Liability – what’s the best solution for our sector?

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This has resulted in some parties paying for more than they are actually legally liable for, or being found liable for amounts that they perceive as out of proportion to their actions.
This last man standing, deep pocket outcome is often considered unfair by those who have to pay, and there have been calls for proportional liability to be introduced.
Now, to be clear, some think proportional liability means that if your proportion of the build is, say, 5%, then the total exposure to any liability is 5%. Wrong.
If you caused 100% of the damage then you are liable for the lot, irrespective of what percentage of the build you did — and there is no call on any other party by the affected property owner as no one else is culpable.

Now that sounds fair enough doesn’t it? Well, yes, unless you are the home owner. If the negligent party no longer exists, the home owner is left high and dry with nowhere to turn. With J&S this issue does not arise, at least not to the same degree.

The RMBF has submitted on J&S to the Law Commission. We are of the view that a building professional:
• should be responsible for their own work, and
• should not be held responsible for work that he or she did not do or had any input into or control over.
And the RMBF supports home owners being protected.
So what can be done to balance these competing perspectives — ie, continue to protect the home owners but provide fairness and equity to the contributing parties in the case of a claim?

Fairer outcome
It is clear that introducing proportional liability will provide a fairer outcome for those parties contributing to any repair costs, but exposes home owners if not all parties exist.
So in order to protect home owners, something needs to be introduced to balance the ledger.
One mechanism that works in the residential space is a home warranty. Should a home owner take one out, and the builder is unable or unwilling to fix an issue, the surety company will step in and do so (assuming it meets the conditions of that warranty).

The Master Build Guarantee has been doing this for decades. Indeed, a recent article in the New Zealand Herald by a liquidator managing a building company collapse confirmed the Guarantee has real value.
Some argue that as J&S applies to all sectors of New Zealand, it is too difficult to isolate just the construction industry and treat it differently. We do not agree — they managed to do it in Australia.

Furthermore, others say that if you introduce proportional liability it must be accompanied by compulsory home warranties. Again, we do not agree, as compulsion brings with it a whole host of complications. They tried it in Australia and it failed.
The home owner should be free to choose if they want cover or not, and the market should be free to develop the products and services the consumers require.
Just like insurance products (and a home warranty is not insurance), the risk appetite will differ from individual to individual, and insurance is not compulsory.

Consumer protection proposals
So if home warranties are not compulsory how are home owners protected? Well, it just so happens that the consumer protection proposals under Building Act Amendment No. 4 provide the perfect opportunity to solve that problem.

One of the key recommendations in the Bill is the introduction of a disclosure regime whereby certain information will have to be disclosed to home owners before a building contract is entered into (and written building contracts will be compulsory over a certain amount).
This is to ensure consumers (home owners) are well informed before they make a final decision on who they will engage as their builder — ie, they make an informed choice knowing the consequences of their decision.

With this in place, it is a simple matter to disclose to the home owner if a home warranty is available. The home owner can then decide whether they want a warranty or not, knowing the risks of that decision under a proportional liability regime.
We think this system provides the balance that consumers and the construction sector need, and urge the Law Commission to side with us.

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