Tauranga City’s claim for over twenty million dollars following a botched multi-storey carpark construction was reduced to recovery of a little over two million dollars after a landmark High Court ruling which upheld construction contract clauses limiting liability.
This court ruling applies to construction contracts for non-residential builds only; contractors cannot limit liability for any failure to comply with the Building Code when constructing residential properties.
Tauranga City’s 2017 plans for a new transport hub in the central city intended to accommodate 550 cars and 250 bicycles proved a financial disaster. Structural beams failed to support the weight of concrete slabs. Defective design brought construction to halt with the basement level finished and above-ground work partly completed.
In 2020, Tauranga City abandoned the project, selling the site for one dollar. The Harrington Street site had no economic value; any purchaser faced the cost of demolishing the part-built carpark.
Looking to recover its losses, Tauranga City sued Harrison Grierson (who did the design work) and Constructure Auckland Ltd (who peer reviewed Harrison and Grierson’s work). They both argued their liability was limited to the specified amount set out their respective contracts: two million dollars for Harrison Grierson; five times its fee for Constructure. Payment to Constructure totalled $15,000; all up, Harrison Grierson was paid over $400,000.
Design work is treated as ‘building work’ in the Building Act. There is a statutory duty to ensure work complies with the Building Code.
In court, the main legal issue was whether contractors could limit their liability for losses following a failure to comply with the Code. This was the first time the issue had been before the courts.
Justice Tahana ruled the answer depended on whether the construction in question was residential or non-residential.
Building Act rules do not allow contractors to include in their contracts for residential work any terms contracting out of Building Act warranties. This, coupled with consumer rights in the Fair Trading Act and Consumer Guarantees Act, effectively imposes unlimited liability for faulty work on residential builds.
Non-residential builds are a different story. Customer and contractor are free to negotiate who bears what proportion of the risk. Clauses limiting liability set out how much of the risk a contractor takes; the balance of the risk is carried by the customer.
Justice Tahana ruled limitation clauses are valid for non-residential builds. The economic effect of imposing unlimited liability on contractors for non-residential builds would see the premium for increased insurance cover built into contract prices, causing customers to carry a greater cost and more of the risk than they might otherwise wish to carry.
Tauranga City v. Harrison Grierson Holdings Ltd – High Court (28.03.24)
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