LIM report leads to liability for errors over partial water rights transfer
The recent Court of Appeal case of Vining v Altimarloch  NZCA 104 confirms the long held expectation that councils can be held liable in negligence for errors and omissions in the issue of a LIM report. In Altimarloch the LIM report omitted information about the partial transfer of water rights. This information was known to the Marlborough District Council, but not disclosed in the LIM report. The absence of advice over the partial transfer of water rights was also held to be a misrepresentation by the vendor’s real estate agent and solicitor. The defendants to the proceedings have now sought leave to appeal to the Supreme Court (at the time of writing, a decision on the leave application is awaited). The underlying facts of the case provide a cautionary tale.
In Altimarloch Joint Venture Ltd v Moorhouse (HC Nelson, CIV- 2005-406-00009, 3 July 2008), Justice Wild held that the Marlborough District Council was liable to a purchaser of a farm property for negligent errors in a LIM report. In addition the Court held that the vendor, along with the real estate agent and the vendor’s solicitor were liable in contract for misrepresentation. On appeal, the Court of Appeal upheld the High Court decision, but varied the contributions by which the defendants were liable. The Court held it was not open to the Council to disclaim responsibility or liability for the accuracy of the LIM report.
The facts in Altimarloch
The vendors as owners of a farm in the Awatere Valley in Marlborough known as Altimarloch held three water permits of different natures (class A, B and C) entitling them to take water from a stream, and to store water on the property. In 2001, the owners subdivided the property and sold part to a developer, along with transferring all their class B water take entitlements and half of their class A entitlements. In 2004, the vendors then sold the balance of the property to purchasers who intended to establish a vineyard on the land and who required the availability of water for irrigation. The purchasers were led to believe that all of the class A, B, and C entitlements originally held by the vendor were to be transferred to them on purchase of the balance of the land. It was the class A entitlements which were valuable, as these allowed extraction of water direct from a stream. A water permit granted to take or discharge water may be transferred in whole or in part to any owner or occupier of the site in respect of which the permit is granted: see section 136 RMA.
Among other claims, the purchasers sued the Marlborough District Council alleging a number of causes of action including that the Council was negligent in the preparation of the LIM, which, due to a simple administrative oversight by a Council officer, did not include reference to the 2001 water permit transfers. On the facts, the Council was found to owe a duty of care to the purchaser and to be negligent, in that it had failed to update the details of the water transfer on the relevant Council file.
Section 44A(2) Local Government Official Information and Meetings Act states the matters that must be contained in a LIM, including information “concerning any consent … affecting the land … previously issued by the territorial authority”. Despite water permits being personal in nature and not “attaching to the land” as do land use consents, the Court held that water permits do “affect the land” for the purposes of section 44A(2). The Court accepted the water permits are location and area specific.
A chapter of errors
The Court of Appeal found that the problem arose through the actions of multiple parties:
- In part the error was caused by the way in which the Council kept its records. The Council had changed its filing system. A search of the property file located the three original water permits, but not the transfer of some of the water entitlements. These were now held on a separate resource consent file.
- The Council supplied a LIM report to the purchaser’s solicitors, which attached copies of the class A and class C water permits. The LIM report did not refer to the transfer of half of the class A water entitlements, and, in this respect, was in error. The Council officer issuing the LIM report overlooked the transfer of half of the entitlements associated with the original class A water permit.
Real estate agents for the vendor
- The Court found that at least one of the agents knew that some of the water entitlements had been transferred due to previous transaction. This was also overlooked at the time.
- An office assistant from the real estate agents was asked to make a search of the Council records prior to the issue of the LIM. The assistant carried out a search of the Council’s property files only, not the resource consent files.
- The agent then supplied copies of the three water permits to a consultant for the purchaser, and to the solicitors acting for the vendor. The three permits were attached to the agreement for sale and purchase.
The vendor’s solicitor
- The vendor’s solicitor passed on to the purchaser’s solicitor copies of the water permits supplied to him by the real estate agent.
- Based on the copies of the water permits (supplied to him by the real estate agent, and attached to the agreement for sale and purchase) along with a signed agreement, the vendor’s solicitor formed the view (incorrectly) that the entirety of the original water permits were still available.
- The vendor’s solicitor approved the form of contract, which attached to the three water permits, but did not enquire directly of the client as to the water permits held. The High Court Judge held that the solicitor’s confirmation of the agreement was a further representation as to the availability of the three original water permits.
- On settlement the vendor’s solicitor had the clients in his office to sign the transfer of land, but forgot to have them sign the transfers to the water permits. He then took the shortcut of forging the signatures on the transfers of the water permits, which were handed to the purchaser’s solicitors on settlement.
Missed warning signals- purchasers due diligence
The Court of Appeal identified a number of warning signals missed by the purchaser and its advisers. This was relevant as there were claims of contributory negligence by the purchaser-albeit these claims against the purchaser failed. The agreement for sale and purchase was subject to a due diligence clause requiring the purchaser to be satisfied as to water issues including “availability of advice to take water for irrigation purposes and the transferability of those rights to the purchaser”. The water permits referred to an area of land which exceeded the size of the area being transferred to the purchaser. The significance of this discrepancy was not picked up by the purchaser or advisors, as was the significance of an easement in favour of the previous purchaser (who had acquired part of the water entitlements). The defendant parties have now sought leave to appeal to the Supreme Court. At the time of writing the Supreme Court has yet to rule on whether leave to appeal will be allowed.