PULLAR V THE SECRETARY FOR EDUCATION CA CA206/06

PULLAR V THE SECRETARY FOR EDUCATION CA CA206/06 6 September 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA206/06 [2008] NZCA 389BETWEEN JOHN WILLIAM PULLAR AND MARY PULLAR Appellants AND HER MAJESTY THE QUEEN, ACTING BY AND THROUGH THE SECRETARY FOR EDUCATION Respondent Hearing: 8 August 2007 Court: Glazebrook, Chambers and Robertson JJ Counsel: G Brittain for Appellants F C K Wood for Respondent Judgment: 6 September 2007 at 10 amJUDGMENT OF THE COURT A The appeal is allowed. B The appellants' claim for summary judgment against the respondent is granted. C The appellants are entitled to costs in the High Court, such costs, in the absence of agreement, to be fixed in that court. D The respondent must pay to the appellants, by way of costs in this court, $6,000, plus usual disbursements.REASONS OF THE COURT(Given by Chambers J)A leaky school building[1] In August 1995, the Ministry of Education and J W Pullar Building Contractors entered into a fixed price construction contract. (It appears to be common ground that J W Pullar Building Contractors is a trading name for John and Mary Pullar, the appellants.) The Pullars agreed to construct a library and administration building for Ruatoki School. The building was completed approximately a year later. [2] In October 1997, Mike Barns, of Mike Barns and Associates, the architects retained by the Ministry of Education, wrote to the Pullars requesting repair of "leaking windows, plaster and paint work to the exterior and damage to the carving wall delamination". Mr Barns complained that he had asked for this work to be undertaken in December the previous year, but ten months had now passed and the repairs had not been attended to. Mr Barns said he had contacted one of the Pullars' subcontractors to assess options for the repairs. Apparently, that subcontractor had outlined "a possible course of action". The Pullars promptly responded that they did not consider themselves liable for the repair work. [3] The following year, the Ministry asked Paul Barnett to do a report as to all the defects that had emerged in the building. Mr Barnett inspected the building and produced a report. It detailed the defects and recommended remedial work. [4] The Ministry, despite receiving that report in late December 1998, did not send it on to the Pullars until October the following year. Mr Pullar replied on 30 October 1999. He again denied any liability for the complaints outlined in the report. [5] The Ministry commissioned a follow-up report from Davis Langdon Knapman Clark, quantity surveyors. In November 1999, Paul Maynard of that firm recommended remedial work "along the lines indicated in Paul Barnett's report" of the previous December. The Ministry then engaged other contractors to carry out that remedial work.[6] On 17 May 2005, the Ministry filed a claim against the Pullars and Mr Barns's company. The claim against the Pullars was in negligence. No claim was brought against them in contract because everyone agrees it would have been time-barred. [7] The Pullars then applied for summary judgment against the Ministry. They argued the Ministry's claim against them must fail. First, they argued they were not under any duty of care to the Ministry. Secondly, they said in any event the claim in negligence was time-barred, just as any claim in contract would have been. [8] That application was heard by Associate Judge Abbott. He dismissed the Pullars' application: HC ROT CIV 2005-463-323 1 September 2006. He held it was arguable the Pullars did owe a duty of care, even though he thought the nature of the duty inadequately pleaded. He also considered that the Ministry might be able to show that its cause of action did not accrue until after 17 May 1999 (i.e. within the six year limitation period). [9] The Pullars have appealed against that decision.Issue on the appeal[10] The appeal, as filed, raised two issues. The first was whether the judge was right to find it arguable that the Pullars as builders owed a duty of care to the Ministry. The second was whether the judge was right to find the claim was arguably within time. [11] Because of the view we take on the second issue, we do not need to consider the first. We have no doubt that this claim (even if a good one) was time-barred, with the consequence that summary judgment should have been entered in the Pullars' favour.The claim is time-barred[12] On the limitation question, counsel were agreed on the applicable law. Mr Wood, for the Ministry, noted the relevant statutory provisions, namely s 4(1) ofthe Limitation Act 1950 and s 393(1) of the Building Act 2004. He then cited, as the leading authority, the Privy Council's judgment in Invercargill City Council v Hamlin[1996] 1 NZLR 513, which had been approved by the Supreme Court in Trustees Executors Limited v Murray (2007) 8 NZBLC 101,945. [13] It is now well established that, where through negligent construction, design, or inspection, damage occurs in a building, its cause being obvious, any cause of action which may exist accrues when the damage becomes manifest. That is because from that point economic loss occurs, as the market value of the building would then be affected. [14] Sometimes, of course, damage may manifest itself, but the reason for the damage may not be immediately apparent. For instance, there may be cracks, but no one initially appreciates they are anything but normal shrinkage cracks. It is only subsequently that it is realised the cracking has a latent cause, namely defective foundations. In these cases involving a latent cause, the cause of action accrues, the Privy Council said, when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert. Because of its importance, we set out the following rather lengthy passage from the Privy Council's judgment at 526:The plaintiff's loss occurs when the market value of the house is depreciated by reasons of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss. Thus in the common case the occurrence of the loss and the discovery of the loss will coincide. But the plaintiff cannot postpone the start of the limitation period by shutting his eyes to the obvious. In Dennis v Charnwood Borough Council [[1983] QB 409] a case decided in the Court of Appeal before Pirelli [[1983] 2 AC 1] reached the House of Lords, Templeman LJ said at p 420 that time would begin to run in favour of a local authority: " if the building suffers damage or an event occurs which reveals the breach of duty by the local authority or which would cause a prudent owner-occupier to make investigations which, if properly carried out, would reveal the breach of duty by that local authority." In other words, 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. Their Lordships do not think it is possible to define the moment more accurately. The measure of the loss will then be the cost of repairs, if it is reasonable to repair, or thedepreciation in the market value if it is not: see Ruxley Electronics and Constructions Ltd v Forsyth [1995] 3 WLR 118. This approach avoids almost all the practical and theoretical difficulties to which the academic commentators have drawn attention, and which led to the rejection of Pirelli by the Supreme Court of Canada in Kamloops [[1984] SCR 2]. The approach is consistent with the underlying principle that a cause of action accrues when, but not before, all the elements necessary to support the plaintiff's claim are in existence. For in the case of a latent defect in a building the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the house is unaffected.[15] We are by no means convinced this was a case of "latent damage". The defects were readily apparent as early as 1997, indeed perhaps late 1996. There was no mystery about what was wrong. Mr Barns wrote to Mr Pullar in October 1997 asking him to return to fix the leaking windows and the other damage to which he referred. We strongly suspect that any cause of action in negligence had accrued by then. [16] But, even if we are wrong about that, there can be no doubt whatever that a cause of action had definitely accrued by the time of Mr Barnett's inspection and report of December 1998. We do not need to ask, in Hamlin terms, whether "any reasonable [building] owner" would or should have called in "an expert" by then: the Ministry after all had called one in. The defects were obvious. So was the remedial action required. [17] Mr Wood attempted to argue that time did not start running until the quantity surveyors reported in October 1999. We do not accept that. Certainly, that report was more detailed than Mr Barnett's had been the previous year, but the essential problems were the same he had identified. Indeed, Mr Maynard expressly acknowledged in his report "the report prepared by Paul Barnett dated December 1998". He added: "This report acknowledges the items set out in that report and expands further as set out below." [18] Associate Judge Abbott considered time might not have started to run at the time of the Barnett inspection because "there was still some uncertainty, at the time, as to the extent of the problem": at [65]. He also noted that Mr Maynard, when reporting in November 1999, "remarked even then that the full extent of any damage would not be able to be assessed until areas were opened up": at [66]. The judge felt unable todetermine when damage became reasonably discoverable. He held that could be determined only "after full trial": at [70]. [19] With respect, the judge applied the wrong test. It is not necessary, in order for time to start running, to be able to pinpoint with precision the exact cause of every defect. Indeed, that would frequently mean time could not start running until the remedial work was under way! That would in turn mean that the building owner could not sue the builder in advance of the repair work as no cause of action would have by then accrued. That is not and never has been the law. What one is concerned to ascertain is when economic loss occurred: when was the market value of the building affected? We suspect the market value of this building was affected back in 1997. But it was clearly affected by the time the Barnett report was prepared in December 1998.Conclusion[20] For these reasons, we are satisfied the Ministry's claim against the Pullars was time-barred. Even assuming the Ministry did have a cause of action in negligence against the builders, that cause of action accrued well before 17 May 1999. Accordingly, the High Court should have granted the Pullars' summary judgment on the basis that they had a limitation defence. [21] We allow the appeal. We grant the Pullars summary judgment against the Ministry.Solicitors: Buddle Bentley Tweed, Whakatane, for Appellants Davys Burton, Rotorua, for Respondent