Our German Desk
The current line of authorities establishing the ability for building owners to be able to claim in negligence for the cost of rectifying defects can be traced to the Court of Appeal’s (COA) judgment in 1976 in Bowen v Paramount Builders where it was found that a builder who built a house on inadequate foundations owed a duty of care to a subsequent purchaser of the house.
In 1979, not long after the decision in Bowen, the COA in Mount Albert Borough Council v Johnson found that the council owed a duty of care to a subsequent purchaser of a residential property when carrying out its functions as a building consent authority. In 2012, in Spencer on Byron, the Supreme Court extended councils’ duties to include commercial buildings in addition to residential buildings.
Since Spencer on Byron, the law regarding claims in negligence for building defects has been relatively settled. Consequently, due to the concept of joint and several liability, defendants (particularly councils) who are perceived to have the “deepest pockets”, have faced substantial exposure for building defect claims, even if their involvement in the building work has been relatively minimal.
It appears that there is a significant evolution of the law on the horizon, based on off the back of an announcement by the Minister of Building and Construction (Hon Chris Penk) of the Government’s intention to introduce a bill replacing joint and several liability with proportionate liability.
If carried through, this change will drastically change the nature of how claims in negligence for building defects are brought and what exposure all parties involved in the building process face. This announcement is relevant to participants of all levels in the industry, including contractors, engineers, architects, insurers, building owners and councils.
The current position: joint and several liability
Joint and several liability is where two or more defendants are liable both together and individually for a breach of an obligation. There are often multiple defendants involved in building defect claims, which typically includes architects, engineers, contractors and councils. So far as each defendant is found to have been negligent, and that negligence caused or contributed to the same defect, jointly (together) and severally (individually), the defendants are liable for the loss suffered.
It has often been the case that one or more of the defendants found liable have either become insolvent during a proceeding or are unable to pay their share of a judgment sum awarded. Consequently, any defendants still standing have to make up the difference so that the plaintiff is properly compensated. This can sometimes be many times more than what the defendants would have had to pay.
With statements from Hon Chris Penk such as “it’s often councils, with deepest pockets” and “it’s time to put responsibility where it belongs”, a key motivation for the Government appears to be shifting the cost burden away from rate payers.
How will proportionate liability work?
In general terms, proportionate liability looks to apportion liability so that defendants are only liable for what is often described as their “fair share”. This is reflected in Hon Chris Penk’s statement that under a proportionate liability framework “each party will only be responsible for the work they have carried out”.
New Zealand would by no means be trail blazing with a change to proportionate liability. For some time now, all Australian jurisdictions have applied general proportionate liability legislation, limiting what the defendant pays to an amount reflecting the defendant’s responsibility for the damage.
While we are sure that many potential defendants will welcome proportionate liability, there is a question as to how to resolve the issue of how building owners will be protected if one or more of the defendants fall over, leaving the building owner with a shortfall that cannot be recovered from the other defendants. Hon Chris Penk has identified this as a concern, not wanting the building owners to be left out of pocket. While specific details about what a proportionate liability framework (including protection of building owners) would look like in New Zealand is unclear, the Minister has implied that inspiration would be taken from Australia, referencing requirements for insurance and home warranties.
A move to proportionate liability will also likely place a higher obligation on plaintiffs to know their case in commencing litigation in order to effect a full recovery and to avoid potential limitation issues. Plaintiffs will need to identify all parties involved in each alleged defect to avoid a partial recovery, rather than just being able to bring a claim against the defendant principally responsible or with the deepest pockets.
Our comment
A reform from joint and several liability to proportionate liability would drastically change the way that claims in negligence for building defects play out. While it appears that the driving intention is to ensure that parties are only responsible for their “fair share” and to “put responsibility where it belongs”, the reality is that further consideration is required to be able to meet this objective.
Currently, New Zealand does not have a mandatory insurance (or otherwise legislative) framework to ensure building owners are not left out of pocket in the event that defendants fall over. How the Government will resolve this issue, and what type of obligations plaintiffs will be under in commencing a claim to ensure a full recovery, is something that all participants in the sector will have to wait and see should the Government pursue its intention.
If you have any questions about construction or insurance related matters, please get in touch with our construction or insurance teams 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.
