Harington St Transport Hub, pictured after work was abandoned on the project. Photo / Andrew Warner
Tauranga City Council (TCC) may appeal a High Court decision rejecting its bid to recoup losses it says exceed $20 million from two contractors linked to an abandoned transport hub project.
The proposed
Harington St Transport Hub was expected to provide spaces for 550 cars and 250 bicycles on prime real estate in the city’s CBD.
TCC abandoned the partially built project in 2020 after defects were found, eventually selling the site for $1.
The remediated site is now where construction of the $60m, 14-storey Panorama Towers office and commercial building is taking place.
TCC went to court claiming transport hub project contract breaches by contractors Harrison Grierson Holdings, which designed the structure, and Constructure Auckland Ltd, which was engaged to review the structural design.
Losses the council listed included more than $20.5m in “wasted costs” and loss of land value exceeding $5.3m.
However, it was argued in the High Court case Harrison Grierson and Constructure Auckland’s liability limitation clauses in contracts capped how much they could be liable to pay at a fraction of the council’s claim.
Justice Kiri Tahana released her decision on March 28, stating limitation of liability clauses in the contracts did apply.
The council must decide this month whether it will amend its claim.
Council chief executive Marty Grenfell told the Bay of Plenty Times the council and its legal advisers, including a King’s counsel, would take time to consider the 93-page judgement and what future action it might take.
Anatomy of a building project failure
In March 2017, Harrison Grierson was awarded a tender for the structural design of the transport hub.
With the fee charged exceeding $400,000, a clause in the standard agreement capped its professional liability at $2m and public liability at $10m in aggregate.
Constructure Auckland provided a proposal to the council in November 2017 for a $15,000 structural peer review of the project based on a short-form agreement. A clause gave a maximum liability of five times the fee up to $500,000.
Both parties included liability limitations in their reports and producer statements to the council.
The council issued building consent in July 2018.
In January 2019, lead project contractor Watts & Hughes Construction Group Limited queried the design relating to pouring concrete floors with Harrison Grierson, which confirmed the methodology.
Two months later, builders noticed a structural beam had twisted following a concrete pour and informed Harrison Grierson, which deemed the affected beam would need to be cut out and the remaining beams propped.
A wider internal investigation then identified an earthquake resistance flaw and Harrison Grierson revised its drawings
The council had them reviewed by Holmes Consulting, which reported design deficiencies in July 2019.
In September, the council ordered construction to halt.
After months spent exploring remedial solutions, the council abandoned construction in June 2020.
The council sold the land in April 2020 for $1 to Waibop (Harrington) Limited, a subsidiary of Watts & Hughes. The council said the land effectively had no value because of the cost of demolishing the partly built structure.
Liability limits and insurance
Retired structural engineer Arthur Park gave evidence for Harrison Grierson that if liability could not be limited, it was likely insurance premiums would rise, with this cost passed on to clients.
Barrister, mediator and arbitrator of construction disputes John Walton gave evidence for the council that standard form agreements were often presented and signed as standard practice. Their liability limits reflected what the industry was prepared to pay for insurance – not by reference to the potential consequences of the industry’s negligence.
Insurance brokers giving evidence for both sides generally agreed limitation of liability was a material consideration for insurers.
‘Surprising’ case
Justice Tahana’s decision said alternative ways of insuring against professional negligence were costly and had limited availability in New Zealand.
“This suggests that there is no, or a very limited, market for building owners to obtain insurance in place of engineers’ professional indemnity insurance.
“By agreeing to a liability cap, the non-residential building owner is in effect agreeing to share the financial consequences [above the value of the liability cap] if the building provider is negligent.
“I therefore do not consider that the limitation clauses agreed by TCC can be said to be in breach of the [Building Act].”
Justice Tahana also found the liability of each defendant for breach of a duty – to exercise reasonable skill and care with a view to ensuring building work complies with the building code – would be capped at the amounts specified in the contract limitation clauses.
In conclusion, Justice Tahana said it was “perhaps surprising” the issue had not previously come before the courts, given the Building Act had been around for 20 years.
There appeared to be different classes of building owners with different legislation in place to protect them, Justice Tahana said.
“The consumer protection regime indicates that Parliament impliedly does not intend that non-residential building owners be afforded statutory protection if they agree to limit their right to recover damages for breach the [Act].”
Kiri Gillespie is an assistant news director and a senior journalist for the Bay of Plenty Times and Rotorua Daily Post, specialising in local politics and city issues. She was a finalist for the Voyager Media Awards Regional Journalist of the Year in 2021.
Herald morning quiz: April 23 – New Zealand News