First published NZLawyer, 11 December 2009.
The Supreme Court has confirmed that the Commerce Commission is subject to the three year limitation period in s 43 of the Fair Trading Act 1986 (FTA) when it brings proceedings for compensation on behalf of consumers.
In its recently released decision, Commerce Commission v Carter Holt Harvey Limited  NZSC 120, the Supreme Court also provides guidance on what level of knowledge is required for a discovery based limitation period to start to run. This aspect of the decision is significant as it will affect not only the application of the FTA, but also the application of the limitation period in the Commerce Act and potentially the future application of the Limitation Bill, currently before the Justice and Electoral Committee.
The Supreme Court's decision is the latest development in long-running litigation by the Commission against Carter Holt relating to misgrading of timber prior to November 2003. The Commission started investigating Carter Holt in October 2002 and brought proceedings under the FTA in the District Court in August 2005. Carter Holt pleaded guilty and was fined $900,000. Following the conclusion of the District Court proceedings, the Commission brought civil proceedings under the FTA in the High Court in October 2006, seeking compensation for end-users of the timber and Carter Holt's competitors.
Carter Holt applied to have the High Court proceeding struck out on the grounds that it was statute barred under s 43(5) of the FTA, having been brought more than three years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered by the Commission. The strike out application was unsuccessful in the High Court (Commerce Commission v Carter Holt Harvey Limited  1 NZLR 387), but succeeded in the Court of Appeal (Carter Holt Harvey Limited v Commerce Commission  3 NZLR 573). The Supreme Court held it was not sufficiently clear that the proceeding was time barred to justify it being struck out. Accordingly, the decision of the Court of Appeal was reversed.
The key issues for determination by the Supreme Court were, first, whose knowledge is relevant to when time begins to run under s 43(5) – the person making the application (in this case the Commission), or the person who is alleged to have suffered loss – and, secondly, what level of knowledge is required before discovery has occurred and time starts to run.
Whose knowledge is relevant?
Carter Holt argued that the High Court proceeding was time barred because the Commission had discovered the loss or damage more than three years before it brought the proceeding. The Commission argued that its knowledge was irrelevant and that the limitation period ran from the date on which loss was discovered by each person on whose behalf the claim was made (i.e. the end-users and competitors). The Commission's approach was accepted by Justice Asher in the High Court.
The judges in the Court of Appeal took two slightly different approaches. Justice Hammond considered that the relevant knowledge was the applicant's, whether that party was also the loss sufferer or not, whereas Justices Chambers and Baragwanath considered that discovery by either the applicant or the loss sufferer triggered the limitation period in respect of the application.
The majority in the Supreme Court agreed with Justice Hammond. In his judgment for the majority, Justice Tipping said that the relevant person who must discover loss or damage is the applicant for the order under s 43(1), and that the language of the subsection does not suggest any difference between an applicant who is the loss sufferer and an applicant who brings an application on behalf of a loss sufferer. The Court could see no basis for declining to apply the limitation provision equally to the Commission where it is an applicant.
A potential problem with this approach is that a person who is already out of time could simply nominate another person who is not to make the application on their behalf, thereby circumventing the limitation period. However the majority in the Supreme Court considered that a defendant would never be ordered to pay compensation in those circumstances.
In a separate judgment the Chief Justice endorsed the approach of Justices Chambers and Baragwanath in the Court of Appeal that discovery by either the applicant or the loss sufferer on whose behalf the application is brought will trigger the limitation period.
Degree of knowledge required for discovery
The Supreme Court also considered the degree of knowledge necessary to constitute "discovery", and how likely the loss or damage must be before it will be considered to have been discovered.
In his judgment for the majority, Justice Tipping noted four options: mere possibility of loss; likelihood of loss in the sense that loss may well have occurred; likelihood of loss in the sense that loss is more probable than not; and near certainty of loss. His Honour considered that, as the statutory language provided for likelihood as the standard for the discovery of future loss, there was merit in adopting the same standard for past loss. In that context, "likelihood" meant more probable than not (in contrast to the established meaning of likelihood in the context of the Commerce Act 1986 as a real and substantial risk, a standard above mere possibility but not so high as more likely than not). His Honour considered that the concept of probability is "an appropriate standard against which the occurrence of past loss should be measured". Accordingly, time will not start to run until an applicant knows or ought to know that it is more probable than not that loss has occurred.
In reaching this conclusion the Supreme Court chose not to follow the House of Lords' approach in Haward v Fawcetts (a firm)  1 WLR 682. In that case the House of Lords found that time started running under a knowledge-based statutory limitation when it was reasonable for the plaintiff to begin to investigate their potential claim further (this approach is also consistent with the building defect cases, such as Invercargill City Council v Hamlin  1 NZLR 513 (CA)). The majority in the Supreme Court considered that threshold too low to reflect the consumer protection purposes of the FTA. The Chief Justice did not reach a conclusion on the correct test, as she considered it was unnecessary to do so in this case.
The Supreme Court was unanimous in finding that it was not sufficiently clear on the evidence that the Commission had the requisite knowledge more than three years before the proceedings were filed. Accordingly, they dismissed the application to strike-out.
The majority of the Supreme Court's finding that loss must be known to be more probable than not before it is taken to be discovered effectively requires the civil standard of proof to be met before time begins to run and sets a very high threshold for a defendant to meet in a limitation defence.
Whereas the House of Lords' approach would give an applicant three years from the point at which they first became aware of their potential claim to make inquiries and issue proceedings, the Supreme Court has allowed applicants a potentially much longer period as discovery may not occur until an investigation has been completed. The practical effect of delaying the start of the limitation period in this way is that defendants may face lengthy investigations and the prospect of proceedings being commenced against them much later than three years after the conduct in question was committed or first came to light.
This issue is equally relevant to the Limitation Bill. Among the changes the Bill proposes is the introduction of a "late knowledge period" akin to reasonable discoverability. As drafted the Bill does not define "knowledge", nor does it specify the degree of knowledge required before a claimant is taken to know or ought reasonably to know the specified facts. It is therefore likely that, in the absence of amendments to the Bill, the Supreme Court's decision in the Carter Holt Harvey case will influence the application of the Limitation Bill, once enacted.
* Bell Gully is representing Carter Holt in these proceedings and appeared on its behalf in the Supreme Court.