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The 9 key pillars of good practice building regulatory ecology.

When viewed through global lenses the New Zealand Building Act 2004 (The NZ Act) is an interesting piece of legislation and when compared with some jurisdictions has ‘some’, and it is emphasised ‘some’ commendable elements. There are however areas that warrant revision if there is a desire to embrace international good practice.

This piece will offer some ideas for consideration. 

1. Practitioner Registration:

The Building Act has a licencing regime that registers licenced building practitioners (LBP). The categories of licences are:-

• Design, 
• Carpentry, 
• Roofing, 
• Brick and block laying, 
• External plastering, 
• Foundations, 
• Site.¹ 

Many jurisdictions would not register this cohort as they are by and large tradespeople that are contracted to head contractors such as builders. Acts of parliament such as the NSW Home Building Act NSW and Victorian Domestic Building Contracts Act have an entirely different registration emphasis in that the head contractor, the builder is required to be registered rather than the tradespeople or sub-contractors.

Recommendation for Consideration

The current cohort of registrants could be maintained but consideration could be given to the registration of the head contractor i.e. the residential and commercial builder. After all, it is the builder that assumes overall responsibility for building the structure in its entirety and to have a regime where the principal or head contractor is not considered to be ‘central casting’ could be said to be very unusual at least if one looks through the lenses of comparisons abroad.

Building Surveyors: 

Neither building surveyors nor building inspectors are categories of registrants under the LBP cohort.

This approach is at odds with counterpart jurisdictions in the states and territories of Australia where building surveyors are regarded as being key actors under the apposite building acts. If one has regard for instance to NSW, Queensland and Victoria there is a tremendous amount of ‘regulatory infrastructure’ that governs the interactions of building officials such is the vital role they perform under the building regulatory construct. 

Recommendation for Consideration 

Expand the LBP cohort to include building surveyors as registrants under the Building Act 2004.

Engineers, Architects and Designers

Engineers and architects are required to be registered under their own cohort licensing acts as there is an existing and established registration apparatus for the registration of these key actors. Little point in reinventing the wheel and migrating the jurisdiction of the existing registration bodies to the Building Practitioners Board. 

Rather one can include them as part of the LBP fold by promulgating a regulation that dictates that if an architect or an engineer is registered under the apposite legislation then that actor is deemed to be an LBP under the Building Act 2004. The Victorian Building Act 1993 has for many years had in place a regulatory mechanism that does this. 

Broad Church Registration

Consideration could be given to expanding the registration cohort to include the building practitioner cohort of professionals and the tradespersons. 

The rationale being to have a harmonised approach that ensures that all key actors come within the curtilage of a centralised licencing ambit to amongst other things achieve a harmonised approach to disciplinary censure and synergistic qualification and experience criteria. There is a lot to be said for consolidation as it makes it easy for the consumer to understand how to access the reservoir of licenced persons. 

When the writers carried out an analysis of the registration regime in New Zealand it took considerable time to identify all of the licencing bodies as the system is disaggregated. 

2. Proportionate liability

New Zealand unlike its antipodean neighbours has retained the liability apportionment doctrine of joint and several liability (JSL). 

The JSL doctrine provides that solvent parties assume the liabilities for insolvent actors in multi-defendant legal proceedings where responsibility for compromised construction outcomes are found to attach to a number of responsible actors.

In a typical legal proceeding, there will be a number of defendants and or third parties. If for argument’s sake there are five defendants, one being a territorial authority, a couple of the defendants being uninsured licenced building practitioners or commercial builders and judicial determination is forthcoming, where all five defendants are found to be contributorily liable, the insured defendants will assume the financial liabilities of any defendant that becomes an insolvent.

This means that the insured defendants pay for the “sins” of the impecunious.

The diagrams below provide an example of proportionate liability and the need to join all parties to a proceeding. 

The illustration below is for the hypothetical demonstration of an aggregate costs award to rectify a $1,000,000 damages award. 

 In pie chart number one, all relevant actors are joined, the judge finds that all of the joined parties are culpable and damages are visited upon all. The plaintiff will receive damages in full provided they are all solvent.

Flow chart 2, 5 parties are responsible yet only 4 are joined. The judge hands down a determination where each of the joined parties is found liable in aggregate, but only for 80% of the total damages. The plaintiff in these circumstances would be deprived of 20% of an award by virtue of the non-joinder of a key actor. Because only 4 parties were joined and found liable for $800,000 there has been a short fall of $200,000 due to the non-joinder of a key actor.²

The rationale that underpins JS

The rationale is that absent the application of JSL, the consumer will have no redress to compensation for damages if the solvent parties do not assume the liabilities of the impecunious contributors. 

The rationale that underpins proportionate liability 

Proportionate liability provides that no defendant will be liable for any more then its judicially allocated contribution to the compromised construction outcome. So, if a given defendant is found to be liable for 15% of the aggregate liability that defendant’s liability will be limited to the 15%. It is a doctrine that is rooted in fairness, one is liable for ones’ own mistakes not those of others.

Nevertheless under this liability creed absent a compulsory insurance regime for key actors the consumer can indeed be deprived of significant compensation in circumstances where there are impecunious defendants and this is very problematic. 

The escalating problem with JSL 

The New Zealand economy can be a fragile economy and the consequence of the application of JSL is that local government has become “the insurer of last resort” and is picking up the financial liabilities of impecunious actors such as insolvent builders and or tradespersons that are the primary authors of compromised construction outcomes. 

Yes, on the one part the plaintiff consumer has a level of comfort in knowing that the territorial authority is the ultimate backstop but the broader class of consumer, the rate payer underwrites that liability. 

So, on the one part there is a conflict between the plaintiff consumer and the broader class of likewise innocents the local government rate-payers. With the country`s accelerating migration rates of younger skilled tax payers and an aging demographic, if one looks to the future, fewer and fewer will be called upon to do more and more heavy lifting in terms of rates.

Insured councils are having to contend with escalating insurance premiums in part because of the application of JSL and this also translates into higher rates that are levied upon the community. 

Additionally, the writer has heard albeit by way of anecdote that such is the fear of territory authority building officialdom to issue code compliant certificates that delays in terms of building permit delivery are increasing. 

Such delays and the cost associated with those delays are then visited upon a different class of consumer i.e. home owners wishing to have their houses built in a timely fashion. Of course, the longer it takes to get a building consent and a CCC, the longer the tenure of the home loan and the interest payable on that home loan. 

Furthermore, if vital and finite local government resources are tied up in defending legal proceedings, then that lost down time cannot be allocated to the core functions of building permit delivery.

Recommendation for Consideration

Consideration could be given to jettisoning JSL and introducing the binary of proportionate liability and compulsory insurance. 

Under this system all LBPs would be required to be insured by law to ensure that all defendants in multi-party proceedings are insured. The upshot would be that the consumer i.e. the plaintiff consumer would have the guarantee of insured defendants. 

An alternative approach.

Since the early nineties, the Victorian Building Act has required key actors to be insured by law. As a result in certain circumstances where there are multi-defendant liabilities, the application of proportionate liability ensures that all defendants are accountable for their judicially apportioned liability that is financially backed by compulsory insurance. 

Having said that it is submitted that the current cast of licenced building practitioners in NZ may not be able to avail themselves of professional indemnity cover as typically this is limited to the professions rather than tradespersons. In light of the above, the Victorian model where engineers, architects, residential builders, building surveyors and building inspectors are required to be insured, is worthy of consideration as there is a thirty-year heritage of mandated insurance cover for this cohort. 

Recently the writer was in New Zealand and was informed that some of the insurers had stated that there would be no insurance appetite for underwrite a compulsory PI market. The writer stated that if the regulatory architecture of the Building Act was redesigned to align with  some of the regulatory architecture of the likes of the Victorian Building Act 1993 it would be difficult to fathom why the underwriters that have provided pi in the Victorian market since 1993 would shy away from providing like coverage in a similar regulatory ecosystem. After all NZ is closer to Victoria and NSW than the latter are to WA and the NT.

3. The Ten-Year Liability Cap³: 

Both the New Zealand and Victorian legislation provide a 10-year limitation period where civil proceedings in respect of building work may be brought. One could be forgiven for believing the two liability limitation periods act in similar ways, however in practice the New Zealand legislation is more problematic.

This is because the New Zealand legislation is marred by uncertainty in terms of the time when the liability limitation period begins to run. 

The Victorian legislation is not so marred as the liability period commencement trigger is crystal clear – that being when the occupancy permit is issued. Absent a similar provision, the New Zealand legislation has had to rely on interpretation from the Courts to determine when the commencement trigger may be. (see footnote 3 above)

The decision of Wigglesworth v Auckland Council [2012] lacking the Victorian specificity in this area, proffered the terms ‘off-task’ or ‘off-duty’  as a test for considering when the commencement of the liability would run for a contractor.⁴  

These phrases were used to define ‘when the ostensible 10-year period starts to run’ and would relate to situations where a ‘contractor stops work on the site, leaves the site and does not return’.⁵

The situation as regards when the liability period commences would not be so clear where ‘the sub-trader’s works are partially completed and then not finally completed until the end of the building project’ which is common.⁶

The vagueness of the New Zealand approach has been resolved 3 decades ago in Victoria by the specificity of ’10 years from issuance of occupancy permit’. There is nothing that is either cryptic or uncertain about such a trigger. 

The OP is issued by the relevant building surveyor, a copy is kept with the council and 10 years post issue of the OP the ability to sue for economic loss is expunged or to use French vernacular guillotined (save for the cladding exemption).

Building Act 2004 (New Zealand) s 393(2)	Building Act 1993 (VIC) s 134(2)
…no relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based’7	‘…a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under Part 4 of the certificate of final inspection of the building work.’8

Recommendation for Consideration

Insert similar wording into the New Zealand Building Act 2004 to crystallise a definitive commencement trigger on when the liability period begins. The issuing of the Code Compliance Certificate may be an appropriate trigger mechanism.

4. Adopting a Risk-Based Building Inspection and Mandatory Inspection System 

A number of countries are moving towards codified risk-based building classifications that are calibrated with a mandatory inspection regime. 

In studying best practice building regulatory regimes this writer recognised that there are a great deal of very good building codes on the planet but very few have embraced a risk-based design classification methodology, let alone one that is calibrated with a mandatory inspection regime.

The World Bank has extolled the virtues of risk-based building inspections in a paper ‘What role should risk-based inspections play in construction’, which stated:

“Since 2005, 18 economies have incorporated elements of risk-based building inspections… Risk-based inspections, as opposed to random untargeted inspections, allow governments to allocate resources where they are most needed without compromising worker and public safety… Risk-based inspections have become more popular in the past decade, resolving some of the issues from random and phased inspections. Though many risk-based inspections systems include a minimum number of phased inspections for all buildings, they typically give priority to buildings with high risks – such as environmental ones and optimize the process…. Risk-based inspections are conducted to ensure a buildings structural safety, fire safety, worker safety, and public safety but in a more efficient manner. Having fewer inspections for less risky buildings lowers costs without compromising safety, in increasing flexibility and enabling inspections move away from random and phased inspections.” ⁹

Under a codified risk-based classification system, the type of building finds itself located in a cohort of buildings that are measured for want of a better word on the basis of their risk profile in terms of potential to generate harm. 

A low-risk classification would include buildings that on the ‘risk barometer’ pose low to very low risk  to life and limb. 

For instance, a free-standing four-walled single roof, single slab farm barn, with an uncontroversial usage would be domiciled in the low-risk band of the codified classification. 

On the other end of the barometer where the risk ‘mercury level’ is much higher in that the cohort of buildings potentially pose a much greater risk to life and limb in given scenarios such buildings will be domiciled in the high-risk/potential consequence band.

Buildings of the likes of high-rise residential, hospitals, high-rise commercial and munitions factories will typically find themselves domiciled in the high-risk band. 

The most challenging risk band to populate is the medium band that is populated by the types of buildings as the demarcation will to some degree be arbitrary. The band will have regard to the number of occupants and the usages of same that are of a higher-risk classification than low-risk and a lower risk classification then the high-risk. 

Some of the best thinking on the planet right now is manifest in the latest set of IBQC Guidelines that use 3 risk-bands low potential consequence, high-potential consequence and medium potential consequence.¹⁰

Calibrated Mandatory Inspections: 

In recognition of the fact that building official and inspectorial resources are finite and in recognition of the reality that some jurisdictions are very challenged in adequately resourcing building officialdom, the IBQC guidelines are responsive and sensitive to this reality.

Best practice jurisdictions have adopted a mandatory inspection regime. Having said that, a calibrated mandatory inspection regime will allocate inspectorial resources in a way that is calibrated to the classified risk band. 

Accordingly, there will be minimal mandated inspectorial interventions for the low-risk band. There will be a higher number of mandated inspections in the medium-risk band. Predictably, there will be a higher number of mandated inspectorial interventions in the high-risk band.

Higher risk bands will have mandatory peer reiview

Furthermore, with respect to the high-risk band there will be legislatively mandated interventions of qualified peer reviewers that have been key actors in the critical path of the evolution of the building such as:- 

• fire engineers, 
• electrical engineers,
• mechanical and air-conditioning engineers, 
• Building envelope specialists that instance sign off water-proofing and cladding integrity. 

The said IBQC Guidelines illustrate the marriage between a mandated inspection regime and a codified risk-classification system. 

Recommendation for consideration:

New Zealand could have regard to a risk-based building classification system that is calibrated with a mandatory inspection regime. This way, the finite and as some would say anecdotally the resourced challenged building inspectorates in the territorial authorities could allocate inspectorial interventions where on a risk-weighting basis the public is best served. 

 5. Mechanisms for faster permit delivery appeals 

Whether it be delays in issuing building consents or code compliance certificates, concerns have been raised that the process takes too long in NZ. 

This was a common complaint in Australia in the early 90s and led to the introduction of a privatised alternative to building permit delivery. In jurisdictions like NSW and Victoria an applicant who wishes to get a building permit/construction certificate can either engage a building surveyor from the private sector or in the case of Victoria a relevant building surveyor from the council or in the case of NSW a local government principal certifying authority. 

In the early 90s, sometimes it took months to get a building permit from local government and once private certification was introduced, the issue of building permits was often turned around within a few weeks rather then a few months. 

Private certification was experimented with in New Zealand in the late 90s but by 2008 the chapter of private certification was closed. In Australia, all jurisdictions maintain a private certification regime although the approach to private certification differs depending on the jurisdiction. 

This writer is not advocating a return to private certification….

Save for consideration being given to utilising private certifiers in a low-risk building classification setting. Reason being this system did not prove to be sustainable and viable in the New Zealand setting for a whole host of reasons, not limited to insurability and registered competency levels. 

What has been advocated for consideration however is to adopt a fast-track appeal mechanism in line with the Building Appeals Board concept in Victoria. 

Refusals to issue building permits or occupancy permits in Victoria can culminate in an election on the part of the applicant to appeal the decision to the Building Appeals Board. Although the Building Appeals Board can take some months to hear and deliberate on the matter depending upon the level of ‘new starts’ in the construction industry when compared to the delays in the courts, it is a faster avenue. 

The additional benefit particularly for bean counters in Treasury is that the Building Appeals Board members are Ministerial appointees, work parttime and are practicing members of the construction industry and the legal fraternity whom are appointed on account of them being venerated by peers of good repute. 

Typically, a hearing will be presided over by a construction lawyer, a building surveyor and an engineer or an architect so there is a multi-skilled professional alchemy. The hearings in this writer’s experience very rarely are take longer than a day. The key point is it is a win-win for a government in the sense that the cost of maintaining the apparatus is not great, the level of professional dexterity is high and the time to take to resolve a bottleneck is better than the Court time frames.

The advantage also to local government or the local building surveyor is that when challenged by making the decision as regard whether or not to issue a building consent or construction certificate, if the matter goes to the BAB’s determination, the decision ameliorates the risk to the local government decision maker as an independent umpire as it were comes down with a ruling. 

The system has been in operating now for decades and this writer considers that it stands up very well under international best practice analytics. 

Recommendation for consideration: 

Have regard to the Victorian Building Appeals Board model. 

6. Product Safey and Product Safety Compliance:

The government has announced that it is opening up the market to allow for imported construction product to lower the cost of construction. This is commendable but there is of course a caveat, there need to be legislative mechanisms to ensure that inferior product that is not fit for purpose does not wash on to New Zealand shores. 

The reason for this is obvious, poor construction product will compromise the quality of the as-built environment and furthermore is likely to lower the lifespan of the building. Neither New Zealand nor the consumer can afford to countenance such an outcome particular against the backdrop of the leaky building catastrophe.

It follows that there need to be robust building control mechanisms to ensure that product that goes to market is fit for purpose and complies with the apposite elements of the New Zealand Building Code and relevant standards. 

Recommendation for Consideration: 

Some of the best thinking on the planet regarding good practice building safety ecology is found in the IBQC Building Product Performance Good Practice Regulatory Framework document.

These guidelines were developed by an international coalition of IBQC board members including inaugural board member Dame Judith Hackitt (who presided over the Grenfell Inquiry), Neil Savery (a past chief executive of Australian building codes board), Stephanie Barwise KC (who represented a class-action at the Grenfell Inquiry), along with other preeminent law reformers, the names of which are identified in the document along with this writer. 

The guidelines were peer-reviewed by venerated international institutions and took 3 years to think-tank, develop and resolve. There is little to be said that is not manifest in the guidelines so the reader is encouraged to access the guidelines through the hyperlink.

7. Dispute Resolution: 

Although the Building Act does not venture into the broader construction dispute resolution realm it would be remiss of one not to offer some thoughts on how dispute resolution theatres can be redesigned to speed up the dispute resolution process, lower costs of dispute resolution delivery and provide better access to the citizen and industry actors for the delivery of justice. 

Although the Building Act does not venture into the broader construction dispute resolution ambit it would be remiss of one not to offer some thoughts on how dispute resolution theatres can be redesigned to speed up the dispute resolution process, lower costs of dispute resolution delivery and provide better access to the citizen and industry actors for the delivery of justice. 

The IBQC Good Practice Guidelines for the Development of Construction Dispute Resolution Tribunals and Decision-Making Institutions are instructive. 

The guidelines are brief and to the point and were developed by leading international experts ranging from KC’s, to senior judges, to senior construction lawyers from the United Kingdom, Australia, New Zealand and Africa.

Some of the key take-outs are as follows

Specialist lists

Best-practice regimes have dedicated building cases lists that are either in the courts or tribunals. 

The lists are presided over by jurists that specialise exclusively in construction law decision making. 

They have significant experience in construction law before they venture onto the Bench. 

Front End Mandated Mediation: 

Best practice construction dispute resolution theatres make it compulsory for the parties to attend a mediation at an early stage of the dispute resolution journey. 

To defray the costs of providing that service to government, the parties renumerate the mediator on a 50 50 basis. 

The single expert witness protocol: 

Such is the cost and time of the traditional approach to adversarial expert witness advocacy; the polarised adversarial approach is coming under considerable scrutiny. 

There is a move away from the adversarial plaintiff defendant expert witness dynamic and a move towards Court appointed independent expert witnesses. 

This idea along with the other ideas are picked up in the said guidelines but are best expressed by Her Honour Sharon Burchell (County Court Judge in Victoria) in a ten minute video presentation. Her Honour gave to the IBQC global dispute resolution conference. Her Honours` talk can be accessed by clicking here.

Recommendations for Consideration: 

The giving of consideration to the establishment of a dedicated building cases list in the District Court and or the High Court where front-end mediation is made mandatory and the giving of consideration to single expert witness protocol. 

It is submitted that the combination of this ‘trifecta’ will in a very significant sense cut the cost of construction dispute resolution and expedite dispute resolution delivery. 

Some other on message videos from the global conference are those of NZ barrister and arbitrator Mark Colthard and the writer also as you may be aware a Kiwi and admitted to practice in both countries. If you click their names in this sentence you can access their 10 minute presentations. 

Conclusion: 

It is evident that the government is intent on reforming the New Zealand building Act 2004. It is instructive to have regard to law reform history over the last 30 years in New Zealand. Reason being there have been well-intentioned reforms that have not delivered the utilitarian dividends that were intended dispute best of intentions. The leaky building fiasco was one of the worst systemic failures in the West in the last 30 years and it was a product of a de-regulationary zeal. 

It is also instructive to have regard to international good practice to cherry pick the best of the best but by the same token to inoculate the act against that which has the potential to compromise building regulatory ecology to avoid a situation where the New Zealand citizen is adversely affected. 

The writer was on two occasions retained by the Japanese Government to participate in law reform think-tanks with respect to reforms to the Japanese Building Standard Law. The reforming civil servants made a point of engaging with off-shore experts in Tokyo to be briefed on not just that which succeeded and could be held up as being exemplary building legislation but also briefings on that which have failed and equally importantly why it had failed.

It is indeed a very good thing that the government is intent on reforming the Building Act 2004 because to be frank it needs to be reformed. Local government is bearing a disproportionate share of liability on account of the operation of joint several liability. It is submitted that this is not sensitive to the resource constraints of local governments and the significant financial impost and litigation related time demands that are visited upon local government officialdom. 

Responsibility should lie with the authors of fault but responsibility can only have real application if there exists the capacity to financially account for liability. Absent a compulsory insurance system and a mandated home warranty insurance regime, a status quo will remain where the primary authors of compromised construction outcomes do not assume the liabilities that they should. 

Fortunately, there are regulatory ecologies close by that are instructive with regards to providing ideas on the redesign of regulatory architecture. 

Fortunately also, there are some quick fixes such as the introduction of a clear non-contentious liability trigger date that will eliminate the confusion and vexed litigation that is afflicting owners and builders alike as courts grapple with the current uncertainty. A simple ten-year liability cap triggered by the equivalency of an occupancy permit would be a swift remedy. 

Consideration could also be given to an evaluation of the registration criteria to determine whether the emphasis is not what it should be and moreover a licence building practitioner regime would be better served by the building act registering more key actors. 

This piece is written by Adjunct professor Kim Lovegrove, the chair of the IBQC. The opinions in this piece are his own and are not representative of any organisation that he chairs or represents. The writer has 3 decades in law reform, is a past senior law reform consultant to the World Bank and is a senior lawyer at Lovegrove and Cotton Construction and Planning Lawyers. He is also a past Ethiopian Honorary Consul to Ethiopia and is the recipient of honours for humanitarian services to Ethiopia.

Disclaimer

This article is not legal advice rather a discussion of the topic in only general terms.