Legal A-Z of leaky buildings

This Issue This is a part of the Weathertightness feature

By - , Build 138

The reasons for New Zealand’s leaky building crisis are many, and as a result, there is plenty of litigation. This A–Z looks at some of the legal issues involved.

A Assumption of risk – claimants are unable to recover if they have voluntarily assumed the risk of their loss. A claim may fail, for example, if a claimant purchases a property knowing it suffers from defects.

B Byron Avenue – an infamous block of Takapuna units. Litigation about this complex proceeded all the way to the Supreme Court, together with Sunset Terraces. The Supreme Court confirmed that territorial authorities owe a duty of care to owners of units in apartment complexes.

C Commercial buildings – in 2012, the Supreme Court held a territorial authority’s duty of care under the Building Act 1991 extended to commercial owners (the Spencer on Byron case), opening the door for claims against territorial authorities for, for example, defective schools and motels. Previously, such claims were struck out.

D Design – architects, engineers and designers are often defendants and respondents. A test for the adequacy of plans and specifications is whether the property could have been successfully constructed in accordance with the Building Code on the basis of those plans and specifications and any supporting technical literature. Sometimes, quite scant plans will meet this test.

E Eligible claim – residential homeowners may use the mediation and adjudication services under the Weathertight Homes Resolution Services Act 2006 (WHRSA) if they have an eligible claim. Their dwelling must have been built before 1 January 2012 and within 10 years of the lodgement of an application with the Weathertight Homes Resolution Service (WHRS).

F Financial assistance package (FAP) – in July 2011, Parliament introduced the FAP scheme whereby owners may share repair costs with participating territorial authorities and the government – each contributing 25% of approved repair costs. Owners who opt in to the FAP agree not to sue the participating territorial authority or the government. They may still sue other parties involved in the construction process for contribution.

G General damages – these are awards for stress and inconvenience. Byron Avenue awarded general damages of $25,000 to owner-occupiers and $15,000 to non-owner-occupiers. The case is a guideline for awards, but general damages awards will depend on individual circumstances.

H Hamlin – this is the key authority governing a territorial authority’s liability. In Hamlin, the Privy Council recognised distinct local factors that meant New Zealand homeowners placed reliance on local authorities – unlike the situation in the UK. Byron Avenue/Sunset Terraces and Spencer on Byron have all considered the scope of the Hamlin duty.

I Involvement – a key inquiry for claimants is each defendant’s involvement in any alleged defects. A claimant must show a defendant caused one of the defects that contributed to their loss. Cases depend heavily on expert evidence.

J Jurisdiction – residential owners may bring claims in either the Weathertight Homes Tribunal or the Courts, subject to eligibility criteria. Each forum has pros and cons. Transfers are possible. However, while lodging a claim with WHRS stops time running – for limitation purposes – in the Tribunal, it does not stop time running for Court proceedings.

K Kells v Auckland City Council – in this case, the High Court found the approach to the joinder of third parties in the Weathertight Homes Tribunal is different from Court proceedings. In Court, joinder applications are subject to the 10-year longstop – meaning that a defendant cannot join another party more than 10 years after the alleged involvement by that party. In Kells, however, the Court said the WHRSA contemplates parties being joined after the 10-year period.

L Limitation – limitation issues have featured in many claims. The Building Act imposes a 10-year longstop on all claims arising out of building works. A 10-year period also applies to eligibility under the Weathertight Homes Resolution Services Act 2006. Against this, the Limitation Act needs to be considered. Some cases may involve other legislation with different limitation periods. For example, the limitation period under the Fair Trading Act 1986 is 3 years from the discovery or reasonable discovery of loss.

M Mitigation – claimants are under a duty to take reasonable steps to mitigate their loss. This may involve carrying out interim repairs or ensuring that a property is repaired within a reasonable time. Many claimants are not in a financial position to do much, so the duty may not be onerous.

N Negligence – in order for a claimant to establish that any party is liable to them as a result of negligent building works, they must show that party owed them a duty of care, that they breached that duty of care and that the breach of duty has caused them to suffer their loss. The duty of care is well established in respect of some defendants, such as builders and developers. As already noted, the extent of a territorial authority’s duty of care has been the subject of much debate but is now settled.

O Owners – subsequent owners often need to discover all material about their acquisition of a property including information about pre-purchase investigations. Owners may bear some responsibility if they have not acted prudently in a purchase, for example, failing to obtain a LIM report. In order to claim in the Weathertight Homes Tribunal, a claimant must be a current owner. In Court, a former owner can bring a claim if they have suffered loss selling a leaky home.

P Personal liability – directors and employees directly involved in the creation of defective work are personally liable for their acts and omissions. Responsibility will always depend on evidence establishing how the individual was involved in the defects. Claims against directors have featured in a number of strike-out applications.

Q Quantum – claimants may seek to recover repair costs or loss of value, together with other expenses incurred. If the repair cost greatly exceeds the value of a property, repair may not be a reasonable option, and a Court or Tribunal may only award damages for loss of value. A claim may also be reduced for betterment. A typical example of betterment is claims for the costs of exterior painting where a claimant would have incurred this cost anyway.

R Respondents – leaky building claims often involve numerous defendants and respondents including, for example, the builder, directors of building companies, project managers, architects, subcontractors, product manufacturers, the territorial authority and vendors.

S Stigma – leaky homes may suffer a loss of value even after repair. Recovery for stigma damages will depend on expert evidence establishing an additional loss due to stigma.

T Territorial authorities – they have carried a very significant burden in respect of leaky building claims. Although the contribution of territorial authorities is typically assessed at 15–20% between them and other defendants/respondents, they may be the only solvent party and left to carry the full burden as a result of the joint and several liability rule.

U Units – owners of residential units may also claim in the Weathertight Homes Tribunal. However, the size of many multi-unit claims means that they may be more suited to High Court proceedings. The decisions needed in respect of leaky homes cases can cause conflict between members of bodies corporate. There has also been litigation enforcing litigation and repair costs against unwilling members of bodies corporate.

V Vendors – may be liable for breaches of warranty under sale and purchase agreements. These claims for breach of contract may extend beyond the 10-year longstop in the Building Act as time runs from entry into the sale and purchase agreement. Vendors may also be liable if they make any false representations to purchasers about the state of a property.

W Warranties – construction parties may be liable in contract if they have provided any warranties that are still in force at the time that defects are uncovered. The Building Act 2004 also provides statutory warranties for residential properties.

X eXtras – well X is hard! An issue for many claimants is electing whether to repair a defective property first and then claim the cost of doing so or to first sue for estimated repair costs. A risk with proceeding on the basis of an estimated cost is that that extra may only become apparent once repair work commences. On the other hand, parties who complete works first run the risk of recovering less than their actual costs at hearing or in settlement.

Y Years – a feature of many leaky home cases is time. Many of the larger cases have taken years to progress through the Court system.

Z Zero – insolvent building companies and developers contribute nothing to a claim, while solvent defendants, many who may have played a lesser role – like territorial authorities – may be left carrying the financial burden due to the joint and several liability rule. The overall fairness of the joint and several liability rule is a matter that is currently being considered by the Law Commission.

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