22.08.2023

Limitations on Contribution Claims – will a defendant be left exposed if a claim is filed at the last minute?

Like many jurisdictions, New Zealand has legislation that imposes statutory limitation periods on civil claims.  Under the Limitation Act 2010 (Act) (for claims arising on or after 1 January 2011), there is a standard six-year limitation period within which a claimant needs to bring a claim.  The six years starts to run from the date of the act or omission on which the claim is based.  However, Parliament has recognised that there is an over-arching need for certainty.  To that end, the Act imposes a 15-year “longstop”, whereby no claim can be brought more than 15 years after the date of the act or omission on which the action is based. 

In addition, Parliament has also recognised a special need for certainty in the construction industry.  Accordingly, where a claim arises from building work, the Building Act 2004 imposes a shorter ten-year “longstop”, beyond which a claimant is out of time to bring a claim (unless there has been deliberate concealment or fraud). 

Does the ten-year longstop apply to contribution claims?

One question that has arisen is whether the ten-year longstop applies to claims for contribution.  A claim for contribution is where a defendant seeks to have a third party contribute to any damages award that the Court may seek to impose, by saying that if the defendant is found to be liable, then the third party should also be found liable as they also contributed to any loss that may have been suffered by the plaintiff. 

Under the Act, a defendant has two years to bring a contribution claim.  But what if the ten-year longstop expires before the contribution claim is brought?

Previous Judgments

Generally, the Courts have held that any third-party claims need to be brought within the ten years from the act or omission on which the action is based.  For example, in 2018 in Minister of Education v James Hardie New Zealand & Ors, the High Court concluded that excluding claims for contribution would be contrary to the plain wording of the longstop provision in the Building Act.  Although not specifically determining the issue, the Supreme Court did note in a decision in 2016 that the potential consequence of this is that a defendant may be barred from recovering from another party who is clearly negligent (if, for example, a claim was filed by a plaintiff on the eve of the longstop expiring, leaving a defendant unable to file a contribution claim against a third party in time).  A decision issued by the High Court queried whether this position is correct.  

BNZ Branch Properties Limited & Anor v Wellington City Council & Ors 

In May 2021, the High Court released a decision in the context of a strike out application.  This case is significant as it went against a long line of High Court authority.  The Court determined that the Law Reform Act 1936 (which allows a claim for contribution from another defendant) takes precedence over the ten-year longstop in the Building Act and a claim can still be brought against a third party, even if the ten-year period has expired.  This judgment caused concern as it would have far-reaching consequences, with third parties potentially being exposed to possible claims for longer than ten years after they have undertaken building work. 

Body Corporate 328392 & Ors v Auckland Council & Ors 

In September 2021, another High Court decision in relation to contribution claims was issued.  One of the questions to be determined was whether the Council’s claim against an engineer was outside the ten-year longstop.  The judgment undertook a detailed analysis of the BNZ Branch Properties decision, noting that it had declined to follow the established line of authority.  The Court observed that the longstop period may expire earlier for some than for others (using an example of earthworks contractors compared to roofers) and that Councils usually have vulnerability as the “last man standing” as the last step to be taken is usually the issue of the Code Compliance Certificate.  The judgment highlighted earlier decisions which noted that the purpose of the ten-year longstop is to provide finality and certainty in the construction industry and concluded by disagreeing with BNZ Branch Properties

Body Corporate 355492 & Ors v Queenstown Lakes District Council 

A further decision was released in April 2022.  While the judgment largely related to other matters and ultimately the question about the ten-year longstop in relation to contribution claims did not need to be determined, the Court still made some brief obiter comments.  The Court said that it would not have followed BNZ Branch Properties as that case seemed to “treat the rules relating to the accrual of the right to seek contribution as being paramount when the longstop is not concerned with the accrual of rights”

Position of Court of Appeal         

In December 2022, the appeal on the BNZ Branch Properties decision was issued.  The Court of Appeal upheld the decision of the High Court.  In doing so, it acknowledged and considered the authorities which had reached the opposite conclusion.  However, the Court of Appeal concluded that the specific two-year limitation period for contribution claims takes precedence over the general ten-year longstop that relates to building work.  In making this decision, the Court considered that this approach balances the competing interests of the parties by providing for finality between the original plaintiff and the defendant(s) they choose to sue, and, in addition, providing a reasonable opportunity for defendants who are successfully sued by the original plaintiff to bring a contribution claim against other parties whose liability may fall outside of the ten-year longstop.

The Court of Appeal took the position that if Parliament intended to have the ten-year longstop apply to claims for contribution, it would have said so, in clear and unambiguous terms.  It held that the terms outlining the ten-year longstop were never intended to apply to contribution claims, and that Parliament’s intention was that contribution claims were to be governed by the two-year limitation period outlined in the Act. 

Discussion 

While previous decisions of the High Court confirmed that there are powerful policy considerations to support an interpretation of the ten-year longstop applying to contribution claims (indeed, in the Auckland Council case, the judgment noted that the discussion on contribution would ordinarily be relatively short) the decision in BNZ Branch Properties has found in favour of defendants who need to be given reasonable opportunity to seek a contribution from another party. 

This judgment is going to have a significant impact on the building industry, as potentially liable parties may no longer be able to rely on the ten-year longstop.  While this creates an element of fairness for parties that are joined so late in the piece that the ten-year longstop would have prevented them from seeking a contribution from other potentially liable parties, the purpose of the ten-year longstop was to provide a level of certainty for potential defendants in the industry, which they no longer have. 

As the ten-year longstop no longer applies to contribution claims, this leaves parties who are involved in the early stage of construction projects (such as earthworkers) exposed to potential claims for longer and defeats the purpose of having a longstop period in the first place.  Arguably, the detriment to these parties is greater than that of defendants who run out of time to bring a claim for contribution. 

The Supreme Court has recently granted leave to appeal the Court of Appeal’s decision in BNZ Branch Properties.  However, until the Supreme Court makes a final judgment on this issue, this uncertainty is something that will need to be accepted by potential defendants to a defective building claim.  On the other hand, defendants in defective building claims wanting to claim contribution from other parties (that would usually fall outside of the ten-year longstop) have been provided some relief.

We will report on the Supreme Court appeal in due course, which will establish the position on contribution beyond doubt, requiring an act of Parliament to make any further changes.  

If you have any questions about the ten-year longstop or claims for contribution, please get in touch with our Construction Team or your usual contact at Hesketh Henry.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

 

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