NAVIGATING LIABILITY: THE SUPREME COURT'S RULING ON CONTRIBUTION CLAIMS IN CONSTRUCTION

Posted by Jesvin Boparoy in News

In a landmark decision, the New Zealand Supreme Court recently ruled on the case of Beca Carter Hollings & Ferner Ltd v Wellington City Council [2024] NZSC 117. The case has significant implications for the construction industry and legal practitioners, particularly concerning the interplay between the Longstop provision under the Building Act 2004, which prevents claims relating to building work from being brought more than 10 years after the act and omission and the contribution regime under the Limitation Act 2010.

Key Facts of the Case

Between 2006 and 2010, the Bank of New Zealand (BNZ) constructed a purpose-built headquarters in Wellington. The building was designed by Beca Carter Hollings & Ferner Ltd (Beca), which issued producer statements for the substructure and superstructure. The Wellington City Council (Council) served as the building consent.

1. Construction Timeline: The construction of the building took place between 2006 and 2010, tailored to meet BNZ's requirements.
2. Damage Event: In November 2016, the building sustained irreparable damage due to the Kaikōura earthquake.
3. Legal Proceedings by BNZ: On 2 August 2019 (just under 10 years after the Council issued its last code compliance certificate), BNZ filed a lawsuit against the Council, claiming negligence related to the design of the building’s substructure and superstructure, and negligent misstatement seeking over $100 million in damages.
4. Contribution Claim by Council: In response to the BNZ claim, the Council filed a statement of claim against Beca on 26 September 2019, seeking contribution under section 17(1)(c) of the Law Reform Act 1936 and in equity, asserting Beca's role as a joint tortfeasor. The Council argued that contribution claims were not subject to the 10-year Longstop provision. Instead, they argued that such claims fell under section 34 of the Limitation Act 2010, which provides a two-year limitation period for contribution claims starting when BNZ’s original claim was quantified. According to this view, the time for making a contribution claim had not yet started running.
5. Producer Statements by Tortfeasor: Beca had been engaged by CentrePort to undertake design work and monitor construction, issuing producer statements for the building’s substructure on 19 February 2007 and for both the substructure and superstructure on 12 March 2008. The Council relied on these statements when granting building consents and issuing code compliance certificates.
6. Appeal case: The High Court found in favour of the Council. Beca appealed. The Court of Appeal dismissed the appeal, upholding the High Court decision. Beca then sought leave to appeal to the Supreme Court.

Key Issue

The primary issue in the Supreme Court was whether the Wellington City Council's claim for contribution from Beca was barred by the 10-year Longstop provision in section 393(2) of the Building Act 2004.

Supreme Court's Decision

In a split decision of 3-2, the Supreme Court ruled that the Longstop provision does not apply to contribution claims. The Court dismissed Beca’s appeal, affirming that the Council's claim is not time-barred.

Delivering the majority judgment, Justice Ellen France emphasised that there was no clear intention by Parliament to override the established regime for contribution claims when it enacted the Building Act 2004. If the legislation were intended to change this regime, it should have made that clear.

The majority also pointed out that any other interpretation would perpetuate the injustices the contribution regime was designed to prevent. They affirmed that it is possible to reconcile the statutory purposes of the Building Act 2004—aimed at providing certainty and finality in building claims and preventing indefinite liability—and the Limitation Act 2010, which seeks to remedy injustices faced by joint tortfeasors.

Conversely, the minority acknowledged that there were compelling policy arguments on both sides. Still, it concluded that treating contribution claims as an exception to the clear language of the Longstop provision would undermine the key objectives of the Building Act reforms, which aimed to provide certainty in timeframes and protect against stale claims.

Understanding Contribution Claims

This case also sheds light on how contribution claims operate within the legal framework. The contribution regime allows multiple parties to share responsibility for the same loss, which is particularly relevant in construction contexts. For instance, developers, designers, builders, and consent authorities may all hold varying degrees of liability for the same incident.

The regime is designed to ensure that if a claimant chooses to sue one of these parties, that party can seek contribution from the others within a two-year window following the resolution of the claim. This mechanism aims to distribute the financial burden fairly among those responsible.

Practical Implications and Observations

The Supreme Court ruling brings several significant implications for stakeholders in the construction industry and legal practitioners:

1. Clarification of Contribution Claims: The majority decision confirms that the Longstop provision of the Building Act does not impede contribution claims, allowing defendants to pursue contributions after the primary claim period has lapsed. However, even if a contribution claim is no longer limited by the 10 year longstop, it still requires the plaintiffs’ original claim to succeed before contribution can be established.
2. Accrual of Contribution Claims: With the cause of action for contribution claims accruing upon a finding of liability, parties must remain vigilant about their rights and timelines. Parties will therefore need to be conscious of the fact that their liability may extend out much longer than the 10 years they may be used to. Timely resolution of disputes and careful documentation of liability findings become essential.
3. Insurance Considerations: The ruling potentially extends the liability period for all participants in the construction industry, particularly for consultants. As a result, the cost of obtaining professional indemnity insurance may increase, and contractors and consultants should consider obtaining insurance that extends beyond the 10-year Longstop period.
4. Legislative Update: This decision may lead to calls for legislative reform to clarify the relationship between the Longstop provision and the Limitation Act to ensure certainty and fairness in liability claims. This is especially related to the uncertainty around whether the contribution claim needed to be brought within two years of the claim being made (or proceedings being issued).

If you have any questions about bringing a claim for contribution and/or the 10-year longstop, please get in touch with:

Jesvin Boparoy | Senior Associate | Jesvin.Boparoy@shieffangland.co.nz

Kalev Crossland | Partner | Kalev.Crossland@shieffangland.co.nz