings.
On this approach, Mr Daisley’s claim was not time-barred.
Postponement of cause of action based on equitable fraud
The Court also held that the limitation period was postponed under s 28(b) of the Limitation Act by the Council’s equitable fraud in concealing Mr Daisley’s right of action to negligence.
The Court stated that equitable fraud required a wilful failure to disclose information. Non-disclosure is “wilful” if there was both a duty to disclose and knowledge of the facts constituting the cause of action.
The Court found that there was equitable fraud on the Council’s part as it owed a duty to Mr Daisley to disclose the existence of the 1988 consent. Perhaps controversially, the Council was found to be reckless as to the existence of the 1988 consent by undertaking no more than a cursory investigation of its records. This amounted to fraudulent concealment of the existence of Mr Daisley’s cause of action. Accordingly, the limitation period did not begin to run until September 2009 when discovery of the 1988 consent uncovered the Council’s equitable fraud. As the proceeding was filed within six years of that date, it was not time-barred.
Comment (Jonathan Lewis)
An important policy principle underpinning a limitation defence is the need to balance the competing interests of plaintiffs and defendants. While plaintiffs have an interest in keeping the claim alive, defendants wish to avoid being exposed to stale claims. These interests are always in tension.
Here the Court resolved this tension on the basis of the Council’s positive duty to provide accurate information about facts within its possession. It had created ignorance on the part of the plaintiff by its ongoing denial that a consent to operate the quarry existed. When viewed through this lens, it is hardly surprising that the Council was not able to rely on a limitation defence, as to do so would be to take advantage of its own ‘wrong.’
The Council has appealed the decision, so we will have to wait and see if the Court of Appeal takes the same view of the facts and the law.
Jonathan Lewis is an Associate at Fee Langstone
