The building sector: room for a special case?
The impact of regulatory change
7.14Our conclusion, against a separate proportionate liability scheme for the building sector, is bolstered by some specific legislative steps that have been taken to help resolve the leaky homes crisis, as well as more general changes and improvements to building legislation and regulations over the past decade. It is likely that such changes are lessening or will lessen the impact of joint and several liability, or liability generally, on local authorities.
The Financial Assistance Package
7.15The Financial Assistance Package for leaky homes was introduced in 2011. The Financial Assistance Package means that remaining owners of leaky homes have an additional option for securing assistance. If qualifying homeowners select the Financial Assistance Package the effective liability burden on local authorities is reduced and rendered more certain as a result.
7.16The Financial Assistance Package was effected through the Weathertight Homes Resolution Services (Financial Assistance Package) Amendment Act 2011, which came into force on 23 July 2011. Its central provisions constitute a new Part 1A of the principal Act. The legislation’s purpose is stated to be:
[T]o facilitate the repair of leaky buildings by providing for certain matters relating to the provision of a package of financial assistance measures to qualifying claimants.
7.17The focus of the Financial Assistance Package is on assisting owners of leaky homes. The package grew out of widespread concern and complaints that the process of resolving leaky home cases was taking too long, and it was too difficult and expensive to get funds out of builders, local authorities and others who could not or would not pay, or pay promptly. The innovation under the Financial Assistance Package was that central government agreed to contribute 25 per cent of the owner’s assessed costs, and if there was a potential local authority defendant, it could, and usually does, participate and do the same. The homeowner therefore receives, usually, 50 per cent of their assessed costs – quickly and without incurring litigation expenses – and can still pursue other liable parties.
7.18As well as the intended benefits to homeowners, the Financial Assistance Package has significant benefits for local authorities, depending on the rate of take-up. Local authorities know that their liability to any Financial Assistance Package claimant will be limited to 25 per cent of the claimant’s independently assessed costs, which is about the average or median local authority “share” for cases that proceed to adjudication. The Financial Assistance Package may therefore significantly reduce the risk local authorities face from uncollected shares. Like homeowners, participating authorities also save on litigation costs. Given that a reasonable proportion of homeowners appear to be exploring or accepting the Financial Assistance Package option, the impact from joint and several liability on local authorities may not be as severe, for remaining cases, as it apparently has been for cases resolved before the Financial Assistance Package was introduced. The Financial Assistance Package may reduce local authorities’ leaky homes costs for later claims, through to at least July 2016, when access for new claims will expire.
Building consent authority liability after the Building Act 2004Top
7.19After the one-off effect from the Financial Assistance Package, building consent authority liabilities should decline. The cumulative effect of the Building Act 2004; particular amendments to that Act in the Building Act Amendment Act 2012 (most not yet in force); and the further amendments passed at the end of 2013, should allow local authorities to better manage and therefore reduce their potential liability for residential buildings. For the first time, the 2012 Amendment Act also describes various parties’ responsibilities for commercial building work. This is a useful step, and we explain below why we consider the Act should go one step further and expressly describe the limit or extent of responsibility of building consent authorities for commercial consents, as has already been done for amendments dealing with new “simple” and “low risk” consents.
7.20Local authority liability for negligence when acting as building consent authority for residential buildings is well established in New Zealand. Liability was originally confirmed in case law, in part based on international precedents, some of which were later overturned overseas. However, subsequent cases at Privy Council and, more recently, Supreme Court level, have confirmed the New Zealand position that such liability in respect of residential buildings is taken to be consistent with and support the scheme of the Building Act 1991. Most recently, the Supreme Court held in Spencer on Byron that no distinction should be drawn between residential and commercial building work, meaning local authorities may be held liable for negligence in respect of commercial consents as well. The leading judgment for the majority, given by Chambers J concluded:
We accept that other courts and judges could reasonably evaluate the policy factors differently from us. We have not been satisfied, however, that it would be just and reasonable to restrict the duty of care [owed by councils] to residential buildings.
7.21Spencer on Byron was expressly restricted to cases where the Building Act 1991 applies. There were indications that the Court might well reach a similar conclusion, should a Building Act 2004 case come before the Court, but the Court consciously forbore from analysing the point. With respect, we consider that when the Court hears a fully argued Building Act 2004 case, it may instead consider it has grounds to hold that local authorities should have at most only restricted liability in commercial building cases, either from 2005 when the Building Act 2004 came into force, or once the amendments enacted in 2012 and 2013 are in force.
Implications of the Building Act 2004Top
7.22An important reason given by the Court in Spencer on Byron for concluding that no distinction ought to be made between building regulatory work for commercial and residential projects, was that the 1991 Act could have made such a distinction, but did not. That position began to change when the 2004 Act was passed. In section 4 of the 2004 Act, Parliament for the first time directed various statutory decision-makers, including territorial authorities, to take into account a number of detailed principles “when dealing with any matter relating to one or more household units”. Section 4 contains a number of other principles that apply equally and do not differentiate between residential and commercial buildings, but only “household units” are selected for special attention in this way.
7.23The 2004 Act also introduced specific contract-based protections for purchasers of household units, and subsequent owners. Sections 396 and 397 implied a number of standard warranties into contracts for building work relating to household units or the sale of such units by a developer. Unsurprisingly, there are no similar or equivalent provisions in respect of non-residential building contracts.
7.24There is therefore a reasonably strong inference under the Building Act 2004 that residential or household units, or buildings containing them, are different in character from other buildings, or their owners and users are deserving of direct statutory protections, whereas parties to commercial building contracts can be expected to adopt self-help. The Act acknowledges that different principles may apply to residential and commercial building work and the parties involved or affected by such work.
7.25These differences may not be enough by themselves to justify different outcomes on liability for residential and commercial cases, especially regarding building consent authority liability. It might still be expected that Parliament would deal with the matter more expressly if that had been the intention. Weight might be given to the fact that sections 397 to 399 define and amend the relationship between the immediate contractual parties (and subsequent owners), and have nothing at all to say about local authorities. And it can be argued that little should be read into these express liability provisions dealing only with the residential and household sector, because clear consumer protection provisions such as these will typically apply only in “consumer” situations. Nevertheless, the scheme of the Building Act 2004 exhibits a much clearer and stronger residential consumer protection focus, in addition to the overall health and safety focus of the statute. This additional focus and emphasis is in contrast to the Building Act 1991, and it is reasonable to infer that consumer householders and commercial parties need not necessarily receive identical treatment as to whether building consent authorities may be liable to either group.
The Building Amendment Act 2012: express differentiation of responsibilitiesTop
7.26Whatever the conclusion on the Building Act 2004, Parliament has subsequently made changes that tend to confirm that residential and commercial consents and claims can be distinguished for liability purposes. This has mainly been achieved through a suite of related provisions introduced in the Building Amendment Act 2012 (the 2012 Amendment Act). The 2012 Amendment Act sets out to differentiate and describe the responsibilities of the full range of building industry participants, and expressly describes the extent of building consent authority responsibilities in two out of three new classes of consent that will eventually come into force. Key provisions include:
- A re-worked purpose section that includes an additional purpose “to promote the accountability of owners, designers, builders, and building consent authorities who have responsibilities for ensuring that building work complies with the building code”.
- New descriptive outlines of responsibilities for owners, owner-builders, designers, builders and building consent authorities.
- The framework for a new system of risk-based consenting.
- Express provisions defining the building consent authority’s extent of responsibility, and what it is not required to do, for the two new classes of residential consents: low risk and simple consents. For example, new section 52I provides:
52I Responsibility of building consent authority in relation to building work carried out under low-risk building consent
(1) A building consent authority that has issued a low-risk building consent—
(a) is not required to inspect the building work in question at any time before the issue of a consent completion certificate for that building work; and
(b) incurs no liability to any person by reason only of not checking the plans and specifications accompanying the application or not inspecting the building work in question at any time before the issue of a consent completion certificate.
(2) Nothing in subsection (1) limits or affects the provisions of sections 90 or 222.
- New provisions for “commercial consents” in new sections 52O to 52Y. The new procedure places primary responsibility for achieving a safe, building code-compliant building on the owner or their agent. Before applying for a commercial consent, the owner must obtain approval of a risk profile from the building consent authority, as well as a quality assurance system for the building work. The consent authority must check that the system complies with requirements in regulations, and provide for appropriate supervision, testing, inspection and third party review. The authority can compel information from the owner, for instance on the operation and results of the quality assurance system. The authority may, but is not compelled to, inspect the building work. The strong inference is that the owner should provide for all necessary checks in the quality system, which should produce verifiable data for the authority. The authority’s power of inspection nonetheless remains as a valuable sanction and incentive to compliance.
7.27None of the above changes relate directly to joint and several liability. Nor do they amount to exclusions of liability. They nevertheless provide statutory indications to local authorities regarding the potential extent of their responsibilities. Local authorities may choose to take such indications into account as they plan and manage their building consent responsibilities, with a view to minimising their future liability in negligence. The statements regarding the extent of building consent authority responsibilities for each of the new residential consent options may well be relied on by individual building consent authorities to confirm that their responsibility is limited – although whether limited responsibility automatically translates to limited liability will still be a matter for the courts. For activities that continue to provide opportunity for liability, the clearer definitions should at least allow authorities to develop systems and internal checks to minimise breaches of required standards.
7.28Presently no equivalent to section 52I exists for commercial consents. The current provisions do not contain a description of the extent of building consent authorities’ responsibilities for commercial building work. This is probably because the 2012 Amendment Act received the royal assent on 12 March 2012, well before the decision in Spencer on Byron. At the time the 2012 Amendment Act was passed, consent authorities were generally considered to have no liability for negligence in respect of building consents for commercial projects. This position had been confirmed by a line of Court of Appeal authorities, which were however overturned in Spencer on Byron.
7.29There is therefore no express “responsibility” section for commercial consents. The extent and limits of local authorities’ involvement and responsibility for commercial consents is relatively clear from the commercial consent provisions that are included. However, to avoid confusion we recommend that a “responsibility” section, equivalent to sections 52I and 52L should be added to achieve better clarity. Such a section should confirm the allocations of responsibilities described in sections 52O to 52Y. The provisions confirm that a building consent authority’s responsibility in respect of commercial consents is to ensure that consents are not approved without an appropriate and regulations-compliant risk profile and quality assurance system, and that the authority must satisfy itself on reasonable grounds that the approved quality assurance system is being or has been complied with. Although clearly a matter still to be resolved by the courts, especially after Spencer on Byron, building consent authorities may then reasonably argue that they should not be liable for damage connected with a commercial building consent issued under the Building Act 2004 unless they have failed to carry out their specific, limited role.
7.30We considered whether there was a simpler, more direct approach. Given the likelihood of only very restricted liability for commercial consents governed by sections 52O to 52Y, and the policy of the 2004 Act to make the correct party or parties accountable, we considered whether it would be appropriate to recommend an amendment to section 392 of the Act, to exclude building consent authority liability in commercial consent cases. Such a provision could achieve rather more directly what a “responsibility” section might also achieve, but only by implication. However, we concluded that, whatever the merits, excluding local authority liability for commercial consents is beyond the scope of this reference. We therefore recommend the clarificatory amendment to define responsibilities, but make no recommendation on excluding liability.
The Building Amendment Act 2013: more emphasis on protection of residential consumersTop
7.31The Building Amendment Act 2013 does not deal directly with the responsibilities of building consent authorities. It does, however, continue to develop the express consumer protection provisions for residential building work, begun by sections 396 to 399 of the 2004 Act, by incorporating them into a new Part 4A of the Act, entitled “Consumer rights and remedies in relation to residential building work”. The new Part retains the existing implied warranties and:
- introduces specific remedies for dealing with breaches;
- requires a variety of disclosure information to be provided before contracting and on completion of works;
- prescribes, or authorises regulations to prescribe, minimum requirements for residential building contracts;
- mandates a one-year maintenance period for qualifying residential building work; and
- allows parties to contract out of minimum standards outside the mandatory warranties, so long as this is done in writing.
7.32Overall, the amendments further expand consumer protection for residential homes, with a strong emphasis on the building contract between the owner or purchaser and the builder, developer or on-seller as the principal instrument of consumer protection. This development further underlines the different treatment of residential and commercial building under the Building Act 2004. This strengthens the inference that the two classes of work and the regimes governing them are sufficiently different that the liabilities of building consent authorities for each can be distinguished – and that this is what the scheme of the Act envisages should occur.