The limitation issue
34 Given the factual chronology, it is hardly surprising that IT Environmental raised a limitation defence. The potential limitation issues are fairly obvious from Joey's pleading. As has already been made clear, however, it does not follow that it is appropriate, or possible, to determine the limitation issues by way of the proposed preliminary questions and on the basis of the pleadings alone.
35 The following matters were either essentially common ground, or were not contested, in relation to the relevant limitation period.
36 First, an action for damages under s 82(1) of the Trade Practices Act was initially required to be commenced within three years after the day on which the cause of action accrued: s 82(2) of the Trade Practices Act. The limitation period was, however, increased to six years by an amendment made by the Trade Practices Amendment Act (No 1) 2001 (Cth). The relevant amendment commenced on 26 July 2001. The relevant savings and transitional provisions had the effect that the six-year limitation period applied to causes of action that accrued before 26 July 2001, but only if they did not accrue more than three years before that date.
37 Second, the relevant limitation period in respect of actions for damages under s 68(1) of the Fair Trading Act was also initially three years from the date on which the cause of action accrued: s 68(2) of the Fair Trading Act. That limitation period was increased to six years as a result of an amendment made by the Fair Trading Amendment Act 2003 (NSW). That amendment commenced on 25 August 2003. The relevant savings and transitional provisions had the effect that the new six-year limitation period did not apply to a cause of action that accrued before the commencement of the amendment, and that the three year limitation period continued to apply in such cases as if the amendment had not been made.
38 Third, the limitation period for a cause of action founded on tort, including negligence, in New South Wales is six years running from the date on which the cause of action first accrued: s 14(1)(b) of the Limitation Act.
39 Fourth, a cause of action based on a contravention of the Trade Practices Act and Fair Trading Act accrues when actual loss or damage is sustained: Wardley at 525.
40 Fifth, a cause of action in tort accrues when "actual loss occurs": D'Agostino (t/as D'Agostino Solicitors) v Anderson [2012] NSWCA 443 at [7] and the cases there cited. Damage which is merely prospective or contingent does not qualify as actual damage for this purpose: Wardley at 531.
41 The critical question on this application is whether it is possible to determine, on the facts as pleaded alone, whether Joey suffered actual loss arising from the alleged misleading and deceptive conduct, or alleged negligence of IT Environmental, at a time more than six years before 21 January 2016, being the date it commenced this proceeding. IT Environmental contended that the answer to this question is "yes" because it is clear on Joey's pleaded case that it suffered loss on the date it exchanged contracts to purchase the property. That was on 25 November 1997, obviously well before 21 January 2010. Joey, on the other hand, contended that it only suffered damage on or after April 2010, when it discovered the "latent defect" in the soil of the property.
42 The answer to this critical question, however, is not as straightforward as either IT Environmental or Joey would have it. There are at least two potential difficulties. The first difficulty, somewhat ironically, is that the precise nature of Joey's damages claim is unclear from the pleadings. The second difficulty concerns whether the authorities relating to latent defects apply to this case or, more particularly, whether the pleaded facts are sufficient to determine whether that is the case.
43 As for the first difficulty, in Wardley, the majority stated (at 527) that the "kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected". The difficulty here is that it is somewhat unclear from Joey's pleaded case exactly what interest Joey alleges was infringed and, more to the point, unclear exactly what economic loss Joey claims that it suffered when that interest was infringed.
44 It would appear to be tolerably clear that, where a plaintiff claims to have been induced to enter into a contract to acquire property by a misrepresentation or negligent misstatement and, as a result, acquires the property at a price greater than the actual value of the property, the plaintiff suffers loss and damage at the time the contract is entered into. It does not necessarily follow, however, that a plaintiff who claims to have been induced to enter into a contract to acquire property by a misrepresentation or negligent misstatement necessarily suffers, or claims to have suffered economic loss of that type at the time they entered into the contract. That proposition was effectively rejected by the majority in Wardley at 528, 531-532; see Christopoulos v Angelos (1996) 41 NSWLR 700 at 704. The question whether the plaintiff suffered loss of that type at the time of entry into the contract will depend not only on the precise way that the claim is framed, but also on the evidence.
45 IT Environmental's contention that Joey suffered damage when it entered into the contract to purchase the property, allegedly having been induced to do so by the misleading and deceptive statements, or negligence, of IT Environmental, assumed that Joey's pleaded case is that it suffered damage upon entering into the contract because the property was worth less than it paid for it. Nowhere in the pleading is that alleged by Joey. Indeed, as has already been noted, Joey's pleading provides no particulars whatsoever of the nature of the loss or damage it claims to have suffered.
46 Nor can it necessarily be assumed, in the absence of any evidence, that the property was in fact worth less than what Joey paid for it by reason of the contaminated soil. Even though Joey's case appears to be that it entered into the contract in the belief that the land was fit for a residential development without the need for any further remediation works, it does not necessarily follow that it paid more than the true value of the property. This case is far removed, at least at this stage, from HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640, one of the cases relied on by IT Environmental. In that case, there was unchallenged evidence that the plaintiff was worse off on exchange of contracts or settlement because the market value of the property purchased by the plaintiff as a result of the defendant's breach was less than the price paid by the plaintiff: see HTW Valuers at [28]); see also Hutchinson v Equititour Pty Ltd [2011] 2 Qd R 99 at [35]-[36], where there was evidence that the "true value" of the property was less than the price the plaintiff had paid.
47 It is at least possible that Joey's case will be that it was induced by IT Environmental's misrepresentations or negligence to purchase the property for a particular purpose, being to develop for residential uses, and that it only suffered loss and damage when it attempted to apply the property to that purpose and discovered that was not suitable for such a development without further remediation works. It may be no part of Joey's case, and there may be no evidence to suggest, that the property was worth less than the price Joey paid for it. If that turns out to be the case, it may be that Joey did not suffer any loss or damage until February or April 2010, and that its claim is therefore not statute-barred. In those circumstances, Joey's case may be analogous to, and relevantly indistinguishable from, the case considered by the Court of Appeal of the Supreme Court of Victoria in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358.
48 In Peerless, the respondent claimed damages for breach of contract and misleading and deceptive conduct arising from its purchase of machinery (the RTO) on the basis of representations that it was fit for a particular purpose. The appellant contended that the respondent's Trade Practices Act claim was statute-barred because the respondent suffered loss at the time the contract was entered into, which was outside the limitation period. That contention was rejected. Nettle JA, with whom Ashley and Dodds-Streeton JJA agreed, after referring to HTW Valuers and Henville v Walker (2001) 206 CLR 459, said (at [106]):
In the result, I take the law to be that where a plaintiff is induced by misleading and deceptive conduct to purchase an asset for a particular purpose for which it is unsuitable, and there is no evidence that the asset is worth less than the price agreed to be paid for it, no loss is incurred until and unless the asset is applied to the particular purpose for which it is purchased and is as a result found not to be as the plaintiff was induced to believe that it would be.
49 Nettle J rejected the appellant's contention that upon entry into the contract, the respondent was obliged to pay the purchase price and thus suffered loss at that point. His Honour said (at [113]):
On the evidence, there was nothing to show that the RTO was worth any less than the price which the respondent agreed to pay for it. There was no loss necessarily and irretrievably sustained until the respondent incurred the costs of installing and commissioning the RTO for the purpose for which it was falsely represented to be suited.
50 It follows from this analysis that IT Environmental's contention that Joey's case, on the pleadings, is that it suffered a loss when it entered into the contract to purchase the property must be rejected. That is not necessarily the case. Nor is it necessarily the case that Joey in fact suffered a loss at that time on the basis that the property was worth less than what Joey paid for it. That may turn out to be the case, but that will depend on the evidence. For the purpose of this application, there is no evidence, or assumed or agreed fact, that the "true value" (cf. Hutchinson at [35]-[36]) of the property was less than what Joey paid for it. Nor can that be inferred or assumed. On the present pleadings, it is at least open to Joey to contend that it only suffered loss and damage when it expended money on the remediation works after it ascertained that, contrary to the alleged representation by IT Environmental, such works were necessary for the property to be fit for residential use. Whether that turns out to be the case, and whether Joey is ultimately able to make out such a case, will depend on the further particularisation of Joey's case, and the evidence that is led at trial.
51 The second difficulty for IT Environmental relates to the cases concerning latent defects. It is well established that in tort cases and, it would appear, in cases involving misleading and deceptive conduct in contravention of the Trade Practices Act, time commences to run when damage is suffered and that the cause of action accrues at that time, even if the plaintiff is unaware that damage has been suffered: Hawkins v Clayton (1988) 164 CLR 539 at 561-562, 587-588, and 599-602; Wardley at 540, 554-555; Commonwealth v Cornwell (2007) 229 CLR 519 at 523; Christopoulos at 703; Scarcella v Lettice (2000) 51 NSWLR 302 at [15]; Peerless at [108].
52 It is, however, equally well established that where an owner suffers economic loss because of the existence of latent defects in a building, loss or damage only accrues when the defects become manifest or are otherwise discovered, and not before: see Scarcella at [16] and the cases there cited. That principle has been extended to cases involving latent defects in title: Christopoulos at 705; Registrar-General v Cleaver (1996) 41 NSWLR 713; but only in cases where the defects in title would not be discoverable by normal conveyancing procedures; Scarcella at [22], [32].
53 The rationale behind the principle may be traced back to the judgment of Deane J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503-505, where his Honour said:
… the respondents' claim … is for the loss or damage represented by the actual inadequacy of the foundations, that is to say, it is for the cost of remedying a structural defect in their property which already existed at the time when they acquired it … It is arguable that any such loss ... should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid … than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations is neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations. The alternative, and in my view preferable, approach is that any loss … involved in the actual inadequacy of the foundations is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs.
54 In Christopoulos, which concerned a latent defect in title, Handley JA said (at 705):
The courts have been endeavouring to work out the relevant principles in the area of tortiously caused economic loss on an incremental, case by case basis. There is no general principle that loss is not incurred until it is discovered or discoverable, but in some cases that is when loss is first incurred. A clear rule has been laid down for loss caused by latent defects in buildings and a close analogy exists between such cases and the present.
55 Joey contended that the principle concerning latent defects may apply to a latent defect in the nature of contaminated soil, even if that may involve an incremental extension of the principle. It submitted that if it is assumed that it relied upon IT Environmental's report to satisfy itself as to the suitability of the property before it purchased it, it is reasonable to assume that a subsequent purchaser may also have been similarly satisfied. In those circumstances, so the argument went, Joey could have sold the property at full value before it discovered the contamination and would not have incurred any loss.
56 IT Environmental, on the other hand, submitted that Joey's submission in that regard was akin to the argument that was rejected in Scarcella, where the defect in title was discoverable by ordinary conveyancing principles. In those circumstances, Handley JA said (at [32]):
In my view the chance of avoiding loss which is dependent upon a speculative and improbable breach of duty by the solicitor for a future purchaser should not prevent the recognition of economic loss when an asset with a defective title such as this is purchased for more than its true value.
57 IT Environmental's submission in that regard, however, rather demonstrates the difficulties in dealing with this issue on the basis of assumed facts based on the pleading. The resolution of the issue must depend on the evidence, including the evidence concerning the nature of the property, the nature of the soil contamination, how readily the contamination could have been ascertained by a prospective purchaser, whether it would have been reasonable for a prospective purchaser to rely on the IT Environmental report without making independent inquires or seeking independent expert advice, and similar such matters. It is neither appropriate nor possible to resolve this issue on the basis of the pleaded facts alone. It also should be noted, in this context, that real issues may arise at the trial, when all the evidence is adduced, as to whether the contaminated soil on the property could in any event be considered to be a latent defect, in the sense that it was not discoverable with reasonable diligence. But again, that is an issue for the trial.
58 The principles relating to limitation issues in cases involving, or potentially involving, latent defects are by no means easy to apply, even in cases where the evidence and facts are settled: cf. Melisavon at [70]-[72]. Needless to say it is even more difficult to see how the principles could readily be applied in a case involving the determation of separate questions on the basis of assumed, but incomplete, facts.