Excluding liability in tort - construction contracts

The recent High Court decision on liability for defective buildings[1] emphasizes that it is virtually settled law that building contractors may face tortious liability for commercial or public buildings unless their contract expressly excludes it.  This begs the question as to how a contractor can limit or exclude its tortious liability for a commercial construction project.

The case involved Hawkins, which was contracted to build school buildings for Botany Downs Secondary School.  The buildings were constructed with defects and did not meet the Building Code (Code).  The Board of Trustees (Board) and the Minister of Education (Minister) claimed Hawkins owed them a duty of care to construct the building exercising reasonable skill and care and ensuring compliance with the Code.  They claimed Hawkins was negligent in failing to meet that duty and therefore liable to meet the costs to remedy the defects – some $17 million including GST. 

Hawkins argued unsuccessfully that it did not owe a duty of care to the Board or the Minister and so couldn’t be liable for the cost to repair the building to meet Code.  Hawkins said this was because the terms of their contract excluded such liability.[2]  However, when the Court looked at the contract, it held that there were no such terms that expressly or impliedly excluded liability in tort or that were otherwise inconsistent with imposing tortious liability.  The Court did however confine the tortious duty to compliance with the Code and not to other quality requirements under the contract.

While residential construction contracts often contain terms limiting the contractor’s liability, the Building Act and Consumer Guarantees Act ultimately prevent exclusion of liability anyway. 

In the commercial context, it is possible to negotiate an effective exclusion or limitation of liability, but it is difficult, and the default terms of industry-standard commercial construction contracts don’t include these.  Most principals won’t accept a contractor having limited or no liability if the building works don’t comply with the Building Code.  However, if the principal and the contractor have equal bargaining power – say, if the contractor has no competitor able to complete such a complex project, or the principal has particularly onerous construction or design requirements, or the parties have a very close working relationship – the contractor may be able to negotiate a limitation or exclusion of tortious liability.

If, through negotiation, a commercial construction contract does limit or exclude general liability, it’s important for a contractor to ensure that the exclusion/limitation of liability expressly captures tortious liability.  Otherwise the contractor may still be exposed.  Usually, the statutory time limit for a claim in contract expires before the time limit for a claim in tort.[3]  This often means principals can only sue a contractor for defective construction in tort – if the contract doesn’t expressly prevent this.

While errors and omission (“E&O”) / defective construction insurance cover is available under business policies (for an additional premium), such cover is usually limited and is unlikely to meet all tortious liability costs.  It’s far better if a contractor can limit or reduce their tortious liability in the commercial construction contract itself.   

Contact either Kirsten Todd or Jonny Pow today:

 

[1] Minister of Education & Others v H Construction Ltd (formerly Hawkins Construction North Island) [2018] NZHC 871.

[2] Hawkins had argued no such duty of care existed in the context of construction of a non-residential building.  However, the High Court had little trouble disposing of this argument, treating the law as now relatively settled that a builder (and territorial authority) owes a duty of care in the construction of a commercial building.

[3] This is because the statutory limitation period for a claim in contract generally runs from the date of the breach of contract (which is likely when defective works were physically carried out) whereas the limitation period for a claim in tort runs from the date that damage or loss accrued (which may be when the building suffers damage because of the earlier defective works).

MPI orders open to challenge

Orders made by Mycoplasma bovis response officials are open to legal challenge and farmers seeking interim measures while issues are resolved are being urged to pursue legal options.

Driven by concern, Canterbury law firm Tavendale and Partners has put together a dedicated team of agri and dispute resolution lawyers to respond to the “M bovis crisis”.

The lawyers say farmers need every option possible to preserve their livelihoods given the recent explosion in M bovis activity combined with the lack of Primary Industries Ministry transparency and leadership.

A blow-out of infected and at-risk properties, described by ministry officials last week as “game changing for the cattle disease response” has escalated industry concern that cattle are going to slaughter in vain.

The number of infected properties is now 38 with another 77 under restrictions because they are considered highly likely to be infected and 225 under notice of direction.

Almost 1700 properties are tagged as “of interest”. 

But MPI is still forging on with its order to kill 22,000 cattle. Almost half of them, 53.9%, across 18 farms will be culled by today.

MPI told the primary production select committee at Parliament on Thursday developments in the previous six days had been a game-changer in terms of the jump in farm numbers under question and the spread of the disease.

“The spread of the disease has gone totally above all expectations in modelling,” Biosecurity NZ head Roger Smith said.

“Six days ago we had 129 properties under some sort of regulation control – in the last six days we have moved that to 299.”

Testing is ongoing in both the North and South Islands and MPI expects there will be many more infected properties. 

Primary Industries Minister Damien O’Connor told Farmers Weekly on Friday eradication remains the focus but doing it in the short term was now out of the question.

“Short term, it’s not looking possible now but the longer term is still an option.

“There is a lot more possible spread than we can ascertain at this stage.

“It would be dishonest to say we know how many infected animals there are and that we can cull them all immediately.

“We are still identifying farms and getting closer to making a decision on the best direction going forward,” O’Connor said.

Meantime, affected farmers should act quickly if they want to contest MPI orders on movement restriction and the culling of their cattle.

Specialist disputes lawyer Kirsten Maclean said despite orders being directed by a government agency they are still open to challenge by judicial review.

“There is still ability to challenge the policy and farmers can do this as a group or as individuals.

“You can’t unkill cows but applications can be made for urgent preservation of the herd while substantive detail is sought,” Maclean said.

The only real mechanism to challenge a cull or movement restriction order is through the process of judicial review in the High Court.

Challenges would likely be on the grounds of unreasonableness.

An application to judicially review a cull notice can be accompanied by an application to the court that the cull be put on hold pending the court’s decision.

If it can be established that there is an arguable case that a wide-ranging cull order is unnecessary to achieve MPI’s aims of eradication then interim relief might be granted pending analysis of the substantive issues.

One of the considerations of the court in any judicial review is the public interest in eradicating the disease.

“However, we believe there are options open to farmers who wish to challenge aspects of this process,” Maclean said.

The key is to act quickly, agribusiness lawyer Tim Silva said.

For compensation disputes, arbitration is the way to go.

It can include whether to grant compensation at all or a dispute over the amount that should be paid.

Silva said the key benefits of arbitration include the chance to select arbitrators with industry knowledge with the process faster than the court process.

He believes the hard work on compensation is yet to come.

“Based on value at stake very few claims have been processed at this point.

“We are dealing with the chicken feed claims – the real losses of farmers losing their herds is yet to come, that’s when the heavy lifting starts.

“And that is a real concern given how compensations are going so far,” Silva said.

The lawyers encouraged farmers to act quickly on exploring legal options to protect their interim position.

“Farmers under immense pressure and stress looking for the fastest resolution should take the arbitration direction and within reason establish their own process for timely resolution of the dispute.”

https://farmersweekly.co.nz/section/dairy/view/mpi-orders-open-to-challenge

Labour inspectors targeting farmers in 2018

The Labour Inspectorate is calling for dairy farmers to get it sorted with compliant records, employment agreement, and all employees receiving at least their minimum legal entitlements, including at least minimum wage for every hour worked.

In its media release, the Ministry of Business, Innovation and Employment stated its recent investigations had found 28% of farms were failing to meet their record-keeping obligations, resulting in $11,000 of fines. 

While MBIE says the statistic is an improvement, the reality remains that no employers should be failing to meet the basic minimum requirements of New Zealand employment law.  Minimum requirements include keeping good wage, time, holiday and leave records, having compliant employment agreements and ensuring all employees have the correct VISAs to be working in New Zealand.  

Farmers also need to ensure they are paying employees all their legal entitlements such as for working on public holidays and receiving at least minimum wage for every hour worked. It’s not ok to pay a weekly salary and hope that quiet times of the season balance out the busy times.  Employers need to ensure employees are paid at least the minimum wage per hour for every hour worked in each pay period. 

Labour Inspectors will be visiting more farms in the coming year and MBIE’s messaging is that any farms “that are found not meeting their employment obligations can expect to face serious consequences”.

For more information about your obligations as an employer in the agri sector, and how to comply with them, please contact one of our employment team.  We can also assist you through the process of an inspection if the Labour Inspectors call upon you.

If you can't fix it, you need to isolate it until you can!

On 22 August 2017, the first judgment under the Health and Safety at Work Act 2015 (HSW Act) was released.

An employee at Budget Plastics Limited was left with only their thumb and half a forefinger after their hand was caught and pulled into a plastic extrusion machine. Budget Plastics was convicted and fined $100,000, and ordered to pay $37,500 reparation and $1,000 legal costs.  

Budget Plastics was charged under section 36(1a) of the HSW Act, which states that PCBU’s must ensure (so far as reasonably practicable) the health and safety of workers.

Approximately 1.5 months before the incident, Budget Plastics had engaged a Health and Safety company to undertake a review of the workplace. That company highlighted a number of areas that required immediate attention, including the need for guards on all moving parts of the extrusion machine. At the time of the incident, Budget had not yet addressed the concerns relating to the extrusion machine.

The Court also found that Budget Plastics had failed to:

  • Install appropriately located emergency stops on the extrusion machine;
  • Have adequate systems in place for identifying hazards in the workplace;
  • Have an adequate safe operating procedure for using the extrusion machine; and
  • Have adequate policies/procedures for training workers in using the extrusion machine.

Under the old health and safety legislation, fines for cases involving machine guarding ranged from $30,000 to $40,000 on average. The maximum penalty under the HSW Act is $1.5million.

The Court determined Budget Plastic’s culpability was moderate, and recommended a starting point of between $400,000 and $600,000 for the fine. That was reduced to between $210,000 and $315,000 after the Court considered mitigating factors such as the company’s clean record, cooperation, remorse, remedial steps and guilty plea. The Court ultimately set the fine at $100,000 after considering extensive affidavit evidence as to Budget Plastic’s inability to pay more than $100,000 and the case was not severe enough to warrant putting Budget Plastics out of business.

In setting reparation at $37,500, the Court sought guidance from recent caselaw (under the old legislation) with comparable facts. The Court also ordered Budget Plastics pay $1000 towards Worksafe’s legal costs.

In WorkSafe’s media release, General Manager Operations and Specialist Services, Brett Murray, said,

“The lesson here is to fix machinery as soon as risks are identified. If you can’t fix it, then take it out of service until it is safe to use.”

If you'd like to know more, please get in touch with  our helpful team. 

Canterbury earthquake residential damage, limitation period looming

The Limitation Period issue for some claims for earthquake damage to residential property is looming.  Are you affected? 

4 September 2017 is a potential deadline for some homeowners to file claims in Court to protect their claim for earthquake damage to their homes/ residential rental properties, even if their claims are still with EQC.  

Depending on the insurer at the time of the September 2010 earthquake, if you have an unresolved claim and have not received written confirmation from your insurer that they will not plead the Limitation Act as a defence to your claim, this may be a significant issue for you. If they successfully plead the Limitation Act as a defence, that means your claim against them would be at an end, because of how much time has elapsed since the September 2010 quake.

 If you have unresolved damage to your residential property arising from the September 2010 earthquake, we would urge you to contact us to discuss what steps you may need to take to ensure your insurer cannot ‘walk away’ from your claim after 4th September 2017 on the basis of expiry of the limitation period.

This is particularly the case if you were insured with AA, FMG, MAS or Vero. Other insurers (including Southern Response, IAG and Tower) have indicated that they are working to a later date, but we would recommend that you discuss your particular situation with one of our helpful team. This also applies if your claim is still with EQC.

If you'd like to know more, please get in touch with  our helpful team. 

 

 

 

Ingredients + vision

T+P hosted Peter Cullinane of Lewis Road Creamery and 140 guests at the Hagley Oval on Friday 2 June. The theme of the lunch and Peter’s presentation was Ingredients and Vision.
 
Clients were delighted to be invited to hear a world class and home grown success story about how Peter built the Lewis Road Creamery brand from humble butter beginnings into the product range we all love to indulge in.  He had a clear vision and spoke with passion about NZ’s potential and products.  He was quietly entertaining and humble.  The Lewis Road Creamery story is a darling of social media and Peter was very proud to say that they have almost 200,000 “Roadies” supporting them online.
 
Peter’s 10 top lessons were also very insightful, and spelled out his view of the key ingredients for success.  They included:

  • Back yourself!  The biggest impediment to success is fear of looking foolish.
  • Have confidence and laser-like focus
  • Branding has to be brilliant; your product or service has to be better.

The TP vision for the event included celebrating with the Lewis Road Creamery ingredients. Our team created a bespoke cheesecake for all our guests to enjoy. The recipe is on our Facebook page.

Take a sneak peak inside our event by clicking on the photos, viewing our videos below or reading a little about what Peter had to say in over on stuff.co.nz.