When does time run on a contribution claim?

Beca Carter Hollings & Ferner Limited v Wellington City Council [2022] NZCA 624

The Court of Appeal has recently upheld a High Court decision that the Building Act 10-year longstop does not apply to contribution claims against third parties. Contribution claims are instead governed by s 34 of the Limitation Act 2010. This means that time does not begin to run on contribution claims until settlement or judgment occurs.  Insurers of third parties, such as professionals or construction entities, remain potentially ‘on the hook’ for much longer than previously thought.   

Background

In October 2006, CentrePort Ltd, the operator of Wellington port, contracted with Bank of New Zealand (BNZ) to construct a building on the Wellington waterfront.  Beca Carter Hollings (Beca) were contracted by CentrePort for engineering and design consultancy services.  Following construction, BNZ entered a long-term lease of the building in February 2011.

The building suffered devasting damage in the Kaikoura earthquake of November 2016 and BNZ were never able to return.  The building was ultimately determined uneconomic to repair and has since been demolished.

On 2 August 2019, BNZ filed proceedings against Wellington City Council.  It alleged the Council were negligent in issuing building consent and code compliance certificates for the building’s substructure and superstructure.  The Council denied liability and filed third party proceedings against Beca.  It alleged Beca breached the duty of care it owed to the Council by preparing design documents not in accordance with the Building Code.

The Limitation Issue

Beca first issued producer statements for the design of the building’s substructure and superstructure on 19 February 2007 and 12 March 2008.  It argued that, based on the 10-year longstop found in s 393(2) of the Building Act, the civil proceedings commenced on 26 September 2019 were out of time.  A number of High Court decisions had applied the building longstop to prevent contribution claims against professionals or construction entities.  

The Council argued that the claim against Beca was saved by s 34 of the Limitation Act, which applied to claims for contribution from another tortfeasor.  This section applies to a claim by a tortfeasor (A), who is liable in tort to person (B), for contribution from another tortfeasor (C).  Tortfeasor C must be liable to B in tort in respect of the same damage.  Section 34(4) sets out its own time limitation.  It says that it is a defence to A’s claim for contribution from C if C proves that the date on which the claim was filed is at least two years after the date on which A’s liability to B is quantified by an agreement, award or judgment.

On this basis, the Council argued that as a tortfeasor claiming contribution from Beca its liability in tort to BNZ is yet to be quantified.  Accordingly, the two-year limitation period established by s 34(4) has not begun and its claim for contribution from Beca is not out of time.

High Court Decision

The High Court ruled against Beca, concluding that the Council’s claim is unable to be struck out by the 10-year longstop limitation found in s 393(2) of The Building Act.  The High Court considered that it was unlikely that Parliament intended to alter the joint tortfeasor rule established by the Law Reform Act passed in 1936 without express words.  The judge also noted this was an ancillary claim and concluded that the phrase ‘civil proceedings’ in s 393(2) only applied to original claims, not ancillary ones.  Therefore, s 34 of the Limitation Act 2004 applied instead.

Court of Appeal Decision

Beca appealed to the Court of Appeal.  It argued that the longstop limitation period applicable to the Council’s claim for contribution began on the date Beca breached its duty of care.  Hence the longstop dates should be 19 February 2017 and 12 March 2018, well before the Council made its claim for contribution.  In contrast, the Council maintained that the claim is based on a finding of liability owed by Council to BNZ, not the negligent act.  It is only then that its cause of action for contribution accrues.

The Court of Appeal conducted a detailed analysis of the legislative history and case law, to shed light on Parliament’s intention and to reach a conclusion.  The judges held that s 393(2) does not apply to contribution claims.  They noted that if Parliament had intended to do away with the bespoke approach to contribution claims captured in the surrounding legislation, then it would have done so explicitly.  Instead, the Court determined that contribution claims are governed by s 34 of the Limitation Act.  This means that contribution claims can now be filed between joint tortfeasors up to two years after a claim has been quantified by an agreement, award or judgment.  This ruling confirmed that the Council was able to pursue its claim against Beca as BNZ’s claim against it had not yet been quantified meaning time had not run out.  The appeal was dismissed.

The Court highlighted that this approach balances the competing policy considerations at play.  Namely, it provides finality between the original plaintiff and the defendant(s) they choose to sue, yet ensures a fair opportunity for defendants who are successfully sued by the original plaintiff to seek contribution from other parties who in substance would be liable, were it not for the 10-year longstop.

Comment (Virginia Wethey)

The Court of Appeal’s decision is significant.  Insurers and their insureds can no longer be confident that they will not be pulled into litigation years after the Building Act 10-year longstop has passed.  Not only does this create uncertainty, but it also raises various consequential issues.  For example, should a business retain its files for longer than ten years, and if so, how long?  Should businesses/directors seek additional run-off cover after the entity has ceased trading?    

This may not be the final word as Beca has been granted leave to appeal the decision to the Supreme Court.[1]  In the meantime, underwriters may wish to reconsider their current risk analysis in relation to insureds involved in the building industry.

[1] [2023] NZSC 38.

Virginia Wethey is a partner at fee langstone