Building Amendment Bill: proposed changes to liability for building defects
The Building Amendment Bill would make an important change to how liability is allocated for defective building work in New Zealand. Its central proposal is to move relevant building defect claims away from joint and several liability and towards a proportionate liability model.
If enacted, a party involved in a building project would generally be liable only for the share of loss that reflects its contribution to the defect. That would affect councils, builders, subcontractors, designers and other participants whose work, advice or approval functions contribute to defective building work.
The current position
New Zealand currently applies a joint and several liability approach to many building defect claims. Where more than one party is liable for the same loss, a claimant may recover the whole loss from one liable defendant, from some defendants, or from all defendants. The defendant who pays more than its share can then seek contribution from other responsible parties.
That model protects claimants against the risk that one or more wrongdoers is insolvent or unavailable. The practical difficulty is that solvent or easily identifiable defendants, particularly councils, can be left meeting a loss that is larger than their relative responsibility for the defect.
What the Bill would change
The Bill proposes that liability for defective building project work be apportioned by reference to each party’s responsibility for the loss. In simple terms, if a party is responsible for 20% of the loss, its liability would ordinarily be limited to that 20%.
The proposed regime is intended to apply across the main dispute pathways for building defect claims, including court proceedings, adjudication and arbitration. It would also prevent the same building defect dispute from being split artificially into separate claims merely because different legal causes of action are pleaded.
Who carries the insolvency risk?
The main effect of the change is that insolvency risk would move. Under joint and several liability, a claimant can usually recover from another liable defendant if one responsible party cannot pay. Under proportionate liability, the remaining defendants would not automatically cover the missing share.
That means a claimant may recover less than the full loss if a responsible party is insolvent, cannot be located, or is not sued. For that reason, the Bill pairs the proposed liability shift with consumer protection measures.
Consumer protection measures
The Bill includes mandatory residential home warranty requirements for certain residential building work. The proposed warranty settings are intended to provide cover for defects for at least one year and for structural defects for at least 10 years.
The Bill also proposes mandatory professional indemnity insurance for relevant design professionals. The detail of who must hold cover, and the required level of cover, will depend on regulations. Those details will be important in assessing whether the new regime gives homeowners a practical route to recovery where a liable party cannot meet a claim.
Making a submission
Given the significance of the proposed reforms, businesses and individuals involved in the construction sector may wish to consider making a submission to the select committee. The submission process provides an opportunity to identify practical concerns, support particular aspects of the Bill, or suggest amendments before the legislation is finalised. With the Bill still subject to parliamentary scrutiny, the final form of the legislation may differ from the version currently before Parliament.
If you would like to talk through how the proposed changes would affect you, or need advice on a dispute, our expert Civil Litigation team are available to help. Contact us at enquiries@toddwalker.com or +64 (03) 441 2743.