RISK MANAGEMENT
Legal Issues & Risk Management

CONTENTS:  This Webinar (September 2022)

LEGAL AND QUASI-LEGAL ISSUES

Negligence

Duty of care in contract

Unlimited exposure to domestic claims

Duty of care in tort

                Limitation defences       

                Joint & several liability

                Copyright

                NZRAB complaints procedures

Negligence

Failure to exercise reasonable skill, care and diligence.

Doing what others in similar circumstances would not have done.

Failure to do what others in similar circumstances would have done.

Negligence test

• Was a duty of care owed to the claimant?            
  • Was that duty breached?
  • Did the claimant suffer a loss
  • Was the loss caused by the defendant?
  • Was the loss reasonably foreseeable?

All questions must be answered YES for claim to be established

Defences available

• If one of the above five questions is answered NO
  • The claim is contractually barred (time or money)
  • The claim is statute barred (time limitation, etc)
  • The claimant contributed to the loss.

Duty of care in contract (1)

•  Described in the contract: 

                hence importance of having written engagement terms

                and having them signed and returned by the client!

• Described in the Building Act s14D  (responsibilities of designer) Responsible for ensuring that plans and specifications or advice (if followed) will result in compliance

• Domestic projects:  described in the Consumer Guarantees Act:

                done with a reasonable level of skill and care

                fit for the purpose you and the customer agreed on

                cost a reasonable amount, if a price wasn’t agreed beforehand

                completed in reasonable time, if timeframe wasn’t set before.

Duty of care in contract (2)

•  Domestic/Residential projects:

Under Consumer Guarantees Act, a $ limitation cap included in the terms of engagement (i.e. contract for service) for a residential project will be of no effect:  the liability cannot be capped.

In relation to residential contracts, the minimum/default building contract terms are set out in s6 of the Building (Residential Consumer Rights and Remedies) Regulations 2014, but under s362B of the Building Act, these do NOT apply to design.

Duty of care in tort

A tort arises when a party owing a duty of care to others breaches that obligation, and that breach results in a loss (or “damage”) to those others. Scope is established by case law, not (generally) by legislation

To whom do you owe a duty of care in tort?

It depends!  Basically, anyone who might foreseeably be affected by your actions

When does a duty of care arise?

It depends!  But if you are involved in your professional capacity, you are                                             expected to have regard for the interests of those affected by your actions, to the      extent that others in your profession would, if placed in a similar situation.

Duty of care in tort – Examples

Example 1 – Concurrent claim in contract and in tort: The architect designs a defective building, which the client on-sells to others. The new owners could bring a claim for damages against the client in contract (pre-sale representations) and against the architect in tort (duty of care to owners/users of the building).  The client could bring a claim against the architect in contract (design/observation failures), and in tort (duty of care extended beyond contract to include owners/users of the building).

Example 2 – Duty to Warn:  An LBP Carpenter was working as an employee for the non-LBP building contractor who was “cutting corners” in a house weathertight remediation project.  The LBP Board decided that the LBP had a duty to inform the owner that some of that work was inadequate or defective. The Board had regard to the significance and potential outcomes arising out of the defective work.

Example 3 – The Disappearing Developer:  Apartments and townhouses have been the source of numerous NZACS claims.  It is not unusual for the developer to be unable to fulfil a later claim by the new owners. The architects or designers (and the Council) are routinely called upon to make up the shortfall, on the basis that they owed a duty of care to the purchasers.

Joint and Several Tort Liability

                The Claimant:

• may seek full recovery from each or any parties that contributed to the damages.
  • is not (usually) concerned about who pays (if anything) to make up settlement sum.
  • cannot claim more than their actual loss, nor for any loss caused by their own negligence.

                The Designer/Defendant:

• is liable to the extent that they contributed to the damages.
  • is potentially 100% liable for the damages arising out of the design defects.
  • if not engaged for site observation, will not be liable for construction defects
  • if engaged for site observation, will be liable for the damages which arose as a result of their failure to observe, and take action

Joint and Several Tort Liability – Examples

Example 1 – Insolvency:  In a leaky building claim, all the defects were the result of poor construction.  The Council had signed off CCC.  During remediation, it became clear that the original building inspector should have picked up the defective work. The owner sued all and sundry, but only the Council had the funds available to meet any settlement.  The ratepayers paid for all of the remediation.

Example 2 – Inadequate detailing: Similar scenario, but the builder was still in business and had meagre assets. The designer had nothing to do with appointing the builder or attending to the construction phase of the project.  But the designer had failed to detail a critical junction, and the builder’s solution was the reason for the leaks. Settlement was proportional: 15% builder, 15% designer, 70% Council.

Example 3 – Contributory Negligence:  The designer had detailed the relationship between the garage door jambs and the strip drain across the garage door intended to catch surface water flowing down the drive. Damage was caused because that detail was not followed on site. But photos showed that the owners had failed to dispose of fallen leaves and failed to clear the strip drain, with the result that the same flooding and damage would have occurred regardless of the builder’s faults.  Remediation costs were apportioned accordingly.

Limitation Defense (1):

In relation to “building work” claims:

• usual liability is 6 years from the time the work done      (diagram = “A”)
  • possibility of a 3 year “late knowledge” extension.                (diagram = “B”)
  • 10 year longstop is provided by the Building Act            (diagram = “C”)

Limitation Defense (2):

In contract:

Legal proceedings related to a breach of contract cannot commence after 6 years from the date of the act of omission.

Shorter limitation periods may be contractually agreed, but insurance cover will not respond to claims with a contractual limitation period beyond the statutory 6 years.

In tort:

Legal proceedings cannot commence after 3 years from when the facts giving rise to the claim were known or ought reasonably to have been known. 

Copyright

• Generally, the person who commissions a work owns the copyright. 
  • NZIA AAS terms reverse that:  the architect owns the copyright, and the client has the right to use the design for the purpose intended by the engagement agreement. 
  • If you don’t have a signed AAS agreement, you may not be able to assert copyright.

Copyright:  Examples

• AAS not signed: Architects had a specific agreement with clients which included terms that their project was to be unique.  The AAS was part of the agreed terms, but it was never signed.  The clients brought a copyright claim on the basis that their design was later used elsewhere.
  • Copyright assigned?  A project was designed by a director of a firm, who then left, taking the construction phase of the project with him.  A dispute arose over whether the copyright in the design was also transferred.
  • Product replication: A firm issued tenderers with a photo of a furniture item they required to be included in the priced contract.  The furniture designer claimed on the basis that they alone were to be the only possible suppliers of that item.

NZRAB Complaints

The test is negligence, NOT gross negligence.  This may be a low bar, and the complaint may proceed ahead of other dispute processes which might have confirmed the facts, circumstances and contract responsibilities.  It costs a client very little to complain, but involves a LOT or effort and angst to defend.      

BEWARE!

NZRAB Complaints – Examples

Example 1 – Testing the evidence:  The architect advised the client that alterations to their cross-lease property would require approval of the neighbours.  That did not happen.  The client held the architect liable for the resulting problems and the architect conceded in the hope of avoiding punitive costs of the NZRAB process.  When the case was properly tested in preparation for a Court hearing, it became apparent that the complainant’s assertions would have failed.

Example 2 – Leverage:  The architect designed two townhouses for the client:  one for profit and one for occupation. The client’s expectations did not match the commercial realities and they sought to cut their losses by seeking recovery from the architect on the grounds of poor performance.  Their chosen route was to lodge an NZRAB complaint (at minimal cost) as a prelude to court action and/or to gain concessions that might make court action unnecessary.

Example 3 – Having your own cake and eating it too:  The clients engaged the architect for design/observation/contract administration.  The documentation was done accordingly.  The clients then sought to cut costs by curtailing the construction-stage attendances of the architect.  This resulted in unresolved detailing, uncoordinated variations, cost escalations and intermittent site visits by the architect.  The NZRAB complaint was partly initiated because the architect declined to issue a practical completion certificate.