The Supreme Court's ruling on leaky homes is both exactly right and terribly unfair. And it holds vital lessons for how governments govern and the foreshore & seabed

We're in the middle of renovating, my hands still speckled with paint from last night's marathon effort sealing walls, so the news in recent days that the Supreme Court has found in favour of those who have for so long suffered with leaky buildings has, you might say, hit home. I'm delighted for them.

We all now know the importance of good drainage and builders who know their eaves from their arse, but for me there are a couple of bigger lessons to heed.

In short, the Supreme Court has rejected the North Shore City Council's challenge of a Court of Appeal ruling, saying that councils had a duty of care for home owners, in this case owners of apartments in Takapuna and Mairangi Bay.

It's given everyone the desired "clarity" and opened the door to law suits. In sum, as the Court puts it:

This means that the Court has affirmed that a council owes a duty to be careful when inspecting homes in the course of construction.  The council is therefore liable for loss caused by negligent inspection.  The duty is owed both to the first owner and to subsequent owners.  All premises that are intended to be used as a home, according to the plans submitted to the council, are the subject of this duty.  It does not matter whether the home is a stand-alone building or part of a block of apartments.  The Court has upheld the decision of the Court of Appeal in this respect.

It's the right decision, and good for home-owners, but it's hardly what you'd call ideal justice. Councils are copping the ultimate blame because they're the easiest target, but in truth there's plenty of that blame to be shared round.

I've talked to a few builders recently – getting quotes for the renovations – as well as people who have lost houses in this mess, and fingers can point every which way. Building and Construction Minister Maurice Williamson calls it "systematic failure", and in a way he's right. Every safeguard in the system failed.

But let's not pretend that wasn't down to errors made by many individuals and institutions. Let me have a go at a list:

  • The New Zealand Standards Authority, which allowed untreated timber
  • The Bolger government, that deregulated via the 1991 Building Act, and then ignored warnings throughout the '90s, allowing more leaky homes to be built. Oh, and its cutting of apprenticeships, therefore de-skilling the industry.
  • The Clark government, which pretended it was all a beat up.
  • Councils, which out-sourced inspections during a building boom and didn't take enough care on code compliance
  • Architects, who didn't know the environment they were designing for
  • Builders, who didn't know better, got greedy or forgot the rules of their trade
  • Owners, who went for the cheap option and forgot that if it looks too good to be true, it usually is.
  • And another culprit that often avoids blame – companies that produce timber and building products, which convinced many of the above that their great new, cheap products would work, when they patently didn't.

Many have paid a very high price for their folly: Life-savings wiped out, companies bankrupted, even suicides. Now, while councils say the court ruling won't mean a rates rises in the short-term, there's nothing certain about the longer term.

The government is pleading for owners of leaky homes to opt for their $4 billion package deal, in which central government and councils each pay a quarter of any repair costs, while the home-owner pays the other half. Why? Because if they opt to sue, the economic impact is hard to quantify but almost certainly horrendous, with costs of repairing all the country's leaky homes at $11-$22 billion.

As Williamson has said:

"The government could not meet this sum of money, it's too big; nor could the councils, ratepayers just couldn't stump up with that sum."

Forcing home-owners to pay half the cost when they (by and large) deserve the smallest share of the blame is horribly unjust. But they're being asked to do it because a) it's for the greater good, b) many liable builders and architects have gone bust (by choice or otherwise) and c) it's ultimately their home.

So, those lessons? Such misery and cost means that MPs entering the House on their first day should be forced to memorise the 'leaky principle' – 'the larger the scale and risk, the more care and regulation required'.

Frankly, the leaky homes disaster is why we regulate. Like the credit crunch, it's a market failure, and we know that market failures tend to be large and that the bill ultimately ends up being paid by the public.

Whenever a politician starts going on about deregulation as an article of faith, those two examples should be rammed into their thick skulls. And for good financial reasons.

As the truism goes, profit is privatised, but losses are socialised. Limited liability companies are great things, but they make it easy for scumbags to avoid responsibility. A lot of the cowboys who created this mess have ended up paying bugger all; instead, the rest of us pay the price as per the government's latest deficit numbers.

The other political lesson comes from seeing the parallels between the owners of leaky homes and Maori. Both have been let down by authorities that they trusted and later asked to accept compensation less than they deserve for the sake of the common good.

Wouldn't it be nice if those in power stopped making the mistakes in the first instance?

Which leads us to the foreshore and seabed. Some of the fuss around the government's planned solution is that iwi and hapu will be able to deal directly with the Crown, rather than having to work their way through the courts.

The nutty Coastal Coalition is scare-mongering with talk of backroom deals over the foreshore and seabed... I wonder if any of them have leaky homes or know someone who is planning to do a deal with the government for a quick fix.

Are they planning to protest them?

Then there's Labour's not altogether illogical, but terribly cynical, decision to oppose the Marine Coastal Area bill, which means that the party will probably wind up supporting a non-legislative solution. In other words, they'll say 'we don't need a specific law, let the courts deal with all of it'.

That seems a bit rich, given it was Labour's over-reaction in government that started the fuss. Surely one of the key lessons from all of this is that if you make the mess, it's down to you to clean it up.

But if Labour doesn't like it's old bill or the government's new one, it's running out of chairs to sit on before the music stops and may have to stand to one side.

National is offering to deal directly with Maori, just as it is with the home-owners. And fair enough. In both cases, complainants can go to government or to the courts. If it's reasonable and proper in one instance, why not in the other?

Perhaps that's something for politicians to ponder this summer as they get home and maybe do a few renovations of their own. But for the grace of God, eh?

Now, back to my painting...

Comments (4)

by Andrew Geddis on December 21, 2010
Andrew Geddis

"In other words, [Labour]'ll say 'we don't need a specific law, let the courts deal with all of it'."

Except, of course, that this isn't what they've said:

"“We are already in talks with the leaders of other parties about an alternative plan that will guarantee public access in law, recognise Māori customary rights and allow Māori to take all aspects of their claims to the courts. ... This could be achieved by simple legislation enshrining rights of public access and inalienability of customary interests, with all matters being referred to the Courts."

So, Labour will still legislate ... it's just its legislation will be more minimal, with the courts left to be the future whipping boy on this issue ...

by nommopilot on December 21, 2010
nommopilot

'the larger the scale and risk, the more care and regulation required'.

you'll never make a quick buck that way.  the red tape will strangulise the wealth creation process (tm).

by Tim Watkin on December 21, 2010
Tim Watkin

Andrew, it's the "all matters being referred to the Courts" bit that I was getting at. What I understand them to be considering is taking it away from parliament and letting things play out in the courts as if the Ngati Apa ruling has just been made.

So, MPs get to pretend the previous eight years didn't happen and, as you say, the courts carry the can.

by stuart munro on December 22, 2010
stuart munro

 the more care and regulation required

At least in respect of the leaky homes, the changes were dressed up as a more comprehensive set of regulations, they raised compliance/inspection costs significantly, and the building standard went from a single orange book costing about $25, to about 30 volumes of compliancese costing over $600 dollars.

I think that may be why the courts hit the councils so hard - they expanded their control but proved incapable of either defining or policing acceptable construction standards once they departed from what had been the standard practice.

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