Two Ways to Fix the New Zealand Building Act 1

Monday, July 14th, 2014
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2 ways
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As events surrounding the collapse of the CTV building during the Christchurch Earthquakes and the ‘leaky homes’ debacle which has seen the construction of thousands of homes which do not meet weathertightness standards show, more could be done to minimise repeat occurrences in the future.

One such area revolves around the Building Act itself and the measures needed to fix it – the subject of a paper I presented to a Building Officials of NZ conference in Wellington in April.

Two key areas stand out: replacing the unfair joint and several liability (JSL) system with a more equitable scheme of proportional liability, and the introduction of mandatory building practitioner insurance.

Known more colloquially as ‘deep pocket syndrome’, the JSL system applies where there is more than one defendant to a construction dispute (e.g. an architect, an engineer, a builder and perhaps a territorial authority) and means that where one or more of the parties becomes insolvent, the other parties are liable for the entire amount of the damages, including those attributed to the insolvent party, irrespective of their responsibility or otherwise for the cause of the problem.

Such an unfair system means others (often territorial authorities i.e. local councils) have been left footing the bill after those who wind up companies migrate profits elsewhere prior to their company’s insolvency. Insurers, too, are forced to underwrite the liability of other insured parties who are left with the burden of defector indemnification of the defunct.

Instead, what is needed is a more equitable system of proportionate liability, one whereby defendants are liable for their own judicially assessed apportionment of liability.

Not only would this arrangement be more fair, it would pave the way for insurers, who would be forced to provide indemnification for their own insured clients only, to underwrite a scheme of compulsory insurance which would provide consumers with the guarantee of payment following favourable judgements. It would also mean insured defendants do not face the prospect of bankruptcy if found liable for an award.

Sadly, there is an entrenched determination in certain circles to remain steadfast in their support of JSL notwithstanding the costs to councils and rate payers who are effectively insurers of last resort.

This should not be the case.  If the country wants fair and equitable outcomes, the status quo must change and the system that leaves others including ratepayers responsible for the debts of those who go on their merry way must be done away with.

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  1. Andrew Heaton Andrew Heaton

    The idea of one party having to pay the debts of other parties for no other reason than the party in question being unable to pay or escaping liability through some dodgy form of phoenix activity seems absolutely ludicrous and inherently unjust.

    If you are partly responsible for building defects, common sense suggests you should only be held accountable to the extent the failure is your fault, Not to the extent that it is someone else's fault.