Mediation plan unfair to owners

By DEREK FIRTH*

The Government has two options in designing mediation on rotting homes: One is discover first where the the true layers of responsibility lie; the other - which the Government appears to have chosen - is a system which leaves the homeowners no practical leverage.

If the Government was to take the first option, it would follow the recommendation of the Hunn report and set up a commission of inquiry to establish the layers of responsibility. A similar result might be better achieved through a special fast-track tribunal with binding powers whose policies on liability apportionment would become publicly known quickly.

Clearly, much more thought is required to devise the best way forward, but it would be possible to provide a setting in which the thousands of people with damaged and devalued homes could mediate, negotiate or otherwise seek recovery against those identified as being responsible.

The vast majority of claims are likely to settle in mediation on a fair basis.

But the option the Government appears to be running is to set up a system which leaves the aggrieved owners with literally no practical leverage whatsoever. It is an attempt to encourage quick settlements through mediation, but in the absence of any guidelines as to liability or any meaningful fallback position.

A large number of people may well recover small sums relatively quickly, but they will end up taking perhaps 25 per cent of what they should get, possibly much less. This is because not all of the people responsible will be around the table, and those who are will know that each individual claimant has nowhere else to go.

For example, if the remedial costs are $40,000 and one or two of the responsible parties offer a total of $10,000 at the mediation table, it is unlikely that the majority of owners will go through arbitration or the courts or both for an extra $30,000. In this way, the potential liability of everyone responsible could be reduced by perhaps 75 per cent or even more.

These are the classic strategies for defending mass claims: Keep the claimants from speaking with a collective voice and deal with them individually because, on their own, each has virtually no leverage. Might this be why the Government's proposal has the support of everyone with potential responsibility? There are no fewer than 16 parties with a possible legal exposure and, therefore, a vested interest in reducing or avoiding liability.

Parliamentary debates and press reports have identified suppliers, the Standards Association, the Building Industry Authority (which promoted Acceptable Solutions to achieve the Building Code objectives), developers, designers, project managers, councils, inspectors and each of their insurers. There may also be the complication of a claimant having purchased from a previous owner.

Another complication is that either or both of the central Government agencies may have statutory protection. The Government could consider a limited waiver of that protection.

For example, the Government (or an inquiry) may conclude, after a measured consideration of the problem, that the Standards Association and the Building Industry Authority failed to adequately warn the industry of the dire consequences of failing to comply with their publications (which publications may have been technically correct).

It is also important to remember that the liability of those in the building chain can vary dramatically from case to case. A perfect product might have been wrongly used. A builder might have built to contractual requirements. A developer might have acted on professional advice and followed it meticulously. An inspector or council might have been the victim of cleverly concealed shoddy work.

In some cases, the actions of the claimant might have contributed. The nature of the remedial work might confer a significant extra benefit on a claimant.

While an inspection now may clearly identify the problem in any particular home, it will not necessarily identify accountability without further inquiry as to the adequacy of the specifications and plans, the contractual requirements and a host of other matters.

Any resolution process must therefore be fair towards every potential defendant and insurer, as well as to the claimants. This is why I recommend the establishment of liability guidelines or rebuttable presumptions that would apply in various circumstances unless, in a particular case, a defendant could show otherwise.

At first glance it makes no social or political sense to protect everyone in the liability chain, and all of their underwriters, at the expense of thousands of people who, through no fault of their own (in most cases), are suffering significant loss. But this likely outcome is so predictable it must be intended. Why?

Perhaps it is because the wider interests of ratepayers and taxpayers are perceived to be paramount compared with the (well-off) homeowners.

Another reason could be the private nature of contracts and home building. But here the scale of the problem is unique, the homeowners are unlikely to have significant responsibility themselves, many are not well off and most have mortgages.

I originally thought the objective of the Government was to facilitate a fair recovery by innocent victims from those responsible. But now it seems that the objective is to slash the total exposure of those responsible and make the victims shoulder most of the financial burden.

If that is so, it might be said the Government is being brilliantly advised.

* Derek Firth is an Auckland barrister, arbitrator and mediator.

* If you have information about leaking buildings,
email the Herald or fax (09) 373-6421.

Further reading
Feature: Leaky buildings

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