Liabilities of LBPs

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The Act will require that the owner names the Licensed Building Practitioner (LBP) doing any restricted building work (RBW), and the LBP will be required to sign a memorandum outlining the RBW he did or supervised. The form for the memorandum has not been developed yet.

The Department of Building and Housing (DBH) has stated that the liability exposure is no more and no less under a licensing regime than it is now.
Section 88 of the Act specifically states that the memorandum does not give rise to any additional civil liability by Licensed Building Practitioners to owners of buildings that does not already exist — ie, any contractual or tortious liability that may arise is not affected in any way.

The RMBF believes that generally what the LBP regime has done is not change the civil liability the builder already has, but raised a greater awareness of liability.
But some things are new, and some things will be different, and there’s going to be greater responsibility and accountability of all building practitioners under the LBP Scheme.

An example of the “new” is the requirement in s.89 of the Act for LBPs to act as “watchdogs” — to notify the council if building work is carried out that is not in accordance with building consent, even if it is not restricted building work, or it is not work that the LBP is doing.
The LBP must also state how the work doesn’t comply, and do it as soon as practicable after he forms that opinion.

This is quite an onerous obligation, with no stated means of enforcement (it doesn’t appear to fall within the grounds for discipline in s.317). However, it could be an additional allegation to be cited in a civil claim for breach of statutory duty.
“Breach of statutory duty” is not a new cause of action in the common law, but no one knows yet how it would be applied in the courts and how high the bar of duty will be set for LBPs.

It could take years for such an action to be pleaded and make its way through the courts and we know for sure.
There are some offence provisions in the Act that apply only to LBPs — eg, if an LBP carries out work, or supervises the carrying out of work, of a kind he is not licensed for. The penalty is up to $20,000.

The scheme introduces a new disciplinary regime for LBPs, a new process whereby a complaint can be laid with the Building Practitioners Board (BPB), investigated by the Board and a range of penalties imposed.
The strongest penalty the BPB can impose is removing you from the register of LBPs. It cannot make any compensation or damages award to the complainant, but can fine the LBP up to $10,000.

So a new potential for statutory liability will apply to LBPs. The disciplinary regime brings builders into line with electricians, plumbers, architects and engineers who have been subject to licensing and disciplinary provisions for decades.
The difference is that in a civil liability situation it is generally (but not always) the company that would be the target for litigation (because it has the deepest pockets), whereas in the statutory liability situation it will be the individual licence holder that is targeted.

As we know, of course, “the company” doesn’t build houses — its employees (or contractors) do.
Often in leaky building litigation where the contracting company has disappeared, the claimants then claim against former-employee and/or contractor builders, alleging them negligent. To that extent the civil liability exposure for an individual has not changed.

In both cases, the liability exposure of people who do building work is determined by what they actually did. In the case of an LBP, “what he actually did” will be recorded on a memorandum and signed by himself as having done the work, or supervised the work.

In the case of a non-LBP, it will be recorded in a contract and probably other documents. For example, councils have been including information on their building consent files about who did what for the past three or four years.

Who-did-what is now, and will continue to be, a question of fact determined upon a forensic investigation of the building process. This happens now whether or not the builder has signed any piece of paper, and whether or not they are licensed.

Individual risk
With liability for defective work set at 10 years, there’s a long time where an LBP might be vulnerable to a civil claim and/or a BPB complaint. In that time, the company that you worked for might have been sold, or closed down due to insolvency or retirement.

Under the current joint and several liability framework, if the company was gone, you might (if your work was found to have been at fault) find yourself one of the few contributing parties to a settlement. If that was the case, you might well be bankrupted.

That is the situation now and the LBP scheme doesn’t change that. If that was the case, a complaint to the BPB and its potential penalties would be the last of your worries. However, they can also be severe.
These are the risks that you face. So how do you manage them?

Avoiding transferring managing risks
Risk management involves avoiding, transferring or managing your perceived risks. In the building work context, this would mean:
• Avoiding — an astute LBP will ensure that he does not take on work that is outside his knowledge ability and experience to manage.
• Transferring — if a certain task is beyond your skills and knowledge get someone else to do it.
• Managing — can be internally managed, or externally.

Internally managing your risks is about ensuring that you know the job inside out, and if there are design defects you put them in front of the client or the designer and get them sorted before you start — or as you go, if you find them when the job’s on foot.
Many builders say they can’t be too picky what they do, and will build whatever is on the plan. This approach has always been risky, and cannot be the attitude an LBP will take.
An LBP is expected to know his stuff, and expected to speak up if some aspect of the work is not right.
Externally managing risks involves getting appropriate and adequate statutory liability and professional indemnity insurance to meet potential liabilities.

Insurance
Most companies have in place a suite of liability insurances, including statutory liability to cover for things such as health and safety breaches.
It is probably wise, if you are a company, to review those policies and ask your broker to confirm that it is not intended to exclude the Building Act 2004 (which would include your employed LBPs) from cover. You may also want to consider increasing the cover.
If you are an individual LBP, you should ask your employer what cover it has and get confirmation it covers you.
Many companies now have professional indemnity insurance to cover civil liability risks. If you are a company you should ensure that your employed LBPs are covered. If you don’t have PI insurance yet, then you should investigate it.
If you are an individual LBP you should be asking your employer if it has professional indemnity cover and, if so, does it cover employees, and will it cover you if you leave their employ and for how long.

You should be aware that:
• If your employer goes out of business, whatever cover they had while you were still employed will probably not exist.
• There is no cover for leaky buildings claims — to anyone. 
• If you, as an LBP, do any private work, perhaps for a mate, you will not be covered by your employer’s policy.

If you are an independent contractor LBP, then while you should ensure that you carry these insurances, you probably won’t be able to get them.
Despite assurances from the DBH that it has been in discussion with the insurance industry over the past few years, no policies have been made available to the industry that enable an LBP to manage his personal risks arising from being an LBP.
Be aware, think carefully

So for LBPs, while the potential civil exposure is, in practice, unchanged, there are additional liabilities that you may face in respect of complaints to the BPB.
As is the case now, if your employer company has folded, then you are exposed to civil claims without the benefit of an indemnity from your employer.
As an individual LBP, you probably cannot get professional indemnity or statutory liability insurance for yourself. Yet.

It may be that an LBP scheme will provide the security insurers have been looking for to be able to offer such products in the future.
However, restricted building work is around the corner, and that is a market that only LBPs can get a piece of.

Whatever your “take” on the system is, it is coming, and builders who are serious about their place in the industry cannot afford to ignore it.
However, like a trapeze artist without a safety net, you need to know exactly what you are doing, exactly what the risks are, how you intend to manage them, and what your personal appetite is for them, before you grab the LBP swing.