WANGANUI DISTRICT COUNCIL v MWH NEW ZEALAND LIMITED [2015] NZHC 1198

WANGANUI DISTRICT COUNCIL v MWH NEW ZEALAND LIMITED [2015] NZHC 1198 [2 June 2015]IN THE HIGH COURT OF NEW ZEALANDWANGANUI REGISTRYCIV-2013-483-153[2015] NZHC 1198BETWEEN WANGANUI DISTRICT COUNCILPlaintiffAND MWH NEW ZEALAND LIMITEDDefendantHearing: 10 February 2015Counsel: F M R Cooke QC and D Halliwell for PlaintiffR J Fowler QC and A McIntyre for DefendantJudgment: 2 June 2015JUDGMENT OF ASSOCIATE JUDGE SMITHIntroduction[1] This is an application by the defendant firm of engineers (MWH) to strike out one of two causes of action pleaded by the plaintiff (the Council), on the ground that the cause of action was filed out of time.[2] The Council retained MWH to develop a concept for, and to design, a new sewage/stormwater disposal facility for the city of Wanganui. MWH was also retained to oversee the construction of the system, which included a wastewater treatment plant (the plant).[3] The Council says that when the system was eventually commissioned, it failed: it did not work in accordance with regulatory standards, or meet the normal requirements of a sewerage/stormwater system. There were a number of issues, including an unpleasant odour given off by a contaminant discharged into the water at the plant. The local regional council issued an abatement notice in respect of various ways in which the system failed to meet regulatory standards, and eventually, in 2013, the Environment Court made an enforcement order against the Council.[4] The Council, faced with substantial costs for remediation and repairs, issued this proceeding against MWH on 30 August 2013.The claim and the defence[5] The Council pleads two causes of action against MWH, both in the tort of negligence. First, it says that MWH was negligent in various respects in relation to the concept design for the plant. In a second (and/or alternative) cause of action, the Council pleads negligence in relation to the detailed design and commissioning of the plant.[6] MWH filed a defence on 4 October 2013, in which it denied liability and pleaded a number of affirmative defences.[7] One of those defences is that the Council's claims are statute-barred under s 4 of the Limitation Act 1950, which provides that a plaintiff claiming in negligence must file any court proceeding within six years after the date on which its cause of action arose.The strike-out application[8] On 5 December 2014, MWH made the present application for an orderstriking out the Council's claims.[9] In its notice of opposition, the Council contended that its causes of action didnot arise until MWH's negligence caused it actual loss, and that that did not happen until after 30 August 2007 (the date which is six years before the Council filed its proceeding). The Council also contended that MWH owed it a continuing duty of care in relation to the design of the plant, extending beyond August 2007. MWH'sretainer with the Council continued until 2010, and the Council alleges there were continuing breaches of MWH's obligations up to that date (in particular, in failing to provide appropriate advice to the Council in the course of MWH's oversight of thecompletion and commissioning phases of the project).[10] In addition, the Council contended that the Court cannot properly deal with the limitation issues raised by MWH without having a full understanding of the issues of fact involved, particularly where arguably novel points of law are involved, or the law in respect of limitation is still developing. It would therefore beinappropriate for the Court to exercise its jurisdiction to strike out the Council'sclaims before all of the evidence has been given at trial.Strike-out order sought only in respect of the claim based on negligence in the concept design[11] On 3 February 2015, the Council filed a third amended statement of claim. The amendments made in this pleading led MWH to reconsider its strike-out application, and the application is now pursued only insofar as it relates to theCouncil's first cause of action, relating to alleged negligence by MWH in theconcept design.Background[12] The following background facts are taken from the Council's third amended statement of claim.Relevant consents and permits[13] For some years the city of Wanganui had been serviced by a single combined wastewater and stormwater system that discharged mixed wastewater directly into the Wanganui River.[14] In 1989, the Central Districts Catchment Board granted the Council a right, for two years until October 1991, authorising the discharge of untreated mixed wastewater through a marine outfill located off South Beach, and all discharges into the Wanganui River. One of the conditions attaching to the right required the Council to establish a working party to look into all aspects of wastewater disposal in the city, and to determine a recommended option.[15] The Council applied to the Manawatu-Wanganui Regional Council for a number of regional consents, and various consents or discharge permits were grantedfollowing a hearing in April 1992. The permits were to expire on 1 July 2007, by which date the Council was to have procured the design and implementation of a new wastewater system that would meet the requirements of s 107(1) of the Resource Management Act 1991, and of any relevant regional rules. The discharge permits were also subject to a condition that, at the expiry of the permit, the discharge from the marine outfill would comply with s 107(1), a New Zealand Coastal policy statement to be promulgated by the Minister of Conservation, and all relevant regional rules that followed from the policy statement. Supplementary coastal permits were issued by the Minister of Conservation in June 1992.[16] The combined result of the permits and consents was that the Council had a period of 15 years to carry out the necessary infrastructure works to enable the discharge consent conditions to be met.The development of a concept design for the plant[17] Following the grant of the 1992 consents, the Council began work on the separation of the wastewater and stormwater collection systems, and the construction of an interceptor along the bank of the Wanganui River. MWH was one of a consortium of three consulting engineering firms that provided advice on this stage of the project.[18] In 1998, the Council was ready to consider design options for the plant, and on 17 October 2000 it entered into a contract with MWH to provide consulting advice to a working group the Council had established for the purpose of considering and recommending a concept design for the plant. This contract (the ConceptDesign Contract) required MWH to provide technical support, "build on work doneto date for resource consents, and cross over additional work currently underway", "test options for Wanganui against statutory and consent requirements", "identify the basic technical parameters and basic effluent standards", and "identify possible technology options".[19] The Council says that between 2001 and 2003 MWH provided consultancy advice to the working group relating to the concept design. It provided ten reports to assist the Council during this period, and it designed and recommended a process forevaluating which of the various design concept options for the plant would bestmatch the Council's requirements.[20] The Council applied for and obtained a number of additional discharge consents in 2001. It is not necessary to refer to the detail for the purposes of this decision, except to note that the consents were subject to a number of conditions, including conditions that the discharges, after reasonable mixing, would not cause:(1) the production of any conspicuous oil or grease films, scum, or foams, or floatable or suspended materials; or(2) any emission of objectionable odour; or(3) any conspicuous change in colour or clarity[21] In September 2003, MWH produced a report in which four design concepts for the plant were described and costed. In December 2003, it settled on a new concept design for the plant, described as the "Optimised Lagoon Process", whichincorporated what MWH considered to be the most desirable features of the four design concepts. This new process would involve the construction of two aerated lagoons, which would be designed to allow for sludge to accumulate for a period of 20 years or more without the need for sludge management and disposal.[22] In November 2004, following a peer review process, the Council adopted the Optimised Lagoon Process for the plant.The detailed design and commissioning of the plant[23] The Council entered into a second contract with MWH on 27 June 2005, for the provision of detailed design services. Under this contract (the Detailed Design Contract), MWH agreed to project-manage the construction of the plant and associated works, including the design, contract management, commissioning, and achieving of performance criteria for the plant. MWH undertook to ensure that theproject was designed to best current practice. Its brief required it to confirm the design concept, flows, and loads.[24] Construction of the plant was completed on or about 1 July 2007, on a site alongside Airport Road, Wanganui. Wastewater was then introduced to enable testing and commissioning to commence.[25] Certificates of practical completion for the works were issued by MWH when each works package was completed.[26] Commissioning of the plant continued through to 2010. MWH issued its first draft commissioning report, covering both biological and equipment commissioning, on 19 February 2010. However the Council was unable to successfully achieve the commissioning of the plant at that time.The Council's complaints relating to the concept design[27] The Council alleges that the plant fails to meet the conditions of various permits issued for it, and fails to comply with r 13.13 of the Manawatu-WanganuiRegional Council's Proposed One Plan, in that it produces an offensive andobjectionable odour beyond the boundary of the plant.[28] The first odour complaints linked to the plant were recorded by the Council on or around 30 November 2007. In December 2012, there was a major odour incident affecting the whole of Wanganui city, and on 25 March 2013 the regional council applied to the Environment Court for an enforcement order. That order was granted by the Environment Court in April 2013.[29] The Council says that during the testing and commissioning phase the plantexhibited a number of defects which are attributable to MWH's concept design work. The alleged defects include the failure of the plant to meet the requirements of s 15 of the Resource Management Act, in that the plant:(1) discharges a contaminant into the water without express allowance in a standard, plan or resource consent, contrary to s 15(1)(a). Thecontaminant discharged into the water exceeds resource consent standards; and(2) discharges a contaminant into the air, in contravention of national environmental standards and regional rules, without express allowance in a resource consent, contrary to ss 15(2) and 15(2)(A). The contaminant discharged is said to create an offensive odour, caused by hydrogen sulphide, ammonia, and organic sulphides.[30] The Council also alleges that the plant has insufficient capacity to manage the quantities of sludge produced, such that the Council will be required to carry out regular de-sludging of the plant.[31] The Council alleges that MWH owed it a number of duties of care in relation to the concept design, which MWH has breached. The duties alleged include duties to exercise reasonable care and skill, to ensure that the plant would comply with all applicable laws (and in particular, s 15 of the Resource Management Act), to ensure that the plant would comply with the conditions of various permits and with the relevant parts of the regional council's Proposed One Plan, and to ensure that the plant would be fit for purpose.Remedial work undertaken or to be undertaken by the Council[32] The Council has undertaken temporary remediation measures, designed to mitigate the effect of the offensive odours generated by the plant. It says that the need to undertake such measures did not arise, and was not apparent, until the system failed during commissioning.[33] Remediation measures have included the application of lime slurry to theplant's ponds (by helicopter), the installation of equipment into the pumping station to enable concentrated hydrogen peroxide to be added to the wastewater stream before it enters the plant, and the installation of 450 odour neutralising atomiser heads in a fence around the plant. The Council says that it has incurred costs to date of $3,467,686 in carrying out the temporary remediation work. It says that it will also have to undertake remedial works to the plant itself, and current estimates forthis work are put at not less than $32.3 million. In addition, the Council has had to remove a large build-up of sludge from the plant and dispose of it. Cost estimates for the sludge removal process are put at not less than $4.1 million.Legal principles applicable to strike-out applications made on limitation grounds[34] In Westland District Council v York, the Court of Appeal observed that limitation is ordinarily a trial issue, so that a claim should be struck out on limitation grounds only when it is plainly statute-barred. Courts will hesitate to strike claims out in developing or unsettled fields of law.1[35] The starting point for a Court hearing a strike-out application is that the matters pleaded by the plaintiff should be assumed to be true. While in an appropriate case the Court may receive affidavit evidence on a strike-out application, it will not attempt to resolve genuinely disputed issues of fact. Generally, affidavit evidence admitted on a strike-out application will be limited to matter which is undisputed.2The issues to be determined[36] The following are the issues to be determined:(1) Has the Council sufficiently pleaded that MWH owed an ongoing duty to it in respect of the concept design, extending beyond 30 August 2007 (the date which is six years before this proceeding was commenced), and that a breach or breaches of that ongoing duty occurred after 30 August 2007?(2) If not, is it reasonably arguable that the Council did not suffer loss or damage as a result of any breach by MWH of duties owed by it in respect of the concept design (being a breach which occurred before 30 August 2007) until some time after 30 August 2007?1 Westland District Council v York [2014] NZCA 59, at [10] citing Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 at [4].2 Attorney-General v McVeagh [1995] 1 NZLR 558 at 566 (CA).(3) If the answers to issues (1) and (2) above are both "no", is it reasonably arguable for the Council that the time within which it was entitled to file a proceeding alleging breach by MWH of duties owed to it in respect of the concept design should be extended to the time when loss or damage was first reasonably discoverable by the Council?(4) If the answers to questions (1)-(3) are all "no", is there any reason forthe Court to exercise its discretion against striking out?[37] I consider each of those issues in turn.Issue 1 – Has the Council sufficiently pleaded that MWH owed an ongoing duty to it in respect of the concept design, extending beyond 30 August 2007 (the date which is six years before this proceeding was commenced), and that a breach or breaches of that ongoing duty occurred after 30 August 2007?Limitation of claims brought in negligence – general principles[38] Section 4(1) of the Limitation Act 1950 relevantly provides:34 Limitation of actions of contract and tort, and certain other actions(1) Except as otherwise provided in this Act or in subpart 3 ofPart 2 of the Prisoners' and Victims' Claims Act 2005, the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say,—(a) actions founded on simple contract or on tort:[39] A cause of action accrues only when every fact exists which it would be necessary for the plaintiff to prove in order to support his or her right to judgment.4Damage is an essential ingredient in the tort of negligence, so a cause of action in negligence will only arise when the plaintiff first suffers loss which is attributable to3 Limitation Act 1950, s 4(1).4 Westland District Council v York, above n 1, at [13].the defendant's breach of duty.5 The loss must be material, but it need not be complete, or readily measurable.6The allegations of negligence in this case[40] The Council's allegations of negligence in the concept design are as follows:[59] The defendant has breached its duty of care in that the defendant:(a) failed to exercise reasonable care and skill in performance of its obligations;(b) failed to ensure that [the plant] would comply with all applicable laws and in particular section 15 of the Resource Management Act 1991;(c) failed to ensure that [the plant] would comply with the conditions of permits 101705, 101706, and 101707;(d) failed to ensure that [the plant] would comply with Rule 13.3of Horizons Regional Council's Proposed One Plane or theappropriate rules of predecessor plans; and(e) failed to ensure that [the plant] would be fit for purpose.Particulars[60] The defendant's recommended design concept:(a) Used an optimised lagoon wastewater treatment process, which had not previously been used in municipal wastewater treatment plants and which had no previous track record in producing effluent to the required standards. This recommendation was made at Section 2 of Report 10, prepared by the defendant on or before December 2003;(b) Recommended the use of a single biological treatment lagoon followed by a settling lagoon (with two such set-ups running in parallel). This recommendation was made at Section 2 of Report 10, prepared by the defendant on or before December 2003. This was contrary to standard practice which was to use two or more biological treatment lagoons in series, and meant that the design was inherently susceptible to short circuiting;(c) Relied on a treatment system which placed an aerobic layer directly above an anaerobic layer and therefore relied on providing aeration energy in the aerobic layer whilst at the same time leaving the anaerobic layer undisturbed and5 Davys Burton v Thom [2008] NZSC 65, [2009] 1 NZLR 437, [15].6 Westland District Council v York, above n 1, at [13].therefore which inherently could not accept increases in aeration energy. This recommendation was made at Section 2 of Report 10, prepared by the defendant on or before December 2003. The consequence of this was that [the plant] was susceptible either to insufficient mixing in the aerobic layer or unwanted disturbance of the anaerobic layer.(d) Used a settling lagoon upstream of UV disinfection rather than standard clarifier tank technology. This recommendation was made at Section 2 of Report 10, prepared by the defendant on or before December 2003;(e) Directed storm flows into [the plant] washing out aerobic biomass at the top of the lagoon;(f) Failed to specify an aeration system that would have been a suitable choice for an aerated lagoon, leaving the base of the lagoon and the accumulated sludge undisturbed. This was absent from the process description in Section 2 of Report 10 prepared by the defendant on or before December 2003;(g) Under-estimated the amount of sludge that their recommended design would produce. Specifically, the defendant confirmed in Section 2 of Report 10 prepared by the defendant on or before December 2003 that the working depth of the aerated lagoon and settlement lagoon would enable sludge to accumulate over a period of 20 years, deferring sludge management and disposal for that period. In Appendix 1 and Appendix 2 of Report 10 the defendant used erroneous calculations on which to base this conclusion;(h) Over-estimated the extent to which sludge would consolidate in the base of the lagoon in their recommended design. In Appendix 2 of Report 10 the defendant stated that sludge would densify by approximately 12%, double the actual likely compaction rate of 6%;(i) Failed to contain the minimum three treatment stages-in- series necessary for the adequate treatment of meat processing wastewater. This decision was made at Section 2 of Report 10, prepared by the defendant on or before December 2003;(j) Erroneously presumed that facultative aerated lagoons would not generate odour;[61] Further the defendant failed to prepare a reference case that operated as a suitable concept against which the final recommended design could be compared in accordance with the Project Development and Delivery Processrecommended by the defendant. Specifically, the defendant's reference casefailed to consolidate odour mitigation notwithstanding known incidents at the time of odour emissions from aerated lagoons at Bells Island treatment plant in Richmond. The erroneous conclusion that the reference plant did not have an odour risk was made in Section 3 of Report 4.[62] Further, the defendant failed to advise the plaintiff in a competent and professional manner when relevant issues were raised in the question schedule prepared by the peer reviewers during 2004, and passed to thedefendant for professional advice and guidance. Specifically Submissions for MWH[41] Mr Fowler noted that each of the particulars of breach of duty pleaded at para [60] of the third amended statement of claim refers to a report written by MWH, or to a relevant event, occurring in the period 2003-2004. He submits that the relevant components of the cause of action that are pleaded are the allegedly deficient advices, given on particular dates and in particular reports. There is no pleading of any failure to subsequently correct such advice. A pleading of that sort would require quite different facts and mutual obligations. In those circumstances Mr Fowler submits that the Council cannot succeed based on the assertion of a"continuing duty of care in relation to design": there is nothing pleaded by the Council by way of an assertion that MWH owed ongoing duties in respect of its concept design responsibilities.The Council's submissions[42] In his written submissions, Mr Cooke submitted that MWH had ongoing duties, and that there was a continuing breach by MWH's of its obligations by its failure to provide appropriate advice for the Council even after the system was opened in July 2007, involving overseeing completion and commissioning. He referred to the following passage in Hudson's Building and Engineering Contracts:7The architect is under a continuing duty to check that his design will work in practice and to correct any errors which may emerge. It savours of the ridiculous for the architect to be able to say, as it was here suggested that hecould say: "True, my design was faulty, but of course, I saw to it that thecontractors followed it faithfully" and to be enabled on that ground tosucceed in the action. [Brickfield Properties Ltd v Newton [1971] 1 WLR 862].I consider that the architect was responsible for the design and that that responsibility was a continuing one in the sense that, if he subsequently discovered that what he may initially have been justified in assuming was an adequate design was in fact a defective design, his responsibility remains. [London Borough of Merton v Lowe (1981) 18 BLR 130].7 Nicholas Dennys et al Hudson's Building and Engineering Contracts (12th ed, Sweet & Maxwell, London, 2010) at [2-068].In principle, it would seem that liability should continue until the time of thefinal certificate when the architect's services usually cease. Thus, in a caseof combined design and supervision failure, the breach of duty was said to"occur at the time when the defendant advised the plaintiff that the builder'scontract had been satisfactorily performed, and that she should accept the house, as the house that she had engaged him to design and arrange for. [Edelman v Boehm (1964) 26 SASR 66, South Australia].[43] Mr Cooke submitted that where a design is experimental, or in need of amplification as the construction progresses, an architect should be astute to consider whether his or her design work will work in practice and correct any errors which may emerge.8 He submitted that that principle should, if anything, apply with greater force where the novel design in question is a design of a civic utility, the failure of which will give rise to a public nuisance and a threat to public welfare.[44] Mr Cooke also referred to the Court of Appeal decision in Johnson v Watson, where the Court of Appeal confirmed that a builder who had constructed a leaky building breached continuing duties of care whenever the builder returned to deal with problems with the building, so that breaches of duty arising out of the later attendances were not time-barred.9[45] Mr Cooke's written submissions were generally directed to the strike-outapplication as it applied to both of the Council's causes of action. At the hearing, he rejected MWH's submission that the pleaded breaches of duty on the first cause of action all referred to specific reports or events which must have occurred before 30 August 2007. He pointed to [68(l)] of the Council's third amendedstatement of claim, in which MWH is said to have been negligent in:Failing to advise the plaintiff of the defects in the system, and the implications of its breaches as particularised above.[46] More generally, he submitted that it would be artificial to consider the first cause of action separately from the second cause of action for limitation purposes.He noted that if the Council's statement of claim were drafted again, there would8 Referring to Jackson & Powell on Professional Liability (7th ed, Sweet & Maxwell, London, 2012) at [9-208].9 Johnson v Watson [2003] 1 NZLR 626.probably only be one cause of action. Further, there would be little to be gained in apractical sense by striking out the Council's first cause of action, as the facts relevantto that cause of action will need to be proved at trial on the Council's second causeof action in any event. The trial is scheduled to take place in August of this year, and in those circumstances Mr Cooke submits that the appropriate course is to leave the limitation issue on the first cause of action to be dealt with at trial, where it can be properly considered in the context of all relevant evidence.Discussion and Conclusions on Issue 1[47] I accept Mr Cooke's submission that there is a degree of artificiality inseparating the Council's two causes of action, and dealing solely with the limitation issue as it may apply to the cause of action based on an allegedly deficient concept design. I note that the contract for the detailed design and commissioning work wasmade in June 2005, only a few months after the Council adopted MWH'srecommended concept design for the plant (in November 2004). And one of the responsibilities undertaken by MWH under the detailed design contract included:"Confirm design concept, flows and loads".10[48] While separate contracts were entered into for the concept design and the detailed design and commissioning, the present causes of action are both based in negligence, and it appears from the pleaded terms of the detailed design contract that MWH assumed, from June 2005, an obligation to revisit and confirm its design concept. Particularly in view of the passage from Hudson to which Mr Cooke referred, and the authorities referred to in that passage, it may well be arguable for the Council that, following its entry into the design and commissioning contract, MWH remained under a duty to check that its concept design remained appropriate, and to correct any errors in it.[49] In the end, though, I think the question on the present application is not whether an ongoing duty of care may have been owed, as the Council submits, but whether any such ongoing duty of care (in respect of the concept design) has been pleaded.10 Third amended statement of claim at [48(c)].[50] The Council's particulars of breach at [60] of the third amended statement of claim refer to alleged deficiencies in "the defendant's recommended design concept", and that expression is presumably referable back to para [45], in which it is pleaded that:On or around February 2004 the Optimised Lagoon Process was recommended to the plaintiff which approved the recommended concept design subject to the completion of a peer review.[51] On that basis, the particulars pleaded at [60] are particulars of breaches of duty in the making of a recommendation which was made long before 30 August 2007.[52] Similarly, the allegations at [61] that MWH failed to prepare a reference case that operated as a suitable concept against which the final recommended design could be compared, must necessarily be an allegation of a breach which occurred before 30 August 2007: according to the third amended statement of claim, at [50], construction of the plant was completed on or about 1 July 2007, and the "final recommended design" must necessarily have been completed before then. The pleading is therefore directed to a point in time well before 30 August 2007.[53] The remaining allegations of breach of MWH's concept design responsibilities are set out at [62] of the third amended statement of claim. The particulars set out in that paragraph are all particulars of respects in which MWH allegedly failed to advise the Council in a competent and professional manner on a number of questions put by the peer reviewers during 2004 and passed to MWH for advice. In each case, the particulars plead what MWH's response was to a particular issue raised by the peer reviewers. The introductory part of paragraph [62] makes it clear that the allegations are directed to the manner in which MWH responded to these questions.[54] At [46] of the third amended statement of claim, the Council pleads that thepeer review process was carried out "until November 2004, at which point theplaintiff adopted the Optimised Lagoon Process for [the plant]." The "peer review process" presumably comprised not merely the questions put by the peer reviewers,but also MWH's responses. On the pleading as its stands, those responses wouldhave been made at some time before November 2004 when the Council resolved to accept the recommended concept design, and this is when the alleged breaches would have occurred.[55] I accept Mr Fowler's submission that there is no pleading in the first cause ofaction of any ongoing duty to correct, and no specific breach of such a duty is pleaded. There is a pleading at [68(l)] that MWH failed to advise the Council of the defects in the system, and the implications of its breaches as set out in that paragraph. But that pleading is not in the Council's first cause of action – it is only pleaded in the second cause of action.[56] I accordingly accept Mr Fowler's submission that the Council cannot rely on the "breach of an ongoing duty after 30 August 2007" argument to defeat the strike- out application. The answer to Issue 1 is "no".Issue 2 – Is it reasonably arguable that the Council did not suffer loss or damage as a result of any breach by MWH of duties owed by it in respect of the concept design (being a breach which occurred before 30 August 2007) until some time after 30 August 2007?Submissions for MWH[57] Mr Fowler referred to Invercargill City Council v Hamlin, in which the Privy Council held that the loss suffered by a plaintiff suing for damage caused by defective house foundations occurs when the market value of the house is depreciated by reason of the defective foundations, and not before.11 Lloyd LJ, delivering the judgment of the Board, stated that 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.12[58] Mr Fowler submitted that after the decision in Hamlin, there was some confusion about the approach to accrual, and there were suggestions that the"reasonable discoverability" test should be applied universally. However, that11 Invercargill City Council v Hamlin [1996] 1 NZLR 513 at 526.12 At 526.suggestion was laid to rest by the Supreme Court decision of Murray v Morel & Co Ltd, in which the majority held that there should be no general adoption of the reasonable discoverability doctrine for limitation purposes.13[59] Mr Fowler then referred to the Supreme Court decision in Davys Burton v Thom, in which the Court upheld the contention that actual and quantifiable loss was suffered when the plaintiff obtained a damaged asset (in that case, negligent legal advice on a pre-nuptial agreement). It did not matter that the resultant damage would not become clear until later. The Court in Davys Burton referred to the distinction between contingencies which are relevant to the existence of damage, and contingencies which are merely relevant to the quantification of the damage.14 Mr Fowler referred to the following summary of the position given in the judgment of the Chief Justice in Davys Burton:The cause of action arises as soon as the plaintiff who relied on the advice is"financially worse off", even if quantification is difficult and its measure in a particular case may ultimately depend on further contingencies.[60] Mr Fowler also referred to the recent High Court decision in Smith v Singleton, in which I concluded that the critical question must always be whether on entering into the relevant transaction the claimant can be said to have suffered atleast some "quantifiable damage", or become "financially worse off".15[61] Applying those principles to this case, Mr Fowler submits that therelationship between MWH and the Council was "transactional" in nature, and that the cause of action was complete from the moment the Council received the allegedly defective advice – i.e. in 2003-2004. The Council received something different from what it should have received.[62] Mr Fowler submitted that this is not a claim for economic loss of the kind considered by the Court in Hamlin. The plant was not a property to be bought and sold on a market, where a defect would impact the plaintiff as economic loss caused by discovery of a latent defect. The Council's claim in this case is for lack of fitness13 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.14 Davys Burton v Thom above n 5 at [50].15 Smith v Singleton [2015] NZHC 2672 at [74].for purpose, not for loss of market value. And reasonably discoverability, in theHamlin sense, only applies where there is a contingency which is relevant to theexistence of damage.[63] Nor is this pure contingency case, of the kind considered by the House of Lords in Law Society v Sephton & Co. In that case, it was clear that for any damage to be suffered the relevant contingency had to have occurred. In this case, theCouncil's case is that it received something of lesser value than it was entitled to expect when it received what it says was a defective concept design. Damage occurred at that point, on the basis of the law as discussed in Davys Burton.[64] Finally, Mr Fowler submitted that, following the Supreme Court decisions inDavys Burton and Morel, this is not a case where the law is in a developing, or unsettled state.The Council's submissions[65] Mr Cooke identified the following four categories of negligent advice cases:(1) Cases where the loss or damage is regarded as "transactional", in thesense that the plaintiff suffers some loss, even if it is difficult to quantify, on the entry into the particular transaction or reliance on the particular advice. Davys Burton is an example of such a case.(2) Cases of contingency, when there is no loss unless and until the contingency happens. Law Society v Sephton & Co was a case in this category.(3) Cases where it is necessary to consider the overall benefits and burdens following from negligent advice, before loss or damage can be identified. The category was recognised by the House of Lords inSephton, and reflected in the decision of the High Court of Australia in Wardley Australia Ltd v State of Western Australia.1616 Wardley Australia Ltd v State of Western Australia (1992) 175CLR 514.(4) Cases where reasonable discoverability concepts apply.[66] Mr Cooke submits that this is not a simple transactional case, where loss or damage arose on entry into an identifiable transaction. The case is either one falling into the category of actionable loss only arising when the plant failed, or one in which it is necessary to assess the system overall before it can be said that it was negligently designed and/or constructed. It was not until the system had been operational during commissioning that it was apparent that it did not work in accordance with the regulatory requirements and community expectations, and created a public nuisance. It was only then that the point was reached (the exact timing of which cannot be ascertained in the absence of extensive evidence) that the Council could sue MWH for breach of the duty of care.[67] The Council does not claim a loss in value of a sewage/stormwater treatment plant – the kind of loss recoverable in a transactional case. Here, the loss involves the costs incurred by the Council in responding to the deficient system, including responding to the claims made by the community that the system creates objectionable odours and fails to operate as required.[68] In the alternative, Mr Cooke submits that this is a "benefits and burdens"case, where the Council did receive something of apparent value in the form of MWH's expert advice and a new sewage and stormwater treatment system, and it was necessary to see the system in operation before it could be established that the problems were greater than the apparent benefits of the system. The Council initiallyreceived a benefit in the form of MWH's expert opinions and the new system itself,and the present claim is based on liabilities only incurred by the Council following the failure of the system to work as required. Only then was the Council in a worse position than it would have been if there had been no new system at all.[69] The Council could not have sued in 2003/2004, as MWH contends. Any such claim would have been met by the rejoinder that the system had not even been built then, let alone shown to be deficient. It was only after problems with the system were shown to be beyond system adjustment that the damage/loss was suffered by the Council. Before that time, any claim would have been entirely speculative, in thesame kind of way that the claims in Sephton, Wardley Australia, and Smith v Singleton would have been.[70] This is not an issue to be decided in a summary way on a strike-out application. The issue requires detailed assessment of the evidence to identify the point in time when it can be said that the system failed, and why it failed.[71] Finally, Mr Cooke submits that the law is in a developing, or evolving state.Discussion and conclusions[72] Subject to the possible application of Hamlin, I have no doubt that this case would fall into the "flawed asset" category of case described in Davys Burton. The Council received a defective asset in the form of the negligent advice from MWH on the concept design. On the face of it, that damage was suffered not later than the point at which the Council acted on the advice by adopting the design.[73] I do not see this as a contingency case of the kind addressed in Sephton. There, the existence of any loss was dependent on the contingency of a future event occurring (a claim being made on the relevant fund).[74] I cannot accept Mr Cooke's submission that if the Council had sued earlier, it would have been met with a "no loss" defence. If the Council had discovered sometime during the construction of the plant that the concept design advice was flawed, and that the plant would not meet the relevant regulatory requirements, it surely could have succeeded in a suit against MWH on the basis that it had then suffered quantifiable loss. Potential measures of that loss would have been the Council'scosts incurred in commissioning the defective design and the construction up to that point, and the costs of commissioning another, non-defective, design.[75] I conclude that the Council was immediately financially worse off when it adopted the defective concept design and acted on it by building the plant. All of that occurred before 30 August 2007.[76] If the Davys Burton analysis is applicable in this case, the claim based on negligent advice in the concept design is clearly out of time.[77] The issue, it seems to me, is whether this case should or might be categorised as a Hamlin-type case, where damage does not occur before there is a diminution in value of the relevant property, something which cannot occur before a prospective purchaser would be aware of the relevant defects and be unwilling to pay what would otherwise (if it were not for the now-known defects) have been the market value of the property. Putting the question another way, how does the Hamlinapproach to when loss first occurs sit coherently with the approach to the same issue exemplified in cases such as Davys Burton, Sephton, and Wardley Australia?[78] How far the Hamlin line of authority on the point at which damage occurs extends, is by no means clear. In Murray v Morel, Tipping J left the point open, while making it clear that the concept of the limitation period being governed by"reasonable discoverability" considerations should be firmly confined to the limitedcategories of case to which reasonably discoverability had by then been applied.17But that does not take us much further on the issue of whether the Hamlin line of authority may apply in this case.[79] In Westland District Council v York, the Court of Appeal observed that the reasonable discoverability approach had been restricted in its application to cases concerned with latent defects in buildings and a few other limited classes of case.18[80] In this case, I do not consider that there is sufficient evidence for me to determine finally that the plant does not qualify as a "building" for that purpose, or whether the alleged defects in this case were plainly latent.[81] On the face of it, one might expect that a claim for negligent advice based on documents given to the plaintiff could not be a claim for latent defects. Indeed, it was essentially for that reason that the issue of latency was not a factor inDavys Burton – the Chief Justice noted in her judgment that findings in the District17 Murray v Morel, above n 13, at [55].18 Westland District Council v York, above n 1, at [21].Court had effectively precluded the application of a Hamlin approach, on the basis that the defects in the pre-nuptial agreement were reasonably discoverable at the time of the execution of the agreement.19[82] In this case, I am not sure that a similar conclusion can be reached with any degree of confidence, notwithstanding that the concept design was provided to the Council in writing. I bear in mind that the design in this case was apparently a novel one, with a degree of complexity. A team of peer reviewers apparently did not detect the design defects which the Council says have since come to light. In my view, it would be unsafe on the limited evidence available to me on a strike-out applicationto conclude either that the plant was not a "building", or that any defects in theconcept design should not properly be characterised as latent, so as to engage theHamlin line of authority, and so set back the date from which time began to run against the Council to the point at which the concept design defects would have been reasonably discoverable. There is insufficient evidence for me to conclude that that date might not have been after 30 August 2007. Accordingly, I do not believe that MWH has satisfied the high threshold of showing that the Council cannot succeed on this issue. I consider also that the area of law as to when damage should be deemed to have first occurred is by no means certain. That is also a significant factor pointing against the strike-out application succeeding.[83] Accordingly, I find for the Council on issue 2.Issue 3 – Is it reasonably arguable for the Council that the time within which it was entitled to file a proceeding alleging breach by MWH of duties owed to it in respect of the concept design should be extended to the time when loss or damage was first reasonably discoverable by the Council?[84] In view of my answer on issue two, there is no need for me to make any finding on issue three.19 Davys Burton v Thom, above n 5, at [10].Issue 4 – Is there any reason for the Court to exercise its discretion against striking out?[85] Again, it is not strictly necessary for me to make any findings under this heading. However I consider that there is force in Mr Cooke's argument that there would be very little utility in the Court now striking out the Council's first cause ofaction. The evidence at trial will, of necessity, traverse the facts relevant to both of the Council's causes of action, even if the first cause of action has been struck out. And I consider that the Court's discretion on a strike-out application is broad enough that it may decline to strike out part of a party's pleading where a substantial number of the issues arising on the impugned part of the pleading will need to be addressed in any event at the hearing.[86] The trial is only approximately three months away, and in my view there would be little to be gained by striking out the first cause of action now, rather than having it fully considered by the Court at trial, with the benefit of all of the evidence.Orders[87] The application by MWH to strike-out the Council's first cause of action isaccordingly dismissed.[88] Both counsel invited me to make an order for costs in the event that their client succeeded. Mr Cooke invited me to make an order for costs on a category 3 basis, notwithstanding that the costs categorisation for the proceeding has already been determined to be category 2.[89] While I accept Mr Cooke's submission that there are a number of complex issues in the proceeding, and that the amounts at stake are large, I do not consider that the argument on the limitation point justifies a category 3 award of costs. The submissions were not extensive, and the hearing did not take more than a day. Certainly the issues involving the date at which damage should be regarded as having occurred are not easy, but similar issues arise regularly in the summary judgment/strike-out jurisdiction, and are normally covered by awards of costs on a category 2 basis.[90] I do not see any basis to depart from that approach, at least in respect of the strike-out application. There will be an order for costs on a 2B basis to the Council, with disbursements as fixed by the registrar.Associate Judge SmithSolicitors: