The proposal to replace the long-standing joint and several liability regime with a proportionate liability system may have unexpected consequences for the Kiwi building industry, commercial lawyer Andrew Skinner explains.
The Government has signalled a major shift in New Zealand’s building liability framework, proposing to replace the long-standing joint and several liability regime with a proportionate liability system. While the reform is aimed primarily at addressing unfair risk allocation, it could have unexpected consequences for building product manufacturers and suppliers.
Current system: Joint and Several Liability
Under the present regime, if multiple parties contribute to a building defect, any one of them can be held liable for the entire loss. In practice, this often results in homeowners pursuing the most solvent party, who may end up covering costs (often the local council) that should have been shared with others involved.
Proposed reform: Proportionate Liability
Under the proposed proportionate liability model, a court would allocate a percentage of fault to each party. Each party is then responsible only for that portion of the loss.
For example, if a builder is found 40% responsible and a council 30%, each pays those amounts, regardless of whether another party, such as a developer, is insolvent. Any unpaid share becomes the homeowner’s responsibility.
Potential benefits
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Fairer, more predictable risk allocation
Under the regime, a party would be liable only for their actual contribution to any defect, rather than facing broad joint and several exposures.
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Improved consenting efficiency
Reduced liability for councils may lead to faster approvals, benefiting the entire supply chain.
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Possible strengthening of consumer protections
Industry-wide warranty or insurance schemes may emerge, helping to mitigate homeowner losses and reducing the pressure to pursue suppliers in large multi-party claims.
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Higher industry standards
A more balanced liability system may incentivise all participants in the supply chain to improve quality control, which could reduce downstream claims.
Potential concerns
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Increased litigation complexity
Plaintiffs may sue every potentially involved party from the outset, including suppliers, to avoid liability gaps.
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Insurance pressures
Weather-tightness and product-related risks are already difficult to insure. Changing liability settings may further impact insurance availability and premium levels.
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Contracting uncertainty
It is unclear whether parties will be permitted to ‘contract out’ and reinstate joint and several liability in supply contracts or building contracts.
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Transitional overlap
Ongoing projects and historic defects may be caught between the old and new regimes, complicating liability management.
Government proposal
To reduce risks for homeowners and maintain confidence in the building system, the Government is introducing three key measures.
Warranty providers must register with MBIE, meet minimum standards set in regulations, report regularly to MBIE, and publish clear, easy-to-understand product information.
Second, professionals involved in building design work, such as architects, designers, and engineers, will be required to hold professional indemnity insurance. This measure promotes accountability and ensures these professionals are financially able to stand by their work, giving homeowners greater confidence.
Finally, disciplinary penalties for Licensed Building Practitioners will be strengthened. The maximum fine will increase from $10,000 to $20,000, and the maximum suspension term will rise from 12 months to 24 months.
Timeline
The Government intends to introduce a bill in early 2026, with the goal of passing the legislation by mid-2026.
Conclusion
Australia has implemented various forms of proportionate liability, and their experience demonstrates that strong insurance coverage is essential for the system to function effectively. If New Zealand introduces proportionate liability without strengthening insurance requirements and without clear rules on whether parties can ‘contract out’ of the new system, disputes could become more complex, more expensive, and involve many more participants across the entire supply chain.
