WHRS Claims Builder’s Personal Liability and Contributory Negligence

July 1, 2004

In this month’s article I wish to comment upon aspects of two recent WHRS adjudications. You will remember from previous reading, that an adjudication is the next step in the leaky building process, if mediation fails. It is the step most akin to a Court hearing, and is presided over as if it was a Court hearing. There exists an appeal right to the District Court from the decision made at such an adjudication.

Claim File No 00210.

This claim concerned a property in Wellington that had been purchased in the mid 1980′s. Alterations and additions were carried out to the house in 1987 and 1988. The claim was brought against the Hutt City Council and the Builder.

The assessor had determined that the amount of remedial work required to remedy this leaky building was around $11,000. One of the interesting arguments to be determined related to the personal liability of the Builder. The claim had been brought against the Builder in his own name rather than in the name of his company which had been struck off the register and was no longer trading. It was obviously in the interests of the Claimant to bring an action against the Builder personally as any judgment awarded against the now de-funct company was going to be worthless to the Claimant.

It was contended by the Builder that the Claimant had contracted with his company and that he had no personal liability to the Claimant. The quotations for the building work were given on the letterhead of his company with a GST number. The signed contract documents were in the name of his company, and these were signed by him as Director. Furthermore, all of the Architect’s issued instructions were in the name of the company, bar the last one which was issued in the name of him personally. It was concluded by the Adjudicator that in light of this evidence, a claim could only be brought against the company itself and not the Builder personally.

Claim File No. 0119.

This was a large claim involving the Claimants and 12 respondents. It involved a property in Porirua City. The property that was the subject of this claim was the 5th unit to be built at the address. It was estimated prior to the adjudication that the total cost of the necessary remedial work was $120,924.80.

One of the key issues as the hearing unfolded was what contribution/apportionment of liability could be allocated to the various parties to the adjudication. It was found by the Adjudicator that the party who sold the property to the Claimants was properly described as being Head Contractor/Construction Manager. The Adjudicator also determined that the Porirua City Council could be found liable to the Claimants for the full amount of the remedial works and the $5,000 worth of general damages.

The Adjudicator then had to consider what a fair contribution ought to be between the Council and the Head Contractor.

It was concluded that the Head Contractor must shoulder the main responsibility for the defective construction. The Territorial Authority is essentially supervisory and he concluded that the responsibility should be treated as being significantly less than that of the principal author of the damage. The Adjudicator relied upon the Court of Appeal decision of Mount Albert Borough Council v Johnson as authority for an apportionment of responsibility in the amount of 80% to the Head Contractor and 20% to the Council.

It was also held by the Adjudicator that there was an element of contributory negligence from the Claimants to their own loss. In particular one of the Claimants Mr Mcquade had experience in the construction industry, and it was held that with his experience he should have been alerted to the possible problems. He failed to take any action. The Adjudicator concluded that the Claimants ought to have the damages awarded in their favour reduced by 33%.

In conclusion, some obvious advantages can be seen from a builder contracting in a company name. So long as he is consistent and at all times corresponds in his company’s name, he will avoid attracting personal liability. For all those Builders out there not already contracting via a company, I recommend that you incorporate a company immediately to protect yourself against exposure to personal liability.