In a previous article in 2022 we highlighted the issue of whether people who incorrectly issue producer statements could be held criminally liable under section 40 of the Building Act 2004. Section 40 provides that a person must not carry out any building work except in accordance with a building consent. Two District Court decisions had found people criminally liable under section 40 but those decisions were overturned on appeal in the High Court. We noted in 2022 that leave had been granted to appeal this point to the Court of Appeal. The Court of Appeal has since clarified the law.

Producer statements do not have a legal status under the Building Act, but they do play a critical part in establishing compliance with the New Zealand Building Code. Issuing a false or misleading producer statement can attract several consequences. These include liability in tort (negligent misstatement), professional disciplinary action, and criminal liability under section 369 of the Act. The Court of Appeal’s decision means that criminal liability under section 40 can be added to that list.

This development is significant because section 40 imports a hefty penalty: a fine of up to NZ$200,000 and, where the offence is continuing, a further fine of up to NZ$10,000 per day. That penalty represents a considerable increase when compared to section 369, which is capped at NZ$20,000 (in the case of an individual) or NZ$60,000 (in the case of a company).

The former status quo

Traditionally, the focus of section 40 had been principals. However, in 2021, two criminal cases were brought under section 40 against engineers who had issued incorrect producer statements. In both cases, the District Court accepted there was criminal liability under section 40 and the matter was appealed to the High Court. The question of law was whether issuing a producer statement constituted ‘building work’ for the purposes of the offence. Section 40 could only apply if it did.

The first High Court decision handed down was Andrew Melvin King-Turner Ltd v Tasman District Council [2021] NZHC 343. Mr King had issued a producer statement before a Building Consent was issued. However, the Court expressed difficulty treating this as ‘building work’. This was largely due to producer statements lacking a formal status under the Act. The Court considered compliance with the building consents, plans and specifications as the primary responsibility of a builder and determined Mr King could not be held responsible for failing to ensure the building consent was obtained.

The second High Court decision was Cancian v Tauranga City Council [2022] NZHC 556. Mr Cameron, the owner and operator of Engineering Ltd., had signed a PS4 confirming that work had been carried out in accordance with a building consent. It later became apparent that the building work was non-compliant. The Court affirmed the decision in Andrew, noting that producer statements have considerable value in that they reduce the workload for building consent authorities.

The Court in Cancian gave several reasons for finding against section 40 liability. In doing so, it did not squarely address the question of whether issuance of a producer statement amounts to ‘building work’. It considered the more important question for section 40 is whether the work was carried out in accordance with a building consent. On the facts of Cancian, the relevant building consent did not refer to producer statements and, therefore, did not provide standards or requirements applicable to the issue of a producer statement. This seemingly left the door open for liability where a building consent does prescribe such standards.

The Court of Appeal chimes in – Solicitor-General’s Reference (No 1 of 2022) from CRI-2021-463-55 ([2022] NZHC 556) [2024] NZCA 514

The Court of Appeal judgment on the issue reversed the High Court’s findings and confirmed that the wrongful issuance of a producer statement can attract liability under section 40. The question the Court of Appeal was dealing with specifically related to PS4s (producer statements issued following or as a result of construction monitoring) but the implications are likely wider. 

In its assessment, the Court of Appeal refocused the question to whether issuance of a producer statement amounts to ‘building work’ for the purposes of section 40. The Court noted that issuance of a producer statement necessarily involves on-site construction monitoring, physical investigations and testing, as well as provision of instructions and directions to contractors in respect of further construction. It considered that this work “fits easily within the definition of sitework”.

The remaining question then, for the purposes of assessing section 40 liability, is whether the particular work was in accordance with the requirements of the building consent. Departing from the High Court’s view, the Court of Appeal did not consider it necessary that the relevant building consent specify standards or requirements for the issuance of a producer statement. The Court concluded that there would be non-compliance by virtue of the author stating incorrectly that work was carried out in accordance with the requirements of the building consent and building code. This was, in the Court’s view, consistent with the purpose of the Act, because liability under section 40 promotes accountability for inadequately inspecting building work prior to certification.

Implications?

The Court of Appeal emphasised that the liability of the author of a producer statement is not one and the same as the liability of the builder for their non-compliant actions. The author of the producer statement is liable for inadequately investigating and recording the compliance of building work at the site. This is itself an independent exercise of building work, and can be independently assessed.

In its concluding remarks, the Court commented that “the author of [a] producer statement will not be criminally liable unless it is established beyond reasonable doubt that the matters certified in the statement are incorrect.” Therefore, contractors would be well advised to ensure they carry out  testing and monitoring to the required standard to confidently verify the adequacy of the work they are certifying, before issuing a producer statement in respect of it.

It is unclear whether the courts would accept a defence on the basis of having reasonable grounds of belief in the information recorded in a producer statement. The Court did refer to section 40 as an offence which “creates strict liability” but a producer statement is an opinion based on reasonable grounds. In any event, anyone issuing a producer statement should keep a robust document trail. This will enable them to clearly evidence the adequacy of their testing and demonstrate the basis on which they concluded work was code compliant.

While the decision and question put to the Court of Appeal specifically involved PS4s (construction monitoring) the reasoning indicates that if the work underlying the producer statement constitutes “building work” (which is widely defined) then the producer statement will fall within section 40. As a result, criminal liability is potentially a risk for anyone who signs any type of producer statement.

The Court’s determination underscores the reality that people issuing producer statements may face significant consequences for doing so negligently. The message may be all the more important in light of the government’s recent announcement that it will be re-introducing self-certification to the Act. Section 40 might too be applicable in that context and, if so, contractors signing up to the regime will want to check their work carefully before signing it off.

This article was written by Brendan Cash, Partner and Matt Murray, Law Graduate in the Dentons’ Major Projects and Construction team. This article was originally published by Contactor Mag.