Paying the piper - consultant liability for contribution claims
Complex, multi-party construction projects breed complex, multi-party disputes, often involving cross-claims and claims for contribution. For the last 15 years, the High Court has generally held that contribution claims, like other civil proceedings involving building work, must be brought within ten years of the act or omission on which the claim is based. Recently, the High Court departed from this practice and held that the ten year limitation period does not apply to contribution claims, opening up consultants to liability beyond the ten years. Madison Dobie, an Associate in the Construction and Major Projects team at Dentons Kensington Swan, discusses the potential consequences of this recent decision on consultants' liability.
Madison, what's a contribution claim?
In a situation where an engineer is found liable to a plaintiff (for example, a homeowner or principal) for some monetary relief, they may seek a 'contribution' from another party (usually another defendant or a third party) on the basis that that party has contributed to the engineer's loss. These claims are particularly common in construction disputes due to the layered and multi-party nature of construction projects.
How have the courts historically dealt with contribution claims and the ten year limitation period?
Under the Building Act 2004, civil proceedings involving building work must be brought within ten years of the act or omission on which they are based. However, it has been unclear whether contribution claims are subject to the ten year limitation period.
We have seen two different approaches in the courts. The first approach is based on a 1995 case, Cromwell Plumbing Limited and Draining Services Ltd v De Geest Brothers Construction Ltd, where the Court held that a contribution claim could be made after the ten year limitation period.
Conversely, in Dustin v Weathertight Homes Resolution Services (2006), the Court held that the ten year limitation period bars contribution claims.
Did BNZ Branch Properties Ltd v Wellington City Council (the 'BNZ Case') change the approach?
Since 2006, the Courts have generally followed the approach in Dustin and held that the ten year limitation period applies to contribution claims.
In October last year, the BNZ Case reverted to a more Cromwell-esque approach. The Court held that the ten year period applies to 'original claims' but not contribution claims. Instead, as per section 34 of the Limitation Act 2010, a contribution claim (which the Court held was an 'ancillary claim') must be made within two years of the decision or settlement on which the contribution claim is based.
The Court clarified that the Building Act 2004 did not override these two years in the Limitation Act 2010. In other words, a party can be held liable for contribution more than ten years after the act or omission on which the claim is based, provided that the contribution claim is brought within two years of the decision on, or settlement of, the original claim.
Will the involvement of a Council as a party extend the limitation even further?
We can particularly see the wide-reaching consequences of this decision where a case involves a Council.
Under section 393(3)(a) of the Building Act 2004, the 'act or omission on which the claim is based' for a Council defendant is usually the issuing of the Certificate of Code Compliance ('CCC'). This means in this scenario, time starts to run, and a plaintiff has ten years to bring a claim against a Council from the date of the CCC. For consultants, with some exceptions, time will likely run from the date the PS4 or final certification is given. In practice, we know that it often takes months or even years after the PS4 before CCC is issued.
A claim against the Council may be within time (if filed within ten years of CCC), and the same claim against an engineering firm may be time-barred (since final certification is issued before CCC). However, under the BNZ approach, despite the original claim being time-barred as against the consultant, if the Council is involved, a consultant can be dragged back into Court by the Council seeking contribution in the event that the original claim is upheld. It's because, according to the BNZ Case, the claim for contribution is not time-barred by the ten year limitation period like the original claim is.
What does the BNZ Case mean for my consultancy's potential liability?
Prior to the BNZ Case, the weight of case law supported that a contribution claim had to be made within ten years of the act or omission on which the claim is based. After the BNZ Case, it may be more likely that an engineering consultant remains on the hook for work it performed more than ten years ago.
But this is unlikely to be the final word on the matter. As noted by the High Court in BNZ, there is no appellate authority on this point. If the Court of Appeal does consider the matter, it will be open to them to follow either Cromwell/BNZ or the Dustin line of cases.
How should my firm respond to the additional risk presented by the BNZ Case?
Until the law is confirmed by the appellate courts, you should consider taking the following steps to manage the potential risk presented by the BNZ case:
- Ensure your firm's record-keeping is comprehensive and files are maintained for at least ten years after CCC is issued
- Ensure that you are aware of claims as they arise in relation to your projects, even if you are not a party
- If a claim is made, especially if your firm is not a party, keep your files a further two years after settlement or a decision is issued in that claim, so you are prepared for any contribution claim.
- Ensure that your standard form contracts include sufficient indemnity clauses in relation to each project to provide you with indemnity for contribution claims where appropriate. However, you should ensure that you and the parties to the contract have sufficient insurance to cover such indemnity and identify, in the pre-contract phase, any gaps between the proposed indemnity and your insurance