What's the deal with producer statement?

DO PRODUCER STATEMENTS LET COUNCILS OFF THE HOOK?

DO PRODUCER STATEMENTS LET COUNCILS OFF THE HOOK?

Why do Councils use producer statements? There’s no reference to them in the 2004 Building Act so do they still serve any useful purpose?

BY GEOFF HARDY OF SPECIALIST CONSTRUCTION LAW FIRM MADISON HARDY

In February 2012 I wrote an article for ITM called “What is a producer statement?” It’s still available to read on the Madison Hardy and ITM websites.

This is a follow-up to that article, and it deals with the issue of whether building consent authorities (for convenience I will call them Councils) can avoid liability for signing off defective building work, by pointing to the fact that someone has given them (or should have given them) a producer statement in respect of the defective work.

Does that let the Council off the hook? The starting point is that Councils in New Zealand owe a duty of care to current and future owners of residential properties, when issuing consents, carrying out inspections, and issuing code compliance certificates.

That principle was first established in the late 1970s in Mount Albert Borough Council v Johnson, and reaffirmed in a succession of cases over the next 20 years, culminating in the Privy Council decision in Invercargill City Council v Hamlin. New Zealand law places more responsibility on Councils than many other developed countries do, mainly because New Zealanders tend to place more reliance on Councils to ensure buildings are safe and functional. Nothing in the 1991 Building Act or its successor in 2004 eased the burden on Councils, although if and when the risk-based consenting provisions of the 2012 Amendment Act come into force, that will change things a little.

WHY USE PRODUCER STATEMENTS? Building projects are usually quite complex and they drag on for long periods of time. For a Council to ensure that every aspect of the work complies with the building consent and the building code, they would have to employ a wide range of experts to occupy every building site and observe the activity constantly. That is obviously impractical, so Councils have to cut a few corners. One of the ways they do that is by requiring the main contractors working on the job and the suppliers of specialised plant or appliances to promise in writing to the Council that their work and their equipment are up to scratch. These written promises are called producer statements, and the contractors and suppliers can be liable to the Council if they get it wrong.

The 1991 Building Act said that a Council could, in its discretion, rely on a producer statement as evidence that the building work was code compliant. This has become common practice and in fact Councils routinely make it a condition of the building consent that producer statements have to be provided. It is also common practice for them not to inspect, or not to inspect as thoroughly, work and components that they know will be covered by a producer statement. When the leaky building syndrome reached its peak around the turn of the century, the 2002 Hunn Report on weather-tightness concluded that over-reliance on producer statements was one of the reasons Councils had taken their eye off the ball. Consequently the 2004 Building Act removed all reference to producer statements altogether.

DO THEY PROTECT THE COUNCIL? That does not mean that producer statements are now illegal or are to be discontinued. The Building Act does not say that Councils can use them, but neither does it say that they can’t. Producer statements do serve a useful function because they avoid the crippling costs and delays that would be involved if Councils had to check everything themselves, so the practice has continued unabated. That then raises the question: If the Council relied on a producer statement in signing off the building work, and the producer statement turns out to be wrong, does the Council escape liability? Can the Council pass the buck to the contractor or supplier who gave the false statement?

The answer is: only to a limited extent. There have been a number of cases over the past couple of years that have touched on the subject, and their general theme is that Councils can rely on producer statements only when reasonable to do so. For example, where the Council has reason to believe that the contractor providing the producer statement was careless or incompetent, it would not be reasonable to rely on a statement from that contractor, at least without checking the workmanship. How would a Council become aware of the contractor’s carelessness or incompetence? They might have had previous experience of him on other projects that had proved problematic, or there might be an above average degree of defects in the contractor’s workmanship on the current project, that ought to put them on alert.

OTHER FACTORS: Other important factors include the skill, experience and reputation of the person providing the statement, his degree of independence from the owners, whether he is a member of an independent professional body and therefore subject to a disciplinary regime, the complexity of the relevant work, and the likely consequences of non-compliance. Also relevant is the ease with which the Council inspectors could have noticed the contractor’s shortcomings. Defective workmanship that is hidden from view or very difficult to access, would not be readily apparent to the inspectors, but if the workmanship that they can see is clearly deficient, then it would be reasonable for them to conclude that the hidden work is likely to have met the same standard.

Geoff Hardy has 40 years’ experience as a commercial lawyer and is the senior lawyer in the Auckland-based firm Madison Hardy. This article is not intended to be relied upon as legal advice.

To contact Geoff at Madison Hardy click here