Despite signs of recovery in the industry, construction disputes remain a persistent challenge across projects. Rob Georgiou and Jessica Musgrove of law firm Greenwood Roche discuss the key limitation periods that contractors should be aware of when it comes to construction disputes, along with the administrative practices that support efficient dispute management.
The construction industry is particularly prone to disputes due to the complex and lengthy nature of building projects. Issues relating to defective work arise frequently, and defects are not always obvious at the time of completion, with some defects emerging many years, or even decades, later.
For this reason, it is important that contractors, consultants, and other construction professionals understand the limitation periods
applicable to building owners when bringing monetary claims for defective building work, and consider how best to protect themselves before any dispute arises.
Key limitation periods for building work claims
In New Zealand, the primary limitation periods are set out in the Limitation Act 2010 and the Building Act 2004. These do not prevent claims from being made against contractors, but they may provide contractors and other parties with a defence to claims.
Primary Period (section 11 of the Limitation Act):
A claimant is barred from bringing a monetary claim (such as a claim for damages arising from defective building work) if it has been more than six years after the act or omission that caused the defect. This six-year time frame is known as the “Primary Period”.
Late Knowledge Period (section 14 of the Limitation Act):
Even after the Primary Period has expired, a claimant may still bring a claim if they can show they had late knowledge of the act or omission that caused the defect. The claimant must file proceedings within three years from the date they acquired that knowledge.
For example, if a defect is discovered in year four of the Primary Period, the claimant has a further three years from that discovery date to bring a claim.
The Late Knowledge Period is defined as the earlier of either:
• the date on which the claimant gained knowledge (actual knowledge), or
• the date on which the claimant ought to have gained knowledge in relation to the act or omission in which the claim is based (constructive knowledge).
Constructive knowledge is the point at which the claimant had knowledge of the requisite facts and information that would lead a reasonable person to investigate whether a right to claim for damages exists.
This means that a party wishing to bring a claim in relation to building work cannot ignore signs of an issue and rely on the late knowledge period to bring a claim. A claimant must act punctually once they become aware of significant issues, or they risk their claim being time barred by the limitation period.
10 Year Longstop:
The Building Act 2004 imposes an absolute 10 year Longstop for claims relating to building work. This period runs from the date of the act or omission on which the claim is based. After 10 years, no claim can be brought, regardless of when the defect was discovered.
Contribution Claims:
The Supreme Court decision in Beca v Wellington City Council [2024] NZSC 117 confirmed that the 10 Year Longstop does not apply to Contribution Claims under section 17 of the Law Reform Act 1936.
Contribution Claims allow a party who has been held liable for a loss to seek reimbursement from another party who is partly responsible. These claims can be brought up to two years after the original claim is quantified and a finding of liability has been made.
The two-year period begins on the date which the person claiming the contribution has been found liable to the original plaintiff (ie when the judgment in relation to the proceeding is given) or has otherwise settled with that plaintiff.
This means contractors and other parties may still face contribution claims many years after their involvement in the project, particularly given the time it can take for the initial claim to progress through the courts.
What counts as an act or omission?
Determining when an act or omission occurs is fact-specific. For contractors, the relevant date is generally when the particular scope of work was clearly completed.
Importantly, there is a distinction between continuing work and separate work. If a contractor completes one scope and later returns to perform unrelated work, the limitation period for the first scope of work does not restart.
Practical considerations for contractors
Given that defects may take many years to surface, contractors should take proactive steps to protect themselves. Some key considerations are:
• Maintain detailed project records: Include scope, variations, completion dates and site instructions. Personnel may move on, and clear documentation is essential for defending claims. In addition, those involved in the building work need to retain records until the resolution of any project claims, as these may result in contribution claims.
• Retain key project correspondence: Emails, meeting minutes, RFIs, and site instructions often become central evidence in defect disputes. Contractors should retain these documents and ensure that important communications are stored in an accessible, centralised system.
• Insurance: Ensure insurance (such as professional indemnity insurance and public liability insurance) is kept in place after the project has been completed. Professional indemnity insurance operates on a “claims made” basis and, therefore, must be in place when the claim is made against a party.
It is also important to ensure that any designers or architects have adequate insurance in place, should you need to make a claim against them.
• Have a clear understanding of the scope of work: Consider what works falls within the scope of work under the contract, and whether any additional work you undertake is separate or continuing work as this will impact when the limitation periods begin.
