LIM Reports - Increasing risk for local Councils

Monday May 7, 2012

The recent Supreme Court decision in Marlborough District Council v Altimarloch Joint Venture Ltd, relating to local authority liability for providing incorrect information in LIMs, may well result in increased litigation for Councils.

This case involved the sale of a block of land in Marlborough by Mr & Mrs Moorhouse to Altimarloch Joint Venture Ltd (AJV).  AJV proposed to establish a vineyard on the property.

In the course of the sale, the real estate agents and the vendors' solicitors misstated the amount of water available to the land pursuant to various water rights. 

Prior to the agreement becoming unconditional, AJV had obtained a LIM report from Marlborough District Council.  The LIM contained the same mistake about the water rights.

Because of the proposed use of the land, the availability of water was important to the purchaser.  However, the mistake about the quantity of water was not discovered until after the sale had been completed and vine planting had commenced. 

AJV brought proceedings against the vendors (in contract and tort) and the Council (in tort) seeking damages relating to the shortfall in water supply. Tort law deals with situations where a party's negligence unfairly causes someone else to suffer loss or harm

In the High Court, it was found that the Council was equally liable with the vendors.  The Court of Appeal upheld the High Court's equal apportionment of damages, but only in respect of the Council's liability on the tortious measure of $125,000.  Accordingly, following the Court of Appeal determination, the Council would pay $62,500 and the vendors $993,407. 

The appeal was brought by the real estate agent and the vendors' solicitors.  Because of the damages claim against the vendors, the real estate agent and the vendors' solicitors would have to indemnify their client. This was given that fault lay ultimately with them. 

The Council also appealed the High Court and Court of Appeal findings that it owed AJV a duty of care.  The Council argued that its negligence caused no loss to AJV. This was because it was accepted that the purchaser would recover in full from the vendors pursuant to the contract. 

There were three key issues considered by the Supreme Court:

  1. Whether or not the Council owed AJV a duty of care when it negligently made the misstatement in the LIM;
  2. Whether the Council's negligence had caused AJV any loss;
  3. Whether the vendors could recover any contribution from the Council towards the amount they were obliged to pay AJV in damages; and

By a majority decision, the Supreme Court held that the damages amounting to approximately $1.1m should be confirmed. 

The primary point of significance in the judgment was the confirmation that local authorities owed a duty of care in respect of the information they were required to include in LIM reports (under s44(2) of the Local Government Official Information and Meetings Act 1987).  In this, the Court was unanimous. It is also likely that the Court will recognise a duty of care in respect of information voluntarily included in LIMs.

The outcome of this case is that Councils will:

  1. Need to take great care to ensure the accuracy of information included in LIMs;
  2. Refrain from including any more information in the LIM than is necessary; and
  3. Look at their charges for LIMs given the case will likely involve increased risk and insurance premiums.