Contents

Chapter 7
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.88 The legislation’s purpose is stated to be:89

[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.90 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.91 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.92

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 2013,93 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 below94 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.95
7.20Local authority liability for negligence when acting as building consent authority for residential buildings is well established in New Zealand.96 Liability was originally confirmed in case law, in part based on international precedents, some of which were later overturned overseas.97 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 1991.98 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.99 The leading judgment for the majority, given by Chambers J concluded:100

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.101 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.102

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.103 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”.104 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.105
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.106 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:

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.

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.110 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.111

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”.112 The new Part retains the existing implied warranties and:

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.

88Weathertight Homes Resolution Services Act 2006.
89Section 125A.
90The Crown and the local authority receive immunity from being sued by the participating homeowner. The scheme therefore seeks settlement of potential claims against central and local government agencies, while leaving owners free to pursue other parties.
91See Ministry of Business, Innovation and Employment “Weathertight Homes Resolution Service (WHRS) claims statistics” (February 2014) <http://www.dbh.govt.nz>. The figures suggest that over half of current claims are pursuing the Financial Assistance Package track for resolution. Note that some caution may be required as these figures also include cases where no local authority was involved and the claimant is seeking only the central government contribution. Some such cases involved private certifiers of large multi-unit developments, where each individual homeowner will be counted as one case in the statistics. Thus the figure for cases seeking the Financial Assistance Package may overstate the number of cases where local authorities contribute the fixed 25 per cent share.
92Section 125D of the Weathertight Homes Resolution Services Act 2006 provides that: “An application under section 125C must be made no later than the expiry of the period of 5 years after the date of commencement of this section.” The deadline for applications is therefore 22 July 2016. The deadline is an incentive for any “tail” of leaky home cases to be resolved quickly, as is the normal 10 year longstop limitation on suit, for building cases.
93Building Amendment Act 2013.
94At [7.28]–[7.30].
95See Building Act 2004, s 58I (for simple consents); and s 58l (for low risk consents). Neither provision is as yet in force.
96See: Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC); Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA); North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289 [Sunset Terraces].
97Dutton v Bognor Regis Urban District Council [1972] 1 QB 373; Anns v Merton London Borough Council [1978] AC 728 (HL); Murphy v Brentwood District Council [1991] 1 AC 398 (HL).
98Sunset Terraces, above n 96.
99Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297, referred to as Spencer on Byron, after the apartment building the case was concerned with.
100At [214].
101At [217] per Chambers J. Even the lone dissent, while disagreeing that local authorities should be liable in commercial building cases, predicted a certain inevitability to eventual liability under the 2004 Act, if liability under the 1991 Act was allowed: at [308] per William Young J.
102See Building Amendment Act 2012, s 17, in particular the new sections to the principal Act ss 52A to 52Y, to come into force at a date to be determined.
103Spencer on Byron, above n 99, at [103]–[106] per Chambers J.
104Section 4(2)(a). The principles include: “the role that household units play in the lives of the people who use them…”.
105The definition of household unit is reasonably straightforward; section 7 provides that:
household unit
(a) means a building or group of buildings, or part of a building or group of buildings, that is—
(i) used, or intended to be used, only or mainly for residential purposes; and
(ii) occupied, or intended to be occupied, exclusively as the home or residence of not more than 1 household; but
(b) does not include a hostel, boarding house, or other specialised accommodation
106The warranties set out in s 397 are an orthodox and extensive set of consumer protections, including requirements that contracts must be performed competently, according to specifications and plans and in accordance with the building consent; with reasonable care and skill and on time, or within a reasonable time; and so that the household unit will be suitable for occupation on completion; and if any particular purpose has been stated in the contract, the unit will be reasonably fit for that purpose or be of such a nature and quality that it might reasonably be expected to be fit for the purpose: s 397(a)–397(f). Section 398(1) extends the right to sue on the warranties to subsequent owners “as if they were parties to the contract”. Section 399 prevents a person giving away any of the warranties by contract, unless the provision relates to a breach that is already known to the person, or ought to be.
107Building Amendment Act 2012, s 3(b).
108Building Amendment Act 2012, s 14A. The outlines are stated to be for guidance only, and must give way to particular sections of the Act. This highlights a new effort to differentiate between respective responsibilities of the participants, with consequential effects on accountability. Consistent with a differentiated system of consenting that is to come into force, the responsibility of the building consent authority depends on what type of building work or consent the authority is asked to deal with:
14F Responsibilities of building consent authority
A building consent authority is responsible for—
(a) checking, in accordance with the requirements of this Act for each type of building consent, to ensure that—
(i) an application for a building consent complies with the building code:
(ii) building work has been carried out in accordance with the building consent for that work:
(b) issuing building consents and certificates in accordance with the requirements of this Act.
109With owners to be able, once the system is in force, to apply for a low risk consent; simple consent; the current, general type of consent now called a “standard consent”; or a new, commercial consent, according to the complexity, risk and type of the work to be done: Building Amendment Act 2012, s 17; new sections to the principal Act, ss 41 and 52B.
110Judgment for Spencer on Byron was given on 11 October 2012.
111Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446, [2009] 1 NZLR 460; Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR 786; and Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA).
112Building Amendment Bill (No 4) 2011 (322-2), cl 44.
113Building Amendment Bill (No 4) 2011 (322-2), cl 44, new s 362A. Some provisions await thresholds to be set by regulation, along with other details.
114Building Amendment Bill (No 4) 2011 (322-2), cl 44, new s 362G.