Facts.

On 31 July 2018 the Applicants were appointed the receivers of the respondent, Ebert Construction Limited (EC), which was a large construction company.

The Construction Contracts Act 2002 (CCA) provides that in relation to commercial construction contracts entered into after 31 March 2017, a head contractor (i.e. EC) must hold sums required to be paid to a subcontractor (retentions), on trust for the subcontractor. This was implemented as a response to head contractors using subcontractor’s retentions as working capital, leaving subcontractors as effectively unsecured creditors for the retention amounts.

EC had a Retention Account with a balance of approximately $3.6 million. However, at the date of receivership, EC owed its subcontractors approximately $24.5 million, of which $9.324 million was subcontractor retentions.

The general practice prior to 31 March 2017 was that EC would pay out subcontractor invoice after deducting amounts to keep for retentions, but would keep those deductions in their general account.

Subsequent to 31 March 2017, EC utilised a computer software to calculate the amount of monies to be held on retention, and the amount to be kept in their general account. However, in June 2018, the computer system malfunctioned, which led to the retention amount not being placed in the retention account, and subcontracts being incorrectly identified.

Legal issues.

There were three main legal issues in this case, namely:-

1. Whether the Applicants should be appointed by the Court as receivers to manage and distribute the Fund?
2. Which subcontractors have a claim to the Fund and on what basis?
3. How to distribute the Fund if, as expected, there is a shortfall?

Appointment of applicants.

The Court held that the Applicants were entitled to administer the Retention Fund based on the Court’s inherent jurisdiction to appoint receivers and managers, for the purpose of distributing retention funds. It held that if the receivers were not appointed, this would mean that the subcontractors would be affected in that they would not be able to recover any of what they were rightly owed.

Subcontractor’s claim/how to distribute fund.

There were three months of contentious retention funds (May, June, July 2018), and therefore, it had to be determined whether the subcontractors with invoices rendered for these months had a claim in the retention fund. In order to establish that a trust had been created/that the subcontractor for each specific month had a claim in the fund, the Court had to be satisfied of three certainties:-

1. Intention to create a trust;
2. Subject matters of the trust; and
3. Object or beneficiaries of the trust.

With regard to the retentions that were calculated but not transferred to the fund, the Court held that EC had no intention to transfer monies, as these would have been transferred had there been an intention to do so. With regard to the retentions that were uncalculated and not transferred to the fund, the reasons are the same as above, in that it lacked the element of intention. With regard to retentions that were reconciled and transferred to the fund, all elements could be said to be satisfied, and therefore these subcontractors did have an interest in the fund. With regard to the wrongly classified subcontractors, although EC intended to pay the funds into the retention account, the funds were never transferred. The difficulty was that while EC intended to pay the funds, they were never actually transferred into the account.

The Court agreed that as much as 75% of the retention fund could be distributed on a pari passu basis to the qualifying subcontractors. It is noted that even though most of this fund was distributed, around $21 million will still remain owing to the subcontractors. Overall, the retention provisions have achieved little in this particular instance in terms of protecting the subcontractors interests.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

In this month’s article I wish to review the High Court decision of NMHB Limited v Concrete Structures (NZ) Limited.  This was an application to set aside a statutory demand under section 289 of the Companies Act 1993, making demand for outstanding amounts owing pursuant to payment claims under the Construction Contracts Act 2002 (“CCA”).

The Court was required to determine whether there was a substantial dispute as to whether or not the debt was due and owing, and whether NMBH retained a counter claim or set off for equal or more than the amount sought.

The Court was also required to determine whether a party could claim for security under the CCA, where it has been allowed for in the contractual agreement i.e. payment in advance of commencement of construction works.

Facts. 

NMHB was a construction company who engaged Concrete Structures Limited to manufacture and supply concrete panels for a building project. Concrete Structures issued a statutory demand on NMHB on 16 February 2018 demanding the amount of $206,391.94 be paid, which comprised the two invoices, or payment claims, that were sent in September and December 2017.  The first payment claim attempted to secure payment for half the contract price of the concrete panels in advance of production.   

S 14 CCA

S 14 of the CCA allows parties to a contract to modify the statutory terms and to agree to their own “mechanism for determining” the “number”, “amount”, and “date” of payment. Two specific contractual conditions required firstly, that the requested concrete panels would be delivered to the construction site on the week commencing 06 November 2017; and secondly, that 50 percent of the total payment would be made in advance, with the final 50 percent being due on completion of final delivery. 

Sudden death under CCA

NMHB failed to issue a payment schedule in response to the two invoices that were sent.  Under the CCA, if a payment schedule is not sent in response to a payment claim within the specified time, then the payer becomes liable to pay the claimed amount. In other words, NMHB were required to either issue a payment schedule within the specified timeframe, or alternatively ‘pay now and argue later’.

In response to the ‘sudden death’ principle, NMHB argued that the invoices fell outside the scope of the CCA, in that security sought (monies paid in advance) is beyond the Act’s contemplation, and therefore they were not required to submit a payment schedule in the strict timeframe provided for in the Act.  In particular it argued that the payment claim must identify completed construction work, not security in advance of such work.  NMHB submitted that the language in section 20(2)(c) and section 6 CCA is only concerned with actual work, rather than security for work.  If NMHB succeeded in this argument, then that part of the payment claim that related to future work, would not require responding to by way of a payment schedule.  It would also be free to counterclaim against or set off the amount sought in the statutory demand.

The Judge disagreed with this argument, and said that a payment claim may still relate to future work, and therefore NMHB was still required to submit a payment schedule within the prescribed time.  She held that the interpretation of the Act as advocated by NMBH, would run counter to the wide discretion afforded by section 14, whereby parties were afforded the opportunity of determining the exact content of their contractual arrangements.  NMBH’s interpretation would be contrary to the purpose of the Act, being to swiftly facilitate payments between parties to a construction contract.  Further, it is not uncommon for companies to request security in advance, so if the payment claims of Concrete Structures were prohibited, this may have negative implications on parties in similar contractual relationships. 

Result

The Judge declined to allow the application to set aside the statutory demand, and ordered that NMHB pay $206,391.94 which was claimed by Concrete Structures.

For completeness sake, because the Judge decided the payment claims by Concrete Structures were valid, NMHB was not able to make a counterclaim or set off for the amount sought in the statutory demand, strictly applying section 79 of the CCA.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Facts. 

• 7 February 2016 Anderson and Volka (“the Owners”) entered into a written construction contract with Epsom Renovations Limited for work to be done to their Logan Terrace property.
• The nature of the work was rear site excavations, construction of retaining walls, internal works including installing a new stairwell, creating storage area, replacement windows and deck.  The estimated cost of these works was $453,200 subject to adjustments.
• The work commenced on 15 February 2016 and as at 31 May 2016 it was only 50% complete.  At this date, Epsom Renovations sold its business to McDowall Renovations Limited, absent any documents novating or assigning the building contract.
• Building work thereafter progressed for a short time before a dispute arose between the parties.  Anderson and Volka disputed their liability to pay the outstanding invoices and McDowall suspended work on the site until its outstanding invoices were paid.  The six invoices submitted by McDowall but not paid amounted to a total of $56,930.32.
• Anderson and Volka initially maintained that not only were they not liable to meet the invoices but that they were entitled to a counterclaim in excess of $100,000.
• On 16 November 2017 an Adjudicator was appointed, and by way of general summary these issues were referred to adjudication:-

i)                   Was McDowall entitled to be paid its $56,930.22?

ii)                 Had the Owners established its counterclaim of $47,161?

iii)               Who was liable to pay the Adjudicator’s fees and other legal expenses?

• The adjudication was determined on the papers and was issued on 31 January 2018.  The key finding was that the invoices rendered by McDowall were not responded to by method of compliant payment schedules, and these became payable by operation of the deeming provisions of the Construction Contracts Act 2002.  As regards the counterclaim brought by the Owners for delay, he denied this claim on the basis that delay had been raised late in the contract, and that they had allowed the contract to be extended by allowing the interior works to be started at or around the same time (I take it he meant at the time the delay was raised by them.)  The Adjudicator did find in favour of the Owners in terms of two minor defective works and ultimately ordered that they pay to McDowall the sum of $37,728.97 (less the deposit held) plus legal fees and interest of approximately $8,000.

The Owners sought judicial review of this decision primarily upon the basis that the Adjudicator had acted outside of his jurisdiction by deciding the McDowall claim on the basis of a non-responded payment claims.  The Owners argued that this aspect was never part of the matters that were referred to him for determination.  The Owners argued that they had never been afforded the opportunity to put submissions to the Adjudicator on this point nor the corollary point of whether in fact the invoices were in fact compliant payment claims for the purposes of section 20 of the Act.  In addition the Owners argued that:-

• he had failed to take into account relevant considerations;
• had taken into account irrelevant considerations;
• failed to give coherent and adequate reasons for his findings; and
• failed to make findings on the important issues that were raised for determination.

High Court findings. 

As a preliminary point, Justice Davison noted that the Owners faced a high legal hurdle and must demonstrate that the adjudicator had made a significant and substantial error of law or that there had been a fundamental and substantial breach of natural justice to warrant the Court exercising its discretion to grant judicial review relief.

He then found that the Adjudicator had never been asked to determine whether in fact the Owners had ever responded to the invoices in the form of compliant payment schedules, which was outside of his reference.  He noted further that the principles of natural justice had been seriously breached, in that neither party had been given the opportunity to prepare submissions on this aspect.  Furthermore, this had a compounding effect in that he then did not gone on to decide on whether in fact McDowall had completed the work represented by the invoices and was entitled to payment.

In addition he found that the Adjudicator’s reasons were inadequate and, in some instances, cryptic, and that he had in fact taken irrelevant considerations into account in making his decision.  In addition he had failed to take into account relevant evidence of a building expert as to time delays and building costs on this project.

The Adjudicator’s determination was quashed and the Owners were entitled to an award of costs.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Facts. 

This claim involved the Sebel Suites building located at the Viaduct Harbour on the Auckland waterfront.  It was an appeal brought by the relevant Body Corporate from a District Court decision which in turn was an appeal of the original Tenancy Tribunal decision, where both lower Court decisions found that the proper method of apportioning the cost of repairs was to do it based upon the utility interest of those units receiving a benefit from the repairs in accordance with section 126 of the Unit Titles Act 2010.

The Respondents were the owners of large outside decks which form a continuous whole that is divided into four separate parts.  Beneath this large deck is Unit S from which operates a restaurant.

The position advocated for the Body Corporate was that the deck is a “building element” which serves more than one unit, and pursuant to section 138(1) the Body Corporate had an obligation to repair the deck.  The repair involved repairs to the deck tiling and the membrane underneath the deck, as otherwise there remained a risk that water would enter into the ceiling cavity of Unit S.  On 30 March 2015 the Body Corporate resolved at its annual general meeting to undertake those repairs.  The repairs were completed at a total cost of $104,150.90.  Based upon advice the Body Corporate received from its solicitors, the owners which retained the decks were required to meet those costs in equal proportions.  Two of the four unit owners met those costs.  The two other unit owners disputed those repair levies.

Sections 126 and 138 of the Unit Titles Act 2010. 

The key issue for determination in the High Court was to reconcile the fact that both sections seemed to apply to the recovery of the cost of repairs of the decks, but depending upon which section was applied, the cost of repairs were to be apportioned differently.  As set out above, section 138(4) if applied required the costs to be met by the owner of the principal units, where the building element was located.  So, the owners of the four decks were required to equally contribute to the cost of repair.  However, section 126 enabled the Body Corporate to levy those unit owners that substantially benefitted from the repair based upon utility interest.  In this way, the Owner of Unit S who had its ceiling remedied against leaks, was also required to contribute to the cost of repairs.  

The Appeal to the High Court. 

On appeal the Body Corporate contended that it has open to it the option of recovering the cost of repairs pursuant to either section 126 or section 138(4) of the Unit Titles Act 2010.  On this interpretation the Body Corporate was free to recover the cost of deck repairs only from the owners of the four decks.

Whilst the High Court agreed with the Body Corporate’s primary contention that section 138(4) applies even where there are unit owners other than the principal unit owners (where repairs are completed) that benefit from repairs, it did not agree with the submission that the Body Corporate is free to choose what section to collect under.  Van Bohemen J concluded that both sections could apply at the same time.  He provided the following key principles to reconcile the two different sections:-

• The starting position is that the cost of repair is to be met by the principal unit owner where the repair is carried out;
• A one size fits all approach is not appropriate, account needs to be taken of the nature of the particular building or complex;
• The weathertightness of a building is interlinked and indivisible.  All owners have a mutual interest in keeping the building weathertight and in good repair;
• A departure from allocation of costs of repair to unit property based on title is appropriate where reasonably necessary to achieve what is fair as between unit owners in the circumstances;
• Where the repairs result in a substantial benefit to other units in the terms of section 126, recovery under that section is likely to be appropriate;
• Where the repairs benefit the building generally but do not benefit one or more units substantially more than they benefit other units, recovery from all unit owners on the basis of utility interest may be appropriate.

Ultimately the Body Corporate was unsuccessful on appeal, and recovery of the cost of repairs pursuant to section 126 was upheld by the High Court.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

Key facts. 

• This proceeding concerns Botany Downs Secondary College,  a large co-educational school in east Auckland.
• H Construction built the school buildings between 2003-2009.
• 9 of the school buildings are leaky according to the Plaintiffs.  They also contend it will cost $17m to remediate the school.
• They contend the buildings leak due to a host of construction defects.
• H Construction contend that whilst the buildings suffer from defects and related poor workmanship, they comply with the Building Code.
• H Construction also contends that its contractual relationship with the Plaintiffs prevents liability in negligence in any event.
• H Construction also relies on limitation defences and contributory negligence of the Plaintiff as a defence.

Legal principles

1. Whilst H Construction partially defended the claim on the basis that the construction defects had arisen due to design failings, it did not join the architect as a third party.  The Court was not willing to apportion blame to a party that was named in the proceeding.

2. Whilst a plethora of expert witnesses were called to give contradictory evidence on whether the roof leaked, the most probative evidence called was from those that worked at the School on a daily basis.

3. Councils owe a duty of care of care to owners of commercial buildings, similarly building companies/builders do as well.  There is no longer a distinction between residential and commercial buildings.  The Building Act 2004 supports such an interpretation.

4. It is very rare occasions that this duty can be excluded by contract.  It must be expressly and clearly done and rarely could the exclusion of tortious liability be implied.  H Construction argued that the contract conditions required it to:-

• To perform the works diligently to the architect’s satisfaction;
• It was not to be liable for loss or damage caused by a design defect;
• The architect was to inspect defective works during the defects liability period;
• The contract included an indemnity for damage due to any act or omission of the Ministry, architect or contractor employed by the Ministry. 

H Construction argued that these terms of contract placed the principle obligation on the Architect, to ensure compliance with the Building Code.  It argued that the imposition of a tortious duty would be directly contrary to the intent of the parties set out in the contract.

Justice Downs disagreed.  He ruled that H Construction could have negotiated an express exclusion of tortious liability but chose not to.  Instead it entered into a standard form contract with a “modest suite of special conditions”.  It was ultimately ruled that tortious liability was not excluded.

5. The duty of H Construction was a duty to ensure compliance with the Building Code which was an endorsement of the finding on the confines of the duty of care as espoused by Tipping J in Spencer on Byron. 

6. It endorsed the principle outlined in Pullar v R as regards when a defect is construed as being discovered rather than latent.  In the context of the gymnasium floor the Court ruled that once it was identified that the floor was leaking, then the defect had been discovered even if the fact that wooden packers had been used rather than the aluminium packers as specified, was discovered some time after.  Accordingly the 6 year limitation period imposed by the Limitation Act 1950, ran from the discovery of the leaky floor rather than the discovery of the packers not being wooden.

7. The guiding principle in relation to tortious damages is for the Court to put the Plaintiff in the position he or she would have been in if the wrong had not occurred.  It follows from this general statement of principle that if a Plaintiff finds itself having to remediate a building to a higher building standard, due to changes to the Building Code, after a building was constructed but in application at the time it is to be repaired, then all of the costs of building are recoverable.  It follows that the betterment defence based upon a higher standard of building code compliance being required at repair stage, was rejected as a partial defence.

Ultimately H Construction was ordered to pay the Plaintiffs the sum of $13.5 million to pay the majority of the construction defects.

Author note. 

At the time of writing, the Football World Cup is at quarter finals stage.  I predict France to win the 2018 Football World Cup.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

This issue has been addressed by the Law Commission in 2012 and 2014.  The accountability of tortfeasors (wrong doers) in New Zealand is underpinned by the “joint and several” liability rule, which is used to determine the liability of multiple parties in tort (negligence) law and how costs are allocated among them.  Tort law is primarily concerned with ensuring an injured party is fully compensated (“made whole”) for damage or loss caused by negligent parties.  The “joint and several” rule has raised concerns amongst the building sector about fairness, risk aversion, risk avoidance and cost.

It is important to set out how the rule works.  If a leaky house is built and the Council, the builder and the developer are all found liable for the entirety of the cost to repair the leaky house, the home owner can seek 100% of the liability from a party of its choice. Typically the home owner would seek the full 100% from the Council, and leave it for the Council to seek the various apportionments from the other parties.  In particular underlying the judgment will be apportionment of liability in respect of the three parties.  Potentially the Council might attract 20% apportionment, the builder 40% apportionment and the developer 40% apportionment.

Section 17 of the Law Reform Act 1936 provides for contribution between multiple parties for the same damage.  Alternatively equitable contribution can be claimed.

Various alternatives to joint and several liability have been considered but proportionate liability was considered the most viable replacement.  It is now in place in most Australian states.  Under proportionate liability, negligent parties are only required to contribute a set proportion.  The Court determines the set proportion based upon on the extent to which each negligent party was liable for the Plaintiff’s loss.  In the example set out above, the Council would only be liable for 20% of the liability no matter the solvency of the other parties.  Where a liable party is insolvent, then the victim bares the loss.

But proportionate liability was not advocated for in the Sapere Report (a specialist report commissioned by the DBH 26 April 2011).  For proportionate liability to work and not impact too negatively on consumers, it would need to be accompanied by comprehensive mandatory home warranty insurance, so as to ward off the vulnerability of the victim not being able to recover all of its loss because one of the parties is not able to meet its proportionate liability.  This is known as the “empty chair” phenomenon.  If a development company is no longer in existence it is not going to meet its 40% proportionate liability.  But the insurance can be expensive, burdensome (policy may require consumer exhaust recovery actions before insurance pay out), policy exclusions may limit cover, and the solvency of insurers can be unreliable as well.  In addition insurers in the NZ marketplace are reluctant or disinterested in providing this type of cover.

The conclusion reached in a briefing paper from the Minister of Building and Construction to Cabinet was that there was not sufficient benefits to come from a proportionate liability system to justify moving away from the joint and several liability scheme.

Whilst it is important to acknowledge the legitimacy of territorial authorities’ claim that proportionate liability would take away findings where they must pay where other refuse to or are unable to, it noted that any misalignment between joint and several liability in the building sector, was also caused by:-

• the laws of insolvency and bankruptcy;
• specific conditions in the building and construction sector.

The policy choice as between joint and several liability versus proportionate lability comes down to a “choice between a liable defendant having the risk that a co-liable defendant will not be able to pay their share, or the plaintiff bearing that risk.”  The Law Commission as recently as 2014 have concluded that protection should continue to be afforded to the innocent party.  Liable defendants who have actually caused the harm should bear the risk of the “empty chair”.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

This paper is directed at the statutory and regulatory framework that historically and currently regulates building works.  In the first part of this paper I will attempt to address the causes of the leaky building crisis.  In the second part I will address whether the Building Act 1991 had a role to play in the leaky building crisis.  In the third part I will then move into the introduction of the Building Act 2004, and review the key provisions of this legislation.  I will then address the changing regulatory and legislative environment, and review how the Building Consent Authorities have adapted in practice to these changes.  The fifth and final aspect of my paper will consider whether today, the construction industry is better served by a more prescriptive system, that would avert the potential for future disasters, such as the leaky building crisis.

The causes of the leaky building crisis broken down. 

My starting point in this regard is the Report of the Overview Group on Weathertightness of Buildings to The Building Industry Authority dated 31 August 2002 (“the Hunn Report”)[1].  In particular this report was at pains not to attribute the leaky building crisis to any one cause but rather a multitude of causes operating together.  These can be summarised as follows:-

• There was a building boom, from June 1992 to June 2002, where 220,000 consents were issued, or 22,000 per year with an average value of $132,000;
• New construction methods and consumer desire for more complicated design detail, with few second lines of water ingress protection;
• Home owners desire for indoor-outdoor flow, cubism, flat roofs, and more complicated architectural design not necessarily conducive to New Zealand weather conditions;
• Consumer and developer preferences for complex building forms with a multiplicity of junctions and penetrations;
• Our climate brings high rain and high winds, and in Auckland vertical and horizontal rain.  This requires more responsible design practices;
• Monolithic cladding systems were promoted as being low maintenance and providing a sealed waterproof outer skin.  It was the interface of different products which was allowing water in;
• The move away from boric treated timber to untreated kiln dried timber. Kiln dried timber was much more susceptible to rot;
• A decline in building quality monitoring, more labour only contracts, use of project managers but no architect supervision or a clerk of works supervising building standards;
• The total oversee of the project was missing a key quality control person/a clerk of works.  A typical situation at leaky building adjudications/mediations attended by the writer:- at the conclusion of evidence/summary of parties’ positions, there was often a complete void of an explanation as to how a house had been constructed, where every trade denied responsibility for overseeing the entirety of the project.  The situation on site clearly played out in these dispute resolution mechanisms;
• Labour only builders saw themselves as merely a component in the creation of the total building envelope, rather than having a responsibility to co-ordinate the components where they had to make sure that the weaknesses of one part were compensated by the strength of another component;
• The Hunn Report says the way in which building projects were organised, especially on the large multi-unit residential developments, was the use of a majority of labour only contractors, remotely linked to the central managers of the project;
• The sequencing of work and tying in of trades and different building components was somehow being lost between trades, or between the various labour only subcontractors;
• Architecture had been driven towards the art end rather than the science and technical aspects of the construction of buildings;
• Lack of independent testing of building practices or building products in New Zealand.  Often any product testing was not independent but funded by interested parties such as cladding suppliers;
• The clarity of lines on any construction project as between owner/designer/builder had become blurred;
• Research into weathertightness was sparse, and often self-serving to sponsor;
• BRANZ was the key research hub but was under resourced;
• There was some clear technical knowledge lacking in the building industry.  E.g. Lack of understanding as to how to use or how flashings perform, along with sill trays, sealants, jointing materials and compounds including their proper application, need for flashings at junctions and penetrations, (often these were minimal or non-existent), and systemic problems in the way that components were put together;
• Belts and braces approach to construction had gone.  No acceptance that water will enter the envelope, no second line of defence thought through.  How does one manage water once it enters the building envelope?
• There was a lack of understanding of the need and use of control joints;
• With monolithic cladding, it had become too easy to get an Alternative Solution cladding system through the consent process;
• Too much dependency on producer statements and product appraisals in the alternative solution scenario;
• Flowing from one of the objectives that came out with the literature surrounding the aims of the 1991 Act to minimise compliance costs, there was evidence of kpi’s at territorial authorities being directly related to the speed by which a consent issues, the inspections were completed, and a CCC issued.  These were poor practices leading to poor outcomes; 
• The Overview Group considered it essential that any objective to hold down the cost of construction must not be allowed to drive a “down to cost” as opposed to “up to standard” mentality; 
• Clear evidence that both territorial authorities (“TA”) and certifiers felt constrained in terms of the level of service they could provide due to cost cutting;
• The Acceptable Solution for both B2 durability and E2 External Moisture were considered inadequate.  They did not cover modern cladding products and lacked comprehensive detail.  There was too much focus on individual products rather than how they operated with other products;
• The detail in AS1 for E2 had been criticised because of its reliance upon sealants.  Reliance on sealant and the poor application of it, has led to significant water ingress.  It was vigorously overhauled at the time of the Hunn Report, and the focus of this overhaul was directed at system rather than product level;
• Minimal design details (including weathertightness detail) provided at consent stage.  Council were accepting of this approach;
• Inspections not vigorous enough, and there was a complete absence of testing of systems;
• The limits of the building certifiers authority were easily breached but not understood by construction people and certainly not the eventual homeowner.  Certifiers were approving alternative solutions which were outside their scope of authority;
• Maintenance requirements were not being passed onto the end user;
• No tertiary education courses were available to certifiers;
• Poorly worded building code, setting out performance requirements, which had trickled down to the appraisal system for products;
• A general decline in skill levels across all trades.  Workmanship practices and the on-site working environment with little trade coordination and supervision had led to poor building outcomes/quality;
• The Appraisal System under section 58(4) of the Building Act 1991 did not adequately protect TA/Certifier/Home Owner against E2 and B2 failings.  Within a system that had been appraised there was often a complete absence of identifying the competency level of tradesman required to ensure a code compliant system.
• Product suppliers (in particular cladding suppliers) were in the practice of using product appraisal terminology to ensure sales. In some cases misplaced marketing material was being used by TAs/certifier to meet the “reasonable grounds” test for code compliance;
• The Appraisals issued were focused upon the product rather than their integration into a building system;
• The limitations placed upon the compliance of products within certain conditions, or application conditions contained within a product Appraisal, were inadequate or in some cases non-existent. 

Failing of Building Act 1991 and/or application of it. Has it been a cause of the leaky building epidemic?

• The Hunn Report in their Addendum report of 31 October 2002 was quick to highlight that the 1991 Act came into force at the time of a laisser-faire philosophy in terms of regulation in the 1980’s/1990’s.  This was reinforced by the way in which the Act had been implemented and administered;
• The legislative framework that this Act came from was an increasing concern within the building industry, and the increasing costs associated with building controls operating at that time;
• In 1986 the Building Industry Commission was formed.  According to the Hunn Report, its primary objectives were to:

a)    Determine, within a suitable economic forum, the most appropriate and publicly beneficial regulatory system for building control; and

b)    Where it considered minimum performance standards necessary, prepare a simplified and uniform performance-oriented national building code that would bind the Crown.[2] 

• The essence of its findings were:-
• The system of building regulation was multi-levelled, disparate and inefficient;
• It involved 19 Government Departments administering over 30 statutes;
• Territorial authorities were also heavily involved administering their own bye-laws;
• The Fire Commission had jurisdiction over parts of each building;
• The building industry faced high compliance costs as it had to follow prescriptive laws;
• There was little scope for builders/developers to use cost effective alternatives due to the prescriptive nature of the building controls.

The mantra taken from this Commission was that regulatory intervention should be limited to:-

• Provisions safeguarding people’s well being;
• Insufficient assurance that market forces, self regulation, or self interest will do the job;
• Provisions protecting other people’s property;
• Provisions relating to national interest.

The Building Act 1991 was then passed as a direct result of this Commission.

• The Building Act 1991 came into force on 1 January 1993.  It provided a national system of building control; and it was performance based rather than method based (specifying how the work was to be done).  It placed responsibility for enforcing building control at territorial authority level or to a lesser extent upon approved building certifiers.
• The purpose of the Act was set out in section 6.  Its purpose was to provide necessary controls relating to building work in the use of buildings, and to ensure they were safe and sanitary, and had means of escape from fire.
• It provided controls to safeguard people from injury, limit the extent of fire, protect other property affected by building work, provide facilities for disabled people, and facilitate the efficient use of energy.
• Section 6 of the Building Act 1991 also required that due regard be had to the national costs and benefits of control amongst other aims.
• No attempt was contained within the Building Act 1991 to control or limit an owner’s choice of design style or protect an owner’s commercial interest.  There was no attempt to regulate builders or architects or other trades/professions contained within.
• Key to the application of the Building Act 1991 was the building code.  It was a schedule to the Regulations passed under the Act and contained the mandatory provisions for new building work.  It is still used to this day, although there have been amendments made over the course of time.
• As it was put in the Hunn Report[3], the Building Act 1991 was concerned with achieving social objectives, and was written in terms of placing duties on building owners to be enforced by territorial authorities.  It was not concerned with providing remedies to building owners as against those responsible for the building works, but did go so far as to record a ten year long stop limitation provision (section 91).
• The Hunn Report concluded that there was wide support for the performance-based approach of the Act, and most interviewed did not want to return to the non-uniform and highly prescriptive method-based controls.  There was ample evidence of the Act having allowed innovation in, and the freedom to choose design, materials and construction solutions.
• It considered the Act to be fundamentally sound but deficient when it came to residential dwellings and these were likely to have contributed to the current weathertightness problems.
• In particular there was a lack of emphasis upon the fact that a residential building needed to provide shelter to occupants, being both weathertight and durable.  Consequently, weathertightness and durability had not been given appropriate attention and emphasis in the Act, the Code and the compliance documents.  The report contended that the weathertightness of a building was fundamental to the achievement of so many of the other provisions in the Code. 
• There was a lack of accountability for those responsible for construction mishaps/defects.  The market forces in themselves were not sufficient to protect the key stakeholder being the home owner.  The power imbalance as between home owner and the supplier was significant, such that you cannot rely upon market forces alone to protect the home owner.  There was little to protect them within the 1991 Act and other legislation.

Other authors have attributed blame on the prevalent neo-liberalism market philosophy which was predominant at the time the Building Act 1991 was passed.  In particular in an article entitled Habitable Housing; Lessons Learned[4] the authors opined that the deregulation that occurred in the 1990s occurred in a neo-liberal political context, where too much reliance was placed on the market as regulator.  They considered the leaky building crisis as a failure of the purist market model.  The building reforms were described as embracing “the faith of the market and limited government intervention.”

At 16.3 it states:-

“The case of leaky homes is an exemplar of asymmetry of information, where potential buyers may be totally unaware of major structural problems with a dwelling.  In a sale of the house, the real estate agent is the agent for the vendor and if he or she is not told the by owner, or does not ask, they are not required to disclose the status of the building.  Thus, the buyer may be ignorant of crucial facts highly pertinent to the weather-tightness of the asset they are considering purchasing; in many cases they have relied on the fact that the home they are purchasing has been “passed by Council”, a view that was reinforced by the significant Court of Appeal decision in Hamlin.”

Dr Brian Easton in his paper Regulation and Leaky Buildings[5] supported this proposition but also considered other elements key in bringing about the leaky building crisis.  In particular, the removal of two institutions which had in fact protected actively against a crisis such as this, in the late 1980’s.  These institutions were the Building Performance Guarantee Corporation and the Ministry of Works and Development.  He placed particular importance upon the Building Performance Guarantee Corporation which was formed in 1978 to offer an insurance scheme designed to protect buyers of new homes against the consequences of poor workmanship, the use of inferior building materials, the bankruptcy of the builder, or other failures to complete a house in accordance with the contract.  It is easy to see how the NZ public would have been much better protected by such a Scheme in the context of the leaky building crisis.

Dr Easton then enquires as to why it is that the performance-based Building Code appeared to succeed for the Canterbury earthquakes but not for leaky buildings.  In his paper he notes the existence of the Earthquake Commission, that during the period where laissez faire regulation was “vogue”, had strengthened regulation rather than abolished it.  EQC and the private insurers had a real interest in compliance with the Code in the context of earthquake risk.

May in his paper “Regulatory regimes and accountability[6] concludes “that there have commonly been shortfalls in at least three levels of accountability in New Zealand.  Politically the response has been very slow and led to major human costs, as well as financial losses.  The leaky buildings crisis has repeatedly led to engagement at higher levels of successive governments, but it is highly unlikely that the current financial offer will finally resolve the issue.  In the area of legal accountability, the definition of structural durability was too imprecise and remains very minimal compared to other jurisdictions.  There was also a shortfall in bureaucratic accountability in the 1990s (which led to the demise of the BIA), in failing to ensure that the safe and water-tight buildings were constructed.  However, limited research on building systems means that there are still shortfalls flowing from inability to assess or predict performance.”

The Hunn Report emphasised the collective causes at play.  There was no single cause that brought about this crisis, rather a number of issues working upon many levels.  The collective system (of regulations, the building industry, and housing market) have let down the party with the biggest stake, being the home owner.  There were inadequacies in the Building Code, problems with the building products, materials and components, trade skills and site supervision, and insufficient inspections in the building process.  The Hunn Report made 18 recommendations including that:

• There be a public inquiry in the building industry to examine wide-ranging issues relating to building;
• Products be properly appraised;
• Product longevity be considered;
• Public good benefits be examined.

In addition, in relation to the Building Act 1991 and the Regulations, it concluded that any review of the Building Act 1991 ought to promote the concept of improving compliance process efficiency without compromise to building standards or quality.

Any review of “Approved Documents” ought to consider the concept of optimised “whole of life” costs as opposed to minimised capital cost.  There was a need to develop more prescriptive Acceptable Solutions and Verification methods for E2 and B2.

The product accreditation system was simply not working to protect home owners and there was now an unofficial product accreditation system that was damaging.

There was significant criticism of the role played by the BIA within the report.  Ultimately the BIA had been charged with administering the Act yet there seemed to be inadequate rules and guidance as to how the functional and performance requirement for E2 and B2 were met.  In particular what would be sufficient to meet the “satisfied on reasonable grounds” test for the issue of a CCC as regards E2 and B2 of the Building Code.  Both certifier and Council Officer had difficulty in applying this test.  In particular Hunn stated[7]:-

“In relation to the Durability and External Moisture provisions, the “satisfied on reasonable grounds” compliance test cannot be measured against any definitive or quantifiable criteria – unlike most of the other provisions.  It must be subjective, thus leading to the very inconsistency the Act was designed to avoid.”

In particular Hunn was critical of the emphasis placed upon BRANZ product appraisals in relation to cladding products and systems to satisfy the “reasonable grounds” test.

The Building Act 2004. 

The Legislature’s response to the Hunn report and the leaky building crisis was the Building Act 2004.  The government’s response was to tighten regulation of the sector by introducing a series of reforms, notably reinforcing and introducing new input controls, that have been progressively implemented since 2004.

This Act repealed the 1991 Act with the overall intention of creating a new controlled environment for the building industry.  It introduced new performance-based standards aimed at restoring the public confidence and was a response to the systemic building design and construction failures exposed by the findings of the Hunn Report.  It created a new framework for the regulation of building works, and at its passing contemplated a complete rewrite of the Building Code by 2007.  It established a licensing regime for building practitioners and set up a new accreditation regime for authorities managing the building consents process.  It was intended that the improvements in the standard of building works and the reduced risks of building defects would balance out the associated additional costs that the 2004 Act would inevitably bring about.

Key elements of the reforms included:

• Strengthening the role of the central regulator;
• Reviewing the Building Code, increasing the amount of support of the Code, and providing for bans or particular ways of building in particular circumstances;
• Ensuring that there was a base of capable (qualified and knowledgeable) people to undertake building design and critical elements of building work and inspection, by requiring licensing of building practitioners, and requiring accreditation and audit of building consent authorities;
• Strengthening the independent scrutiny that plans and construction work receive in the building consent and inspection process;
• Strengthening support for consumers through mandatory warranty terms implied for all contracts for building work.

Inevitably there were drafting problems with the new Act.  Somewhat tellingly Chris Carter, the Minister for Building Issues, in reply to a question in the House of Representatives relating to the difficulties that were emerging with the phasing in of the new Act stated that:

“With any piece of legislation with 451 clauses there are bound to be problems in drafting…the 1992 Companies Act….has been amended 9 times.  The 1991 Resource Management Act has been amended 13 times.  Mistakes do occur, but the important thing is to fix them up.”

An expanded definition of “building work” is contained within section 7 of the Building Act 2004.  It is defined as:-

“(a)      means work –

(i)            For, or in connection with, the construction, alteration, demolition or removal of a building; and

(ii)          On an allotment that is likely to affect the extent to which an existing building on that allotment complies with the building code; and

(b)       includes sitework; and

(c)        Includes design work (relating to building work) that is design work declared by the Governor General by Order in Council to be restricted work for the purposes of the Act; and

(d)       in Part 4, and the definition in this section of supervise, includes design work (relating to building work) of a kind declared by the Governor General by Order in Council to be building work for the purposes of Part 4.”

The definition of ‘building work’ in the Building Act 2004 was expanded to include work on an allotment that is likely to affect the extent to which an existing building on that allotment complies with the building code.  As well as including sitework, ‘building work’ now also includes building design that is declared through Order in Council to be restricted work. This means building consents will be required in situations where they may not previously have been required.

Section 8 defines “building” and sets out what would not be considered to be a building.  The definition of “building” is inclusive rather than exclusive and places most structures into the ambit of the Building Act 2004.

It is noted that this definition has expanded from the 1991 version to now include the following structures:-

A fence around a swimming pool;

A vehicle that is immovable and that is occupied on a permanent or long-term basis;

A mast, pole or telecommunications aerial more than 7 metres tall and attached to a building;

The non-moving parts of a cable car attached to or servicing a building;

After 30 March 2008, the moving parts of a cable car attached to or servicing a building.

Achieving compliance.

Section 49 sets out the criteria that a Building Consent Authority (“BCA”) will apply to grant a building consent.  It provides:-

49

Grant of building consent

(1) A building consent authority must grant a building consent if it is satisfied on reasonable grounds that the provisions of the building code would be met if the building work were properly completed in accordance with the plans and specifications that accompanied the application.

(2) However, a building consent authority is not required to grant a building consent until it receives—

(a)   any charge [or fee] fixed by it in relation to the consent; and

(b)   any levy payable under section 53 …

[(c)   Repealed.] 

It utilises the historically problematic terminology “satisfied on reasonable grounds”, that as recorded in the Hunn Report, the BCA’s had previously found difficult to interpret in the context of E2 and B2, in the absence of detailed prescriptive documents (the Acceptable Solutions were lacking).  

The position is no different as regards the issue of Code Compliance Certificates.  Section 94 again uses the test of “satisfied on reasonable grounds” but this time it relates it back to compliance with the consent.  It provides as follows:-

94

Matters for consideration by building consent authority in deciding issue of code compliance certificate

(1) A building consent authority must issue a code compliance certificate if it is satisfied, on reasonable grounds,—

(a)   that the building work complies with the building consent; and

(b)   that,—

(i)   in a case where a compliance schedule is required as a result of the building work, the specified systems in the building are capable of performing to the performance standards set out in the building consent; or

(ii)   in a case where an amendment to an existing compliance schedule is required as a result of the building work, the specified systems that are being altered in, or added to, the building in the course of the building work are capable of performing to the performance standards set out in the building consent.

(2) In deciding whether to issue a code compliance certificate, a building consent authority must have regard to whether a building method or product to which a current warning or ban under section 26(2) relates has, or may have, been used or applied in the building work to which the certificate would relate.

(3) If the owner fails to provide to a building consent authority an energy work certificate in relation to energy work in respect of which a building consent has been granted, the failure is a sufficient reason for the building consent authority to refuse to issue a code compliance certificate in respect of the energy work.

(4) If a development contribution has been required to be paid or made under section 198 of the Local Government Act 2002, a building consent authority that is other than the territorial authority that made the requirement must refuse to issue a code compliance certificate in respect of the relevant building work until the building consent authority has received—

(a)   evidence that the development contribution has been paid or made by the owner concerned to the territorial authority; or

(b)   a copy of a written agreement between the owner and the territorial authority that the code compliance certificate may be issued.

(5) Subsection (1) is subject to subsection (4). 

It is apparent though, in terms of the interplay of these two sections, that the issue of the consent is of primary importance.  Once this issues, so long as the building work complies with it, then the most likely outcome is the issue of a Code Compliance Certificate.  Practically speaking, this means where changes to design are encountered during the course of a build (for example passive fire compliance required in the context of multi-unit remediation), then the Property Owner will be required to seek an amendment to its consent before progressing further if it wishes to obtain a Code Compliance Certificate at the conclusion of the build.

A related provision in terms of the issue of the original consent is section 19 which sets out how compliance with the Building Code is established.  It provides:-

 19

How compliance with building code is established

(1) A building consent authority … must accept any or all of the following as establishing compliance with the building code:

(a)   compliance with regulations referred to in section 20:

[(b)   compliance with an acceptable solution:]

[(ba)   compliance with a verification method:]

(c)   a determination to that effect made by the chief executive under subpart 1 of Part 3:

[(ca)   a current national multiple-use approval issued under section 30F, if every relevant condition in that national multiple-use approval is met:]

(d)   a current product certificate issued under section 269, if [every] relevant condition in that product certificate is met:

(e)   to the extent that compliance with a requirement imposed by regulations made under the Electricity Act 1992 or the Gas Act 1992 is compliance with any particular provisions of the building code, a certificate issued under any of those regulations to the effect that any energy work complies with those requirements.

(2) In considering whether something complies with the building code, a building consent authority or, as the case may be, a regional authority—

(a)   must have regard to any relevant warning issued, and ban declared, under section 26(2); and

(b)   may have regard to any guidance information published by the chief executive under section 175.

Compare: 1991 No 150 s 50 

So there are a variety of mechanisms available to Owner/Developer/BCA to satisfy the reasonable grounds test.  Today the BCA is greatly assisted by much more detailed Acceptable Solutions that provide significant details as to methods of compliance.  For example the Acceptable Solution as it relates to E2 is a significant document that addresses weathertightness compliance on the various building componentry encountered in buildings.  In particular it is a near on 200 page document and has been amended 7 times since the issue of its Third Edition on 1 July 2005.  Similarly the Acceptable Solution for durability B2 is another significant document. 

Of course the Building Act 2004 sets out other mechanisms by which building works will be deemed to comply with the Building Code.  In short these are as follows:-

• Compliance by method of a determination by the Chief Executive being a whole determination process;
• A multiple use approval issued by the Chief Executive which streamline the building consent process for house designs to be replicated on scale;
• A current product certificate issued by the Chief Executive which is effectively a building method or product that has been deemed to be code compliant;
• Finally, compliance with the Regulations that are made under section 20 of the Act, which in turn calls up section 401 being Regulations issued for earthquake prone buildings.

Section 14 is interesting in that it sets out the responsibilities of various stake holders in construction work.  In particular, responsibilities of owner/builder/designer/BCA are defined. Section 14F it sets out the responsibilities of a BCA as follows:-

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.]

 Again the requirement for code compliance is front loaded at consent stage, where as the requirement to assess with inspections is compliance with the building consent.  Similarly, the obligation placed upon builder is to ensure compliance with the building consent (see section 14E).  Nevertheless section 17 clears up any potential chasm of responsibility created as between a consent incorrectly issued and a builder slavishly following the consent, or a builder carrying out work that does not need a consent.  It states:-

17

All building work must comply with building code

All building work must comply with the building code to the extent required by this Act, whether or not a building consent is required in respect of that building work.

However the significant change as between the 1991 Act and the 2004 Act is in respect of the test that the BCA must satisfy before a CCC is issued.  The focus is on compliance with the consent rather than the building code which must affect the focus of inspections.

Section 112 addresses alterations made to existing buildings.  It provides as follows:-

112

Alterations to existing buildings

[(1) A building consent authority must not grant a building consent for the alteration of an existing building, or part of an existing building, unless the building consent authority is satisfied that, after the alteration,—

(a)   the building will comply, as nearly as is reasonably practicable, with the provisions of the building code that relate to—

(i)   means of escape from fire; and

(ii)   access and facilities for persons with disabilities (if this is a requirement in terms of section 118); and

(b)   the building will,—

(i)   if it complied with the other provisions of the building code immediately before the building work began, continue to comply with those provisions; or

(ii)   if it did not comply with the other provisions of the building code immediately before the building work began, continue to comply at least to the same extent as it did then comply.]

(2) Despite subsection (1), a territorial authority may, by written notice to the owner of a building, allow the alteration of an existing building, or part of an existing building, without the building complying with provisions of the building code specified by the territorial authority if the territorial authority is satisfied that,—

(a)   if the building were required to comply with the relevant provisions of the building code, the alteration would not take place; and

(b)   the alteration will result in improvements to attributes of the building that relate to—

(i)   means of escape from fire; or

(ii)   access and facilities for persons with disabilities; and

(c)   the improvements referred to in paragraph (b) outweigh any detriment that is likely to arise as a result of the building not complying with the relevant provisions of the building code.

[(3) This section is subject to section 133AT.]

So ultimately one will not get a consent for the alteration of an existing building unless the Regulator is satisfied the building will, after the alteration, comply as much as possible with those aspects of the building code relating to the means of escape of fire and access/facilities for people with disabilities.

However, this is not the end of the matter.  A person may still obtain a consent to complete an alteration of an existing building if it can show that precise compliance with the building code will prevent the alteration going ahead, and the alteration would result in improvements to the means of escape as well as access/facilities for the disabled.

However it is important to realise that the compliance and/or improvement relating to the means of escape of fire and access/facilities for people with disabilities, must be in respect of the whole building, not just the altered aspect.

An important feature of the Act is section 364 which made it an offence for a residential property developer to sell a household unit such that the purchaser goes into possession prior to a Code Compliance Certificate having issued.  This section caused difficulty and  uncertainty for developers,  for under the new regime, a Code Compliance Certificate only issued if the building work complied with the building consent.  If work had diverged from the consent, an amended consent needed to have been sought.  There was born a need to produce detailed design drawings at consent stage, which made it difficult for a developer to change course during the project without seeking an amended consent and thereafter losing valuable time on a project with no doubt as to cost implications.

In addition, Code Compliance Certificates must be issued within two years of building consent being granted.  Interim code compliance certificates are no longer available.  Developers of unit title complexes were hardest hit by these changes as all units needed to be completed before Code Compliance Certificates issued.   This was dissimilar to the previous position, where a developer in this situation would apply for a widely drafted building consent short on detail, and then obtain interim code compliance certificates as the works progressed.  A work around is to carry out the development based upon staged consents. However this approach comes with extra consent fees and further potential time lags as one waits for each consent to issue.

Certificate of acceptances were a new concept originating from the 2004 Act.  They did exist under the 1991 Act albeit they were known as “safe and sanitary” certificates.  It is an inferior class of quality assurance and will be issued by the Council if it is satisfied that already completed building work complies with the Building Code.

There has been criticism of the regulator since the passing of the Building Act 2004 and its officiating of it.  Typically the criticism levelled at territorial authorities, is for being overly bureaucratic, and therefore stonewalling developers and builders.  Some writers have analysed the approach of the BCA’s as being a case of going back 20 years in time to a regime that existed before the 1991 Act.  With private certifiers effectively removed as a building consent authority, due to their inability to meet the requirements of accreditation under the Act, (no insurance being available to them), ultimately all the control was put back in the hands of the territorial authorities for the issue of consents and Code Compliance Certificates.  They too however have been hit hard by the leaky building crisis, so they are approaching the compliance regime very much aware of the potential liability that could accrue.

Changes to the Building Act 2004 and the regulations thereunder. 

At times, as better understanding of building practices are developed, and weaknesses in current levels of construction are discovered, the Regulator must react to those changes. 

Annexed as Schedule A at the back of this paper is an attempt to list legislation and regulation changes that the Councils and other stake holders in the construction industry have had to address since the 2004 Act was passed.  There is a constant need for the key parties operating in the industry to adapt to its changing statutory and regulatory framework.

In this regard, a good example is the exposure of non-compliant passive fire measures which have been identified as part of the leaky building remediation process.

In 2008 BRANZ funded research to address concerns within the fire protection industry that the passive fire protection systems were not up to standard.  That research identified significant issues where design, installation, inspection and ongoing maintenance could be significantly improved.  These same issues were identified in the remediation of leaky buildings.  The problems could be summarised as design (the wrong passive fire protection system being used), installation (the work has not been done properly) and certification (the system has not been signed off properly).

This in turn created a need for the Council to look internally at how it was certifying new works or alteration works in terms of passive fire protection.  There are numerous examples in the context of leaky building remediations of Council requiring works to stop pending an amended consent issuing to remediate the passive fire rating systems.

There has been vocal criticism of the Council process that existed before these issues were identified for passive fire protection.  There was a predominant approach of Councils to rely upon producer statements for passive fire protection certification.  Compliance with section 112 of the Building Act 2004, in relation to means of escape from fire, typically used to constitute little more than assessments of existing fire alarms, escape routes and exits.  The definition of “means of escape from fire” in the Building Act however encompasses passive protection features in a building that are required to assist in protecting people from the effects of fire in the course of their escape, in short preventing smoke inhalation.  Council therefore began the process of requesting rectification of defective passive fire systems.

Whilst the passive fire issue outlined above does not reflect an amendment to the Building Act 2004 per se, it reflects the regulator having to apply the existing Act to changing building knowledge.  What we have seen in the context of leaky building remediation is a willingness of Council to retrospectively consider passive fire protection in the context of remediation for another purpose (leaky buildings), all in the interests of ensuring a building complies with the building code.

In practice now, before a designer embarks upon preparing his remediation drawings for a large scale reclad upon a multi-unit residential building, it will seek a report from a passive fire expert, which is the best practice, and now expected by the Regulator.

A more recent change in respect of fire related to external claddings facades.  This was brought about by a fire in Docklands, Melbourne where the façade caught fire.  MBIE changed the Acceptable Solution for Fire and released this change just prior to the Grenfell Apartment Fire in London.  This created real difficulties for Council in terms of ensuring compliance with this significant change with great haste.  

Another example of the changing regulatory framework was the introduction of the Building (Product Certification) Regulations on 30 September 2008.  These regulations overhauled the existing system for product appraisal.  Key features contained with the regulations were as follows:-

• A product certification body must comply with ISO/IEC Guide 65: 1996.  General requirements for bodies operating product certification systems;
• It must retain records that establish compliance with the Regulations;
• It must have in place procedures for certifying each building method or product;
• The criteria and standards for certification are stringent, and all provisions of the Building Code must be complied with in which certification is sought. The relevant acceptable solution or verification method, are the relevant provisions of ISO/IEC Guide 65:1996, and must be under the control of a person who is or has applied to be a certificate holder;
• A quality plan needs to be submitted in respect of the building product or method which specifies the procedures to be followed, and the person to be responsible for those procedures, and must be consistent with ISO/IEC Guide 65:1996.  In addition, the applicant must provide an assurance that the method or product to be certified has been produced in accordance with the quality plan;
• Samples must be supplied which is an accurate representation of the product;
• Onerous disclosure system where changes are made to particulars of certificate holder or for changes to building method or product.  In addition onerous disclosure requirements are imposed upon the certificate holder where he/she knows or suspects that a product does not comply with the building code.

Ultimately the effect of these Regulations was to tighten up the eligibility requirements to be a product certification body, and the process of product certification.  The changes brought about to the product certification process, no doubt in response to the damning comments made in the Hunn Report as to product certification processes under the 91 Act, and the unofficial processes, ought to have instilled in Council more confidence in relying upon product certification as a means of establishing compliance at building consent and code compliance issue stage.  So here we have changes brought about by the Building Act 2004 and the Regulations made thereunder, providing the Regulator with real impetus to take more confidence from product certifications provided as a means of establishing a building consent complies with the Building Code.

However, that is the theory but not necessarily the reality at Council level.  Ultimately the responsibility for product certification falls under the domain of MBIE.  They in turn contract the accreditation of product certifiers to an entity JAS-ANZ, or more formally known as Joint Accreditation System of Australia and New Zealand.  As at the date of writing, there are 4 separate product certifiers available to the public in terms of getting their product certified.

In speaking to an experienced Council Officer, whilst the product certification scheme has been tightened up by the regulations, designer/builder/Council Officer need to tread with care when relying upon there certificates for compliance. The certifications often come with a long line of specific conditions that must apply and are often for products which only amount to a component of the build.  It is their use with other materials which can often affect their compliance.

Furthermore, certifications are only valid as at the time they were issued.  The building industry and the knowledge within is a moving matrix.  The Regulations are at pains to ensure product owners update their product certificates where there are changes to the Acceptable Solutions.  Nevertheless in practice the Regulator can receive outdated product certificates at consent stage pre-dating key changes to the Acceptable Solution literature.  In addition products with product certificates may be detailed to be used with products that the certificate does not cover.

In practice, the Regulator must be cautious of relying too much on these product certifications even now.

Are we now better served by a more prescriptive Act so as to avert another leaky building/construction defect crisis?

There is an immediate assumption in the question posed, that is incorrect.  The Building Act 2004 that replaced the 1991 Act does not lay down some prescriptive method of compliance for the various stake holders to follow in order to ensure compliance.  Nor does the Building Code which still to this day is effectively the 1992 Code with some minor amendments.  So in short, the Act and the Code are still concerned with performance rather than method to ensure performance.

However the difference today is the breadth/depth of the Acceptable Solutions available to designers/builders/Councils alike.

This is not surprising considering the amount of knowledge on weathertightness issues alone that came about because of the leaky building crisis.

So it is fair to say that there is more methodology readily available to the stakeholders to ensure compliance.  In speaking with experienced Council compliance officers though, Alternative Solutions are still regularly sought at consent stage.  There would be very few buildings that do not have an alternative solution included to some extent.  Some are simple, and require a simple design to satisfy the Council of compliance.  However others are complex, and the Council will require an entire report with supporting documentation in the form of test reports to satisfy itself of compliance of the building code at consent stage.  The Council will often require a designer to explain how their method complies.

However even in these alternative solution situations, a fully detailed Acceptable Solution is a useful reference point to test the alternative method against.

So it seems the industry is now better served by more prescriptive Acceptable Solutions rather than a more prescriptive Building Act or Building Code.  The quality of design documentation is improving, the detailing having improved markedly, but often the supporting information still undermines many building consents.

That is not to say though that leaky buildings are not still being built.  There is enough evidence around of leaky buildings being repaired for the second time to show that not all issues have been resolved since the Hunn Report.  If you couple this, with the non-compliance of many buildings with the passive fire regulations, then one could quickly conclude that the construction industry is not currently sitting in a comfortable position in terms of compliance.

In other jurisdictions such as Canada and North America which also suffered from the leaky homes issues, significant research went into the problem.  In Canada the central government imposed a moratorium on the use of most exterior insulation and finishing (EIF) systems of cladding, whilst it grappled with how to build houses such as this that did not leak.  Yet that kind of research, not to mention that drastic central government intervention, never happened in New Zealand.

As opined in the paper Habitable Housing; Lessons Learned:-

“Institutional analysis would suggest that the solution to a complex policy issue is to create an organisation dedicated to the desired purpose – here building durable, energy efficient building that can adapt to climate change and provide a healthy indoor environment for the occupants over an extended period.”[8]

Conclusion. 

The New Zealand experience in terms of construction regulation has “see-sawed” between a prescriptive system to a performance driven system, to what probably could now be considered as a hybrid of the two.  A Building Act 2004 which again pays lip service to the market approach of regulation of the 1990’s but backed up with a prescriptive detail in the forms of Acceptable Solutions, Standards and many more regulatory frameworks.  Whilst there has been significant learning from the leaky building crisis and this information goes into the construction industry knowledge basket, there is a sense that we are not that much further ahead, and could well be subject to a further disaster as large and formidable as the leaky building crisis.

BIBLIOGRAPHY 

1. Tobin, R., (2008). Tortious liability for defective building. Butterworths Conveyancing Bulletin, 13(49), pg 1-4.
2. Parliamentary library. (2002). Leaky buildings: executive summary. (Parliamentary note). New Zealand.
3. D. Hunn, I. Bond, and D. Kernohan. (2002) Report of the Overview Group on the Weathertightness of Buildings to the Building Industry Authority, Building Industry Authority, Wellington.
4. Department of Building and Housing. (2007). Building for the 21^st Century: Report on the Review of the Building Code. (Department of Building and Housing). New Zealand.
5. Department of Building and Housing. (2005). Building Officials’ Guide to the Building Act 2004. Auckland, New Zealand: Department of Building and Housing.
6. Burn, G. (2010, September). E2 and E2/AS1. Build 119, 27-29.
7. Kelly, D. (2011). Review of the Construction Contracts Act 2002: Proposals for Change. Regulatory Impact Statement. Department of Building and Housing.
8. Williamson, M. (Date unknown). Building Act Review: Review of Joint and Several Liability. Department of Building and Housing.
9. Williamson, M. (Date Unknown). Building Act review: Regulation of guarantee products and services. Department of Building and Housing.
10. Mills, M. (2010, July). Building Act review: Proposals and options for reform. Department of Building and Housing.
11. Townsend, S. (2010, November). Building Act Review: ensuring compliance with the consumer protection measures in the building and construction sector. Department of Building and Housing.
12. Clark, A. (2011, June). Building Act review: Regulation of guarantee products and services. Department of Building and Housing.
13. Building (Product Certification) Regulations 2008.
14. Rawlinson, J. (Date Unknown). Where There is Smoke There is Fire. Prendos. Retrieved 02/22/2018 from http://prendos.co.nz/where-there-is-smoke-there-is-fire/
15. Divich, F. (2016, December). The Risks Posed by Non Compliant Passive Fire Measures. Heaney & Partners, Straight Up, 18.
16. Rawlinson, J. (Date Unknown). Passive Fire Protection Systems. Prendos. Retrieved 02/22/2018 from http://www.prendos.co.nz/passive-fire-protection-systems-in-the-building-industry/
17. Ministry of Business Innovation & Employment. (2016). Acceptable Solutions and Verification Methods. Wellington, New Zealand: Ministry of Business Innovation & Employment.
18. Edwards, J. (2007). Public registers and privacy. New Zealand Law Journal [2007] NZLJ 146.
19. Steele, A. (2015). When are producer statements supplied in the course of construction action-able? Butterworths Conveyancing Bulletin. 134-137.
20. Lexis Nexis. (2009). Government policy and initiatives. Resource Management Bulletin.
21. Tobin, R. (2006). Attorney-General v Body Corporate No 20020. Butterworths Conveyancing Bulletin (NZ) (2006) 12 BCB 48.
22. Section 3, Standards and Accreditation Act 2015.
23. Section 4, Housing Accords and Special Housing Areas Act 2013.
24. Healthy Homes Guarantee Act 2017.
25. Callaghan Innovation Act 2012.
26. Affordable Housing: Enabling Territorial Authorities Act 2008.
27. Easton, B. (2011). Regulation and Leaky Buildings. In Alexander et al., The Leaky Building Crisis: Understanding the Issues (pp. 35-44).
28. Howden-Chapman, P., Ruthe, C., & Crichton, S. (2011). Habitable Housing; Lessons Learned? In Alexander et al., The Leaky Building Crisis: Understanding the Issues (pp 303-315).
29. Brebner, M. (2014). Auckland’s Housing Affordability Problem. New Zealand Journal of Environmental Law, 18, 206-239.
30. Dower, A. (2005). The Building Act 2004: Overview. The New Zealand Law Journal. 184-186.
31. Thomas, R. (2011). Damage to Common Property in a Unit Title – Who Suffers the Loss? In Alexander et al., The Leaky Building Crisis: Understanding the Issues (pp. 185-206).
32. Auckland Council. (2018). Mandatory building warranties: Putting risk where it belongs. New Zealand: Norman, D.
33. Hardy, G. (2004). Some nasty surprises are contained within the new Building Act 2004. Law News, 47, 8-9.
34. Ogden, D. (2008). A step back in time for the once bitten? NZ Lawyer, 18-19.
35. Ministry of Business, Innovation & Employment. (2014). Acceptable Solutions and Verification Methods: For New Zealand Building Code Clause. Wellington, New Zealand.

SCHEDULE A 

List of construction related legislation passed since 2004 still in force which affects the construction of buildings. 

 List of Building Regulations that have come into force since 2004

Factual background. 

• In 1999 the Southland Indoor Leisure Centre Charitable Trust (“the Trust”) was granted consents by the Council to construct an indoor sports and leisure complex in Southland.  The building consents contained structural plans from the Consulting Engineer. 
• During construction it became apparent that several of the steel strusses which spanned the roof of the community courts section, were visibly sagging. 
• In November 1999 the Trust engaged Mr Harris and HCL, to peer review the original design of the community court trusses to ensure that the structure following remedial work was sound and within acceptable design standards. 
• In December 1999 HCL provided a structural report which identified defects in the design of the trusses.  The Consulting Engineer prepared a structural steel modification drawing which provided for modifications to be made to the community courts trusses. 
• On 4 January 2000 HCL provided a producer statement – PS2 Design Review which incorporated remedial detail in line with the modification work to the community courts trusses.  It also included a letter which contained the proposed remedial detail. 
• On 14 January 2000 the Council issued a building consent for the modification work to be completed in accordance with the revised design prepared by the Consulting Engineer.  A condition of the consent was that it incorporated the remedial detail prepared by HCL. 
• The modification work was carried out in January 2000 in accordance with the revised design.  A CCC was issued by the Council on 20 November 2000, and on 17 January 2001 the Consulting Engineer provided a further producer statement. 
• In April 2006 the Council became aware of movement in the roofline where the trusses spanned over the community courts.  As a result on 12 April 2006 the Trust engaged Mr Harris and his firm HCL, to review the roof structure to ensure that the building was safe in the event of snowfall on the roof.  On 9 June HCL provided a report which confirmed the ability of the trusses over the community courts to withstand the loading changes of wind and snow, but did recommend inspections of the truss weldings and support fixings. 
• On 18 September 2010 the roof collapsed on the Indoor Leisure Centre following a heavy snowstorm.  As a result of the loss suffered by the Trust, High Court proceedings were issued against the Council.  The Council denied liability and issued proceedings (albeit it third party proceedings) as against Mr Harris and his firm HCL (the Third Parties).  The Council’s third party proceedings were ultimately resolved out of Court.  The Trust’s claim was successful against the Council in the High Court.  This outcome was overturned by the Court of Appeal on the basis that the only cause of action that was available against Council (other causes of action were statute barred because of limitation defences) was in negligent misstatement based upon the wrongly issued Code Compliance Certificate.  The Court of Appeal ruled that there had been no reliance by the Trust upon this document. 

There were two issues taken on appeal from the Court of Appeal to the Supreme Court.  The first of these was the issue of whether in fact there was available to the Appellants (the Trust), a cause of action in negligence simpliciter as against the Council.  The Council had argued successfully at Court of Appeal level that the only cause of action available to the Appellant was negligent misstatement based upon the issue of the Code Compliance Certificate.

The Supreme Court considered the statutory framework set out in the Building Act 1991 in considering whether a cause of action based upon negligence simpliciter, existed against the Council in this instance.  The Supreme Court unanimously ruled that a duty of care was owed by Council in all the regulatory functions that it delivers.  It originated from its regulatory role which was directed at ensuring buildings comply with the relevant building code.  This meant that the duty was not obviated by another party’s negligence.  Furthermore, there was no distinction between a Council issuing a consent, inspecting construction work or issuing the Code Compliance Certificate.  Reasonable care must be exercised in carrying out these roles, otherwise its key regulatory function would not be achievable.  Accordingly, the Court of Appeal was wrong to consider this as only a negligent misstatement case and the Council had breached its duty of care by negligently issuing a CCC when the building was not code compliant.  Actual reliance was therefore not a necessary constituent of a successful claim in negligence against the Council, and the finding of liability against the Council by the High Court was reinstated.

On the other issue of contributory negligence, the majority affirmed the Court of Appeal’s decision in this regard and ruled the damages apportionment found against Council ought to be reduced by 50%.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.

The background factual matrix to this proceeding was a leaky building repair contract on a multi-unit complex that had gone well over budget.  Naylor Love was the contractor, and it had successfully taken the Body Corporate through two adjudication determinations.  These two determinations left the Body Corporate owing near on $4,000,000.00.

Ultimately the adjudication determinations were only interim decisions as the construction contract referred matters in dispute to arbitration for final determination.  In fact, despite the two determinations, the Body Corporate had issued arbitration proceedings as against Naylor Love.

The Body Corporate openly admitted the Court that its purpose in bringing the judicial review proceedings was to avoid paying the determinations whilst arbitration proceedings were pending.  Having been prepared to concede that point, the Body Corporate argued the Court ought to intervene by way of judicial review for the following reasons: -

• Aspects of the dispute ruled upon by the adjudicator were time barred by the contract such that they were no longer capable of dispute;
• The Adjudicator had ruled on disputes that were not referred to him;
• The contract precluded the Adjudicator from deciding upon rate escalation;
• The subsequent Adjudicator had wrongly considered issues decided in the earlier adjudication (res judicata), and was not prepared to reconsider these issues.

The thrust of this High Court judgment was that it would be reluctant to allow judicial review proceedings to upset the philosophy of the Act.  Its intervention ought to be rarely used.  Early in the decision of Brewer J he quotes this passage as setting out the difference between appeal and judicial review.

“Review is concerned with the legality of the decision, whether it was reached “in accordance with law, fairly and reasonably”.  A reviewing court must address the process and procedures of decision-making and ask whether the decision should be allowed to stand.  Appeal, in contrast, entails adjudication on the merits and may involve the court substituting its own decision for that of the decision-maker.  “

Whilst the Court was willing to entertain judicial review of a determination, it was weary of the fact that the matters in dispute in this instance were to be resolved in another forum.  Accordingly, it ruled that the Court would be sparing in the exercise of its discretion.  It then cited the Court of Appeal decision of Rees v Firth which said very much the same thing about not allowing the review process to cut across the regime of the Act.  The Court quoted this telling segment from the Court of Appeal decision:-

“[27} The Courts must be vigilant to ensure that judicial review of adjudicators’ determinations does not cut across the scheme of the CCA and undermine its objectives.      In principle, any ground of judicial review may be raised, but an applicant must demonstrate that the court should intervene in the particular circumstances, and that will not be easy given the purpose and scheme of the CCA.  Indeed, we consider that it will be very difficult to satisfy a court that intervention is necessary.”

The Court then turned its attention to each of the grounds put forward by the Body Corporate which it argued was reviewable by the Court.  On every count, the High Court ruled that the proper process for the final determination of the point was in the concurrent arbitration proceedings.  Or put another way, these were arguments that were properly dealt with on appeal rather than by way of review.

In respect of the argument that the second Adjudicator was wrong to consider the prior adjudication as having already decided arguments put (res judicata (in latin)), he ruled that it would make no procedural nor statutory sense for the same issue to be repeatedly determined by adjudication

Accordingly, the judicial review proceedings failed on every ground, and this Body Corporate was left liable for not only the $4,000,000.00 worth of adverse determinations, but also High Court costs.

This is an important decision to start the new year because it demonstrates the Court’s unwillingness to fetter the pay now argue later philosophy of the Construction Contracts Act 2002.

Post note.  This article should not be considered or relied upon as legal advice, and at all times specific legal advice ought to be sought. 

The starting point for this discussion is the Construction Contracts Act 2002.  Section 80 sets out the usual methods of service such as personal service, last known business address or post.  However section 80(d) opens up the possibility of an alternative method of service as stipulated in the Construction Contract Regulations 2003.  In particular Regulation 9 provides that any document prescribed by the Act can be served by email or other means of electronic communication so long as Regulation 10 is adhered to.

Regulation 9(3) then addresses what must be established to prove service via method of electronic communication, and when service is to have effect.  It records that where the recipient has designated an information system for the purpose of receiving email or other electronic communications, it will be deemed received/served at the time the email or communication enters that information system, or alternatively at the time the email communication comes to the attention of the recipient.  It is to be noted at Regulation 9(4) information system is defined to mean a system for producing, sending, receiving, storing, displaying or otherwise processing emails or other electronic communications.

Regulation 10 states that a document may be sent by email or other electronic communication only if the information contained within the notice/document is readily accessible, and the recipient has consented to being served in that manner.  However Regulation 10(2)(b) goes on to explain that consent may be inferred from a person’s conduct.

Potentially the provisions contained within the Contract and Commercial Law Act 2017 which absorbed the provisions on electronic communications formerly included in the Electronic Transactions Act 2002 (now repealed) are of application, however they add nothing to the position under Regulations 9 and 10 of the Construction Contracts Regulations 2003.

So to summarise, the Construction Contracts Act 2002 and its Regulations contemplate service by way of email.  However service by email must be consented to either expressly or by route of inferred consent through a party’s conduct.  In order to establish service is complete, the email must have entered the recipient party’s designated information system or failing that, be brought to the attention of said recipient.

Is it still problematic proving service by email?

It is apparent though, that Regulation 9(3) creates a potential difficulty in terms of proving service of an email.  Whilst the sender may be able to establish that the email was sent to a specific email address, this is not the same as establishing that the email sent entered the recipient’s designated information system.  In particular there are a whole host of reasons why an email would not ultimately reach the prescribed information system.  By way of example there may be a problem with the host server where emails are not being dispersed or alternatively a virus scan may prevent an email/attachment being delivered.  This list of reasons why an email sent may not reach an intended recipient is not meant to be exhaustive.

Full proof method of service via email. 

It seems to me that in light of the potential difficulty with the interpretation of Regulation 9(3), the sender of a required document under the Construction Contracts Act 2002 is vulnerable to an argument to the effect that the said document was not received in my designated information system.  In order to prevent any possibility of such an argument on service being raised, the full proof method so as to prove service is for the sender to activate the “delivery receipt and “read receipt” tools in its own information system as it sends the email, and to print the confirmations when they arrive.  In this way, the proof requirements of email set out in Regulation 9(3)(a) and (b) are easily met.  It is noted that on some systems though the reader receipt tool can be controlled by the recipient.

It is not surprising therefore some construction contracts expressly require the additional steps (“read receipt” and/or “delivery receipt”) before service is deemed effective.  However these express terms contained in the contract would still be subject to the less specific wording contained in section 80 of the Construction Contracts Act 2002 and Regulations 9 and 10.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.