The case against the BIA

The untreated timber debate

In the early 1990s, Carter Holt Harvey headed a timber industry campaign to lobby industry groups and councils about the use of untreated, kiln-dried timber.

Two reasons have been put forward: the first that boron-treated timber arrived wet and builders preferred dry timber that would not shrink. The second was that forestry companies could see cost savings in gearing production to Australian and Asian markets, which did not require treated timber.

CHH touted its own "surveys" of the condition of pre-1950s homes built with untreated pine. But these were traditional weatherboard houses with eaves and the heartwood timber was much more durable than the quick-grown sapwood sold in New Zealand in the 1990s.

Scientists at the Forest Research Institute cautioned against a move to untreated timber. As early as 1991, Dr Mick Hedley warned that boron treatment was "cheap insurance" against borer and rot and the benefits of kiln drying would be reversed if timber became wet.

Hedley recalls: "We had a few battles, which I can't talk about. We had quite heated arguments with certain chief executives of certain corporates about it. They tried to browbeat me into seeing their point of view, which I resisted."

Hedley says what was forgotten was that boron treatment had been introduced in the 1950s not just to control borer, but also as a fungicide that prevented rot.

But in 1995, a Standards NZ committee comprising industry representatives amended its timber standard to allow untreated framing timber under certain conditions.

The dissenting voices of two Forest Research representatives were rejected.

The Institute of Forestry would later tell the Hunn inquiry that untreated timber was not advocated as standard practice and was meant to be used only in ventilated conditions where moisture content was below 18 per cent.

But in February 1998, the Building Industry Authority (BIA) adopted the standard as an "acceptable solution" within the building code, effectively allowing the use of untreated pine behind monolithic claddings. The decision is said to have worsened the leaky homes problem tenfold.

It's alleged that the BIA should have sought independent advice and testing rather than accepting the word of industry lobbyists. Forest Research experts on timber performance and rot were not consulted.

In the BIA's view, if the moisture content went above 18 per cent, that was a breach of the building code - a construction defect.

In practice, say industry experts, the requirement was impossible to achieve - all buildings absorbed moisture and by 1998 leak problems with monolithic-clad homes were common knowledge in the industry.

In 1994, building surveyor Greg O'Sullivan warned that many plaster stucco houses were potential time bombs. He had inspected a house less than five years old where fungal decay had attacked the timber framing.

In 1995, Branz held "good stucco practice" seminars around the country and published guidelines.

Under the Building Act, the BIA had responsibilities to educate the industry and to advise the minister about building control matters.

At the Sacramento strike-out hearing, lawyer John Carter, representing builder Ellerslie Park Holdings, argued the outcome of the decision to allow untreated timber was foreseeable and the BIA negligent. It knew it was inevitable that bad workmanship would cause houses to leak.

Carter claimed the BIA was diverted by timber industry interests away from the fungicide properties of boron-treated timber and became wrongly focused on the issue of insect (borer) attack.

"The BIA negligently pandered to the timber industry and other big industry players ... and ignored the interests of consumers.

"It based its opinion on inadequate, self-interested reporting by Carter Holt Harvey, other forestry owners and timber merchants without any scientific evidence and without obtaining advice from the the DSIR or Forest Research Institute."

The failure to act when warned

After the introduction of untreated timber, Greg and Phil O'Sullivan of Prendos found highly destructive brown rot in timber framing for the first time. In April 1998, they sent samples and photos to the BIA and Branz. "We kept on sending samples and still they wouldn't listen," recalls Greg O'Sullivan.

"Instead of seeing [monolithic] houses starting to get rot after six or seven years we were dealing with properties that were only months old."

The BIA was already aware of leaky home disasters due to monolithic cladding failures in Canada and the United States. The full Barrett Report on the Canadian crisis was in BIA hands by July 1998. In 1999, its chief executive Bill Porteous visited Canada and chaired a conference session on durability. But he would continue to argue the problem was one of poor construction.

O'Sullivan recalls pleading at a 1999 meeting with the BIA for the introduction of more durable H3 timber on balconies. "The government directive was to do nothing that would add to the cost of housing. I was basically dismissed."

O'Sullivan says he also wrote to the Minister of Internal Affairs in 1999. "They had knowledge."

The O'Sullivans weren't the only ones bombarding the BIA with information. Ian Holyoake of cladding manufacturer Hitex sent the BIA and Branz a 66-page booklet in 1996 highlighting problems with building methods and materials used in conjunction with stucco cladding.

Holyoake followed up with a 300-page report in 2001, detailing 14 areas that needed urgent attention. "They said they had no power at all to make the changes."

The insurance debacle

The introduction of private certifiers to inspect and approve building work was an important element of the 1991 Building Act; both Labour and National believed it would shake up council bureaucracies, reducing delays and costs for developers.

But with certifiers lacking the financial base of ratepayer-funded councils, an insurance scheme was vital so that victims of a negligent certifier could recover damages to the same extent as victims of a negligent council.

The BIA was charged with approving private certifiers and ensuring they had adequate forward insurance cover for 10 years following the issue of a code compliance or building certificate.

But when the leaky homes scandal broke in 2002, insurers began to exclude cover for leaky homes, sending certifiers out of business.

It later emerged that the BIA had renewed annual licences without checking that certifiers had valid insurance.

A key plank of the Sacramento case is that the BIA knew all along that its insurance scheme for certifiers was fatally flawed.

Correspondence between the BIA and insurers shows the insurance industry in the early 1990s would not provide 10-year cover that would place certifiers on an equal footing with councils. By 1994 the BIA had not approved a single certifier to compete with councils.

It sought ministerial advice but Internal Affairs Minister Warren Cooper wrote to BIA chairman Sir George Chapman in April that year that ministerial direction was unnecessary and that the BIA should seek independent legal advice.

The indemnity scheme subsequently introduced needed to be renewed annually. Concerns were raised about ongoing cover should a certifier go out of business. And insurers could cancel at any time.

The BIA introduced the scheme despite its own view there was "a much greater possibility" that a claim against a certifier would not be covered by insurance and despite a warning from Internal Affairs that this would expose the BIA to an ongoing contingent liability. The BIA's legal adviser Brian Cashin replied that the Crown Law Office had not raised the liability issue.

Lawyer Tim Rainey estimates about 25 per cent of leaky home owners are now unable to claim against certifiers who oversaw construction and issued code compliance. In most cases, the other parties involved in construction have also "disappeared", leaving owners with no one to sue.