Two recent appellate judgments have signalled a fundamental reconfiguration of liability parameters for New Zealand construction professionals.
The Court of Appeal’s ruling in the Solicitor-General’s Reference (No 1 of 2022) and the Supreme Court’s decision in Beca Carter Hollings & Ferner Ltd v Wellington City Council [2024] NZSC 117 collectively redefine the scope and duration of professional accountability in the built environment.
In this article, we discuss the combined effect of the Court of Appeal’s expansion of criminal liability for producer statements and the Supreme Court’s Beca decision extending civil liability timeframes. We focus on the implications for professional practice and risk management, and the broader questions these rulings raise about regulating uncodified industry practices. And – as always – we conclude with some AI-powered analysis of the significance of these decisions.
The Court of Appeal: Criminal Liability for Erroneous Producer Statements
The Court of Appeal’s interpretation that incorrect producer statements may constitute “building work” under the Building Act 2004 introduces a new dimension of criminal accountability. This ruling, emanating from a case involving an engineer’s certifications for a Tauranga residential development, subjects professional judgments to potential criminal proceedings.
By subjecting producer statements to potential criminal scrutiny, the Court has effectively criminalised what were previously considered matters of professional judgment.
This paradigm shift introduces a new level of legal jeopardy for engineers, architects, and other professionals involved in construction certification. Further, the judgment blurs the traditional distinction between civil negligence and criminal conduct in the construction sector. This conflation may lead to a reevaluation of professional standards and practices, as actions once subject only to civil liability now potentially carry criminal consequences.
Civil Liability: Temporal Boundaries Dissolved
Concurrently, the Supreme Court’s majority decision in Beca effectively nullifies the 10-year limitation prescribed by the Building Act 2004 for contribution claims between joint tortfeasors. This ruling engenders a scenario where construction professionals may face civil liability claims indefinitely, provided they are implicated through a contribution claim rather than directly by a plaintiff.
Professional Practice, Recalibrated
The convergence of these judgments suggests a significant recalibration of professional practices:
- Enduring Accountability: The elimination of a definitive limitation period for contribution claims mandates an ongoing state of preparedness for potential litigation, extending well beyond active professional engagement.
- Insurance Market Disruption: Insurers confront the complex task of underwriting risks that now extend beyond previously established temporal boundaries, potentially leading to coverage gaps or premium escalations.
- Documentation Imperatives: The prospect of delayed litigation necessitates meticulous and extended record-keeping practices. Further, professionals will inevitably seek to mitigate their exposure – both civil and criminal – by more explicitly defining the scope and limitations of their certifications. Professionals may articulate with greater precision the exact nature of their inspections, the limitations of their assessments, and any assumptions made in forming their professional opinions. We can expect to see much more explicit statements about who may rely on the producer statement and for what purposes. This could include limitations on third-party reliance or specific exclusions for certain types of claims. Professionals may increasingly qualify their opinions, using language that emphasises the nature of their statements as professional judgments, rather than absolute guarantees. Disclaimers will increasingly reference external factors beyond the professional’s control, such as the quality of information provided by others or the limitations of visual inspections.
- Project Selection Criteria: Professionals may need to reassess their involvement criteria for complex or innovative projects, given the extended liability horizon.
The Court of Appeal ruling is likely to induce a much more conservative approach to issuing producer statements. Professionals may become excessively cautious, potentially leading to project delays and increased costs as they seek to mitigate the risk of criminal liability.
We expect to see professional bodies responding with comprehensive and standardised disclaimers for their members, aiming to provide a baseline of protection. No doubt there is significant work underway already.
Sector-Wide Implications
The ramifications of these decisions are likely to permeate the entire construction sector:
- Innovation Hesitancy: The heightened liability environment may foster an atmosphere of excessive caution, potentially impeding innovative design and construction approaches.
- Economic Recalibration: The incorporation of additional risk factors into project costings may lead to overall increases in construction expenses and insurance premiums.
- Workforce Dynamics: The sector may experience shifts in talent retention and recruitment patterns as professionals reassess the risk-reward equation of their careers.
- Procedural Intensification: An anticipated increase in quality control measures and monitoring protocols may improve outcomes but also extend project timelines and costs.
- Dispute Resolution Evolution: A trend towards more comprehensive contractual protections and alternative dispute resolution mechanisms may emerge as a risk mitigation strategy.
We predict escalating tensions between design consultants and regulatory authorities who will continue to seek clearer, more unequivocal certification, and who are likely to reject disclaimers that are worded too broadly or are perceived as too limiting. We expect future judgments to provide guidance on what constitutes reasonable limitation of liability in this context.
Balancing the need for professional protection with the public interest in clear, reliable certifications will be a key challenge for the industry moving forward.
New Zealand’s Divergence from International Trends: Mind the (Regulatory) Gap
The approach in New Zealand contrasts with observable trends in comparable jurisdictions, which are much more prescriptive than the light-handed, performance based, approach in New Zealand.
Producer statements here have evolved as a professional practice rather than a statutory requirement. Criminalising aspects of professional practice that are not explicitly mandated by law raises serious concerns about the boundaries of criminal liability in professional contexts.
By way of contrast, the United Kingdom and parts of Australia tend towards regulatory frameworks that prefer remediation and education to the blunter instrument of enhanced punitive measures. Criminal sanctions are very much a measure of last resort.
For example, the state of Victoria has operated a “Proactive Inspections Program” since 2015, which aims to improve compliance through education and early intervention.
In New South Wales, designers are subject to the Design and Building Practitioners Act 2020, which effectively legislates for producer statements. Comprehensive guidance on how to comply with the regulations is available from membership organisations such as the Australian Institute of Architects.
In the UK, the Building Safety Act 2022 provides that compliance with design is confirmed through building control processes, with local authorities or approved inspectors providing completion certificates. Higher risk buildings are subject to the requirement for a “golden thread”, a single source of truth – stored digitally, explaining how a building is to be occupied and managed through its life cycle.
This comparative divergence should prompt policy-makers to re-evaluate the efficacy of New Zealand’s approach in promoting industry best practices and public safety. Our Building Act, now 20 years old, does not mention producer statements. Is it time to legislate for a “design compliance declaration”, as has occurred in NSW? And do we need to have a broader discussion about the appropriate balance between accountability and punitive measures in ensuring building quality and safety?
Navigating Uncharted Territory
As the construction industry grapples with this reconfigured liability landscape, a period of significant adaptation looms. Professional bodies face the task of recalibrating their guidance, while individual practitioners must navigate an increasingly complex risk environment.
These judgments necessitate a comprehensive re-evaluation of strategies to ensure building quality and safety without resorting to expansive criminal liability or creating indefinite civil exposure. New Zealand’s policymakers and industry leaders would benefit from considering international best practices in crafting a balanced approach that promotes excellence without inducing paralysis in the sector.
In the interim, construction professionals must adopt strategies of heightened precision. The imperative for meticulous accuracy in producer statements is now paramount, as is the need for comprehensive, long-term risk management strategies.
How this inherent tension can be regulated and resolved is a matter that – in our assessment – requires urgent Government review.
