Is the cause of action statute-barred?
33 This brings me to the key question in this case, namely, whether, on any view of the disputed facts, the limitation period must have expired so that paragraphs 15 to 18 do not disclose any reasonable cause of action.
34 The Council invites the Court to assume, for the purposes of determining that matter, that the plaintiffs were unaware of the facts constituting their right to commence proceedings against it for negligence at any time before the filing of the Summons by which the proceedings were instituted. The Summons was filed on 18 July 2000.
35 Section 14(1)(b) causes the limitation period of six years to commence to run on the day on which the cause of action first accrues. As I have mentioned, the cause of action in negligence causing economic loss is complete when the plaintiff first suffers actual economic loss or damage: see Scarcella v Lettice [2000] NSWCA 289, paragraph 13 per Handley JA. The authorities indicate that time commences to run when the damage accrues, even if the plaintiff is not aware of it: Scarcella's case at paragraph 15. However, there is an apparent exception to those propositions where an owner suffers loss because of the existence of latent defect in a building, or because of the existence of a latent defect in title.
36 As far as latent defects in a building are concerned, the position was explained by Deane J in Sutherland Shire Council v Heyman at 503-5, a passage quoted in Scarcella's case at paragraph 16. What emerges is that the fundamental question for the Court is to identify when the loss has occurred.
37 In the case of economic loss relating to a latent defect in a building, the loss does not occur until the inadequacy is first known or manifest. This is because until that occurs, the owner of the building is still in a position to dispose of it for a value not diminished by the defect, assuming of course that the purchaser from the owner would not discover the defect upon making normal inquiries.
38 Precisely the same principle is applied in the cases about latent defect in title. Registrar General v Cleaver (1996) 41 NSWLR 713 is a case where the benefit of a restrictive covenant was recorded on the plaintiff's certificate of title, but the burden of the covenant was not noted on the title of the land burdened by it. Both the land benefited and the land burdened by the covenant changed hands several times after the original mistake occurred. The plaintiffs acquired the property with the benefit of the covenant in 1978, but did not discover the absence of notation on the land burdened until 1988 when the proprietor of the land burdened threatened to breach the covenant. The plaintiffs were unable to enforce the covenant. They sought damages from the Registrar General because of his failure to annotate the register. The Registrar General unsuccessfully claimed that the action was statute barred. The Court's reasoning was that the plaintiffs' cause of action was not complete until the omission of the register was discovered because that was the time when the plaintiffs first suffered economic loss. They could, until that time, have resold the property for its full market value. A title search by someone aware of the existence of the covenant and the land benefited by it, would have disclosed the defect in title, but conveyancing practice did not require that such a search be made in connection with the sale and transfer of the burdened land.
39 Christopoulos v Angelos (1996) 41 NSWLR 700 is slightly closer to the present circumstances. In that case the plaintiffs purchased property that was subject to an easement not recorded on the certificate of title to that property. However, the easement was recorded on the certificate of title of the dominant tenement. The plaintiffs had no actual or imputed notice of the easement at the time of the purchase. As with Cleaver's case, the existence of the easement could have been discovered by a search of the title to the dominant tenement, but conveyancing practice did not require searches to be made of the dominant tenement, or of unregistered easements, in connection with the sale and transfer of the servient tenement. The difficulty for the plaintiff was that s 42(1)(b) of the Real Property Act 1900 (NSW), the fundamental provision dealing with indefeasibility of title to Torrens land, provides that the title of a registered proprietor is subject to an unregistered easement created in or existing upon the land. The Registrar General recorded the easement on the plaintiffs' certificate of title about four years after the plaintiffs had become registered as proprietors. The Court of Appeal by a majority held that the plaintiffs did not suffer economic loss until the Registrar General recorded the easement on their title and they became aware that their land was burdened by it.
40 As with Cleaver's case, the reasoning was that until that time the plaintiffs could have resold their property for its full market value. If they had done so, they would not have incurred any economic loss. Consequently, economic loss only occurred at the point of time when the Registrar General acted and they became aware. The conclusion reached by the majority of the Court of Appeal was that the action (based on negligent misrepresentation), was not statute barred. I note that, according to the majority reasoning (per Handley JA at 703C, Cole JA at 711C), the plaintiffs would not have suffered any economic loss had they resold the property for its full market value in good faith before discovering the defect.
41 In the present case the economic loss flows from the conveyance by the Council of the two parcels of land by conveyances dated 9 February and 13 April 1993. The Council submits that the cause of action was complete upon delivery of the Deeds of Conveyance. It was the Council's conveying away of the land that caused the plaintiffs to suffer loss, and that occurred more than six years before the commencement of the proceedings. The plaintiffs submit that, by analogy with the latent defect cases, the cause of action for economic loss did not accrue until 1997 at the earliest, when one of them became aware that the Council had purported to make the conveyances.
42 In my opinion, the Council's submissions are correct on this point. This is a case where the loss was caused by the conveyances even though the plaintiffs were not aware of them. It is true that, the land being old system land, the plaintiffs might have purported to convey it for full value after the date of the conveyances by the Council. I have no evidence before me as to the proper conveyancing practice, but I am prepared to assume (indeed I am invited to do so, in effect, by the Council) that proper conveyancing practice would not have led to discovery of the conveyances by the Council if the plaintiffs had sold after April 1993. However, had they sold, they would have acted at a time when the conveyances by the Council were an established fact. Assuming (as the cause of action in negligence necessarily does) that the conveyances were effective, they operated to dispose of the title to the land the subject of the conveyances. A later purported conveyance would necessarily have failed to convey any title: nemo dat quod non habet. Therefore, a subsequent purchaser from the plaintiffs would have had a cause of action to recover an amount equivalent to the purchase money and other consequential loss from the plaintiffs, once the truth came out. There would surely be a high likelihood that the purchaser would seek recovery of the purchase price after discovering that the vendor had no title whatsoever. In those circumstances, any apparent avoidance of loss by the plaintiffs, if they had innocently purported to sell the land after April 1993, would have been likely to be corrected subsequently by a suit for damages brought by the purchasers from them. That prospect would be more than a mere contingency.
43 This is the crucial distinction between the present case and the Christopoulos case, for in Christopoulos , as I have emphasised, the Court of Appeal found that until the plaintiffs became aware of the defect they could have resold the property for its full market value and, thereby, avoided any economic loss. This implies that in the majority's view, the prospect that a purchaser from the plaintiffs might sue them for damages for breach of warranty as to title (or, as in the Christopoulos case itself, for negligent misrepresentation in replies to requisitions) once the easement was discovered, should not be taken as sufficiently likely that the plaintiffs in that case should be regarded as able to sell only for a discounted price. Where, as here, the plaintiffs have no title whatever to convey to a purchaser, it is in my view unrealistic to proceed on the basis that they could convey away property that they did not own for a market price and retain the purchase money, and thereby avoid loss.
44 On this analysis, therefore, the economic loss asserted by the plaintiffs in paragraphs 15 to 18 of the Statement of Claim was suffered by them by virtue of the delivery of the Deeds of Conveyance in February and April of 1993. Upon the principles that I have set out, time commenced to run under s14(1)(b) at that stage, and the limitation period has expired. Therefore, even assuming the facts to be at their most favourable for the plaintiffs, the cause of action in paragraphs 15 to 18 cannot succeed because of the limitation period, and, in my view, the Council has made out its entitlement to relief.
45 In response to a question by me during the course of argument on 14 November, counsel for the plaintiffs said that he wished to rely upon s 56 of the Limitation Act, though he was unable to make any submission in respect of it at that stage.
46 Section 56 has the effect that where there is 'a cause of action for relief from the consequences of a mistake', the time which elapses after the limitation period commences to run and before the day upon which the plaintiff first discovers (or may with reasonable diligence discover) the mistake does not count in the reckoning of the limitation period.
47 If this section were applicable, it would have the effect that the cause of action in paragraphs 15 to 18 would commence to run no earlier than 1997 (on the plaintiffs' version of the facts), or no earlier than July 2000 (on the assumption the Council invited the Court to make).
48 In my opinion, however, this section does not apply. It is applicable only where the cause of action seeks relief from the consequences of a mistake. The cause of action in the present case seeks relief from the consequences of negligence rather than a mistake. It is true that the particulars of the negligence relied upon involve the assertion that the Council made mistakes including the mistake of confusing Lots 17 and 20 in Plan 610 with Lots 17 and 20 in Plan 967412, but the gist of the cause of action is negligence rather than mistake.
49 During argument, I led counsel for the plaintiffs to believe that he would have the opportunity to make submissions about s 56 and to refer the Court to any relevant authorities. In my ex tempore reasons for judgment delivered on 14 November 2000 I indicated that I would give counsel for the plaintiffs the opportunity to make any such submissions in writing by five o'clock on that day, and that I would defer making orders until 15 November 2000. I said that if any submission was made which affected the reasoning set out above, I would give the Council the opportunity to respond. If not, I would proceed to make the orders in chambers. Subsequently counsel for the plaintiffs notified my associate that he had received instructions not to lodge any further submission.
50 It follows from the reasoning set out above that it is strictly unnecessary for me to deal with the alternative submission made by the Council. This is a submission based upon Article 97 propositions 1 and 2 in Bowstead and Reynolds on Agency (16th edition 1996) (see also Sargent v ASL Development Limited (1974) 131 CLR 634 at 658), to the effect that the solicitor Mr Gibson had knowledge of all the relevant circumstances in 1993 and his knowledge should be imputed to the plaintiffs.
51 Suffice it to say that if this were the sole ground upon which the Council had relied, I would not have thought it appropriate to grant the relief which the Council seeks on any of the bases put forward today. This is because the state of knowledge of Mr Gibson as to the relevant issues in 1993 is far from clear, at least on the evidence before me now. In my view, it is just not appropriate to make any determination on that matter in an application of this kind.