Engineers and their insurers can breathe a sigh of relief following the High Court’s recent decision in Tauranga City Council v Harrison Grierson Holdings Limited & Constructure Auckland Limited [2024] NZHC 714 (28 March 2024). The Court determined as a preliminary issue that the defendant engineers could rely on their contractual limitations of liability to limit any liability they have to Tauranga City Council (TCC) as the owner of non-residential building. 

Background 

Following the alleged failure of an intended transport hub for 550 cars and 250 bicycles in the centre of Tauranga, the TCC issued proceedings against the design engineer and the peer review design engineer seeking in excess of $20 million in claimed losses. TCC alleged five causes of action against the defendant engineers: Breach of contract, negligence, negligent misstatement, breach of the Fair Trading Act and the novel claim that the engineers breached their statutory duty. The Court was asked to decide, as a preliminary issue, whether the engineers could rely on their limitations of liability clauses contained within their contracts with TCC, and/or contained in producer statements issued by each defendant as a defence to each of TCC’s causes of action. 

The contractual limitation of liability clauses stated that any liability the defendant engineers had to the TCC (as building owner) “in contract, tort or otherwise” was limited to a maximum of $2 million for the lead design engineer, and five times the fee to a maximum of $500,000 for the peer review engineer. The producer statements all contained a $200,000 limit of liability.   

TCC’s primary basis for opposing the defendant engineers’ reliance on their limitation of liability clauses was that by doing so, the defendant engineers were seeking to contract out of the Building Act 2004’s (BA04) requirement that building work comply with the building code (section 17). TCC claimed that the clauses were therefore “illegal” under the Contact and Commercial Law Act 2017 (CCLA) and unenforceable. TCC also argued that the limitation clauses did not comply with the requirements for contracting out of the Fair Trading Act 1986. 

Decision 

Ultimately, the Court was not persuaded by TCC’s arguments and held that both defendant engineers could rely on their limitation of liability clauses in relation to all causes of action alleged against them. In particular, the Court accepted the defendant engineers’ argument that they were not claiming that they (or anyone else) could contract to a standard lower than that set out in the Building Code. Rather, the defendant engineers were seeking to allocate the risk for any alleged failure to meet that standard by limiting their liability to the TCC (as building owner). 

Further, the Court also found that the limitation of liability clauses: 

• did not undermine the BA04’s statutory purpose of ensuring safe and healthy buildings and the duty to meet the minimum standards prescribed by the building code; 
• did not contravene section 17 of the BA04; and 
• were not illegal under the CCLA.  

The engineers’ producer statements were addressed to the TCC as the building consent authority, not as the building owner. The Court therefore maintained that the relationship between each defendant engineer and TCC (as building owner) was governed by their respective contracts and not by the terms of the producer statements. They therefore could not rely on the Producer Statement limits in this case.  

Commentary 

The High Court’s decision reinforces that: 

• those involved with building work must meet the minimum standard set out in the Building Code; 
• when it comes to non-residential buildings, contracting parties are permitted to negotiate between themselves to limit liability for all types of claims; and  
• many building owners would accept the risks of limitation of liability clauses in order to realise the advantage of the lower contract price (made possible by lower insurance costs arising from the limitation of liability).   

Parties negotiating construction contracts should carefully consider the level of risk they are willing to accept and to ensure that they include an effective limitation of liability clause which reflects the chosen level. To give the best chance of being able to rely on such clauses, contracting parties should: 

1. ensure the limit clearly and expressly covers the work that they are actually carrying out; if the scope changes during the project, they should update the contract; 
2. draw the limitation to the other party’s attention; and 
3. get the contract signed.  

The construction and insurance specialists at Wynn Williams are well-placed to help parties who are considering limitation clauses when negotiating construction contracts. If you have any questions about what this case means for you, please contact our specialist Construction and Insurance teams.