Contents

Chapter 7
The building sector: room for a special case?

Introduction

7.1Despite our recommendation to retain joint and several liability, we considered whether a proportionate scheme could be justified in any sectors. Proportionate liability could be considered where the normal operation of joint and several liability in a particular sector causes such significant distortions or injustice that some intervention is justified, or the characteristics of a sector mean that a proportionate regime could result in enhanced sector outcomes and still provide adequate protections for plaintiffs.

7.2The building sector, and more particularly the residential building sector, is the main sector for such consideration primarily because the impact of the leaky homes crisis on this sector was the principal catalyst for this reference to the Law Commission, and the majority of submissions to the Commission came from participants in this sector.76 The large majority of building sector submitters report what they perceive as substantial unfairness to solvent defendants in leaky home cases. We have not found evidence that building sector defendants, other than local authorities, have had to meet uncollected shares in a way that is clearly disproportionate to defendants in other sectors. But we do accept that local authorities have had their cost of liability approximately doubled by having to meet uncollected shares in leaky home matters, adding several hundred million dollars to local authority liability costs.77
7.3We therefore agree that it is necessary to consider the practicality of introducing proportionality in the home building sector, to determine whether it could reduce liability for uncollected shares without creating similar or greater unfairness to plaintiffs. The possibility is worth considering, not only because of the potential or actual impact of joint and several liability on some defendants, but also because specific, targeted schemes have previously been attempted in the construction sector in neighbouring jurisdictions.78
76Provided local authorities are counted as building sector participants because of their statutory responsibilities as building consent authorities, 28 of the 49 submissions received were from building sector participants.
77Price Waterhouse Coopers Weathertightness - Estimating the Cost (Department of Building and Housing, Wellington, 2009) at 62 estimates actual costs to local authorities at 45 per cent of adjudicated costs, compared to a typical share of responsibility in the 20 to 30 per cent range. The Report also finds that the local authority cost share increases, to an average of up to 65 per cent, for larger claims involving the total recladding of a leaky home. Auckland Council, the local authority bearing up to two thirds of local authority liabilities for leaky homes, has made provision in its financial reports for up to $45 million for claims yet to be resolved, which is in addition to substantial amounts already paid out: see Auckland City Council Annual Report (2011/2012) vol 3 at 93.
78The most closely relevant examples come from Australia in the 1990s, including New South Wales and Victoria: Environmental Planning and Assessment Act 1979 (NSW), s 109ZJ, which was added by the Environmental Planning and Assessment Amendment Act 1997 (NSW); Building Act 1993 (Vic) ss 129–131. The New South Wales and Victorian provisions were repealed in 2002 when general proportionate liability statutes were enacted, but building sector-specific schemes remain in force in South Australia and the federal territories despite the enactment of general legislation covering the balance of each jurisdiction: Developments Act 1993 (SA), s 72; and Building Act 2004 (ACT), s 141.