Global Vantage: New Zealand’s Adoption of Proportionate Liability

In August 2025, the New Zealand Government announced a reform package which will replace joint and several liability with a proportionate liability regime for defective building work. With this regime yet to come into force, New Zealand will be required to implement several measures to effectively support this shift in approach.

The current regime

New Zealand currently applies joint and several liability to building defect claims. Under this rule, where multiple parties are responsible for the same loss, each defendant can be held liable for up to 100% of the loss, regardless of their individual contribution. The paying defendant must then seek contribution from the others, assuming they are solvent, insured or still in existence. This has in practice led to local authorities having to pay out, which has an indirect effect on the taxpayer who funds these authorities. As a result, local authorities have become more risk averse in their approach to providing consent and inspecting, which has negatively affected the efficiency of building work in the country.

Proportionate liability

Under a proportionate liability system, each defendant is only liable for the share of loss that a court determines they caused. If a contractor is 40% responsible, an engineer 30% and a council 30%, each pays only that percentage. Crucially, no defendant can be pursued for 100% of the damages simply because they remain solvent or insured.

The intention is that this will remove pressure from local authorities and in so doing decrease their reluctance to contribute to projects, thereby improving industry efficiency.

However, there is a risk that it becomes more difficult for claimants to recover the entirety of their loss. Without the ability to rely on wealthy contributing parties to cover insolvent or uninsured co-defendants, claimants’ face the risk of being unable to recover large portions of their debt. Litigation will inevitably become more complex within solvent contributors, with the burden of having to identify and quantify individual contributions through forensic expert evidence.

Facilitating implementation

To address the risk of claimants being unable to recoup sums owed, it may be necessary for the legislation to introduce several support mechanisms. There has been a suggestion of compulsory professional indemnity insurance or ‘home warranties’, so that in situations where companies themselves cannot pay, their insurer will fit the bill. Both options are moving to the consultation stage in early 2026.

Currently most standard New Zealand insurance policies for builders do not cover defective workmanship, and if they do, it is often to a low threshold. This will need to change to effectively protect claimants. There is a concern that New Zealand’s insurance industry may not be ready for such an uptake in coverage and this may result in extreme premiums to receive the necessary coverage. This will be an area to watch.

Australia’s approach

New Zealand is not the first country to adopt proportionate liability in the construction context. Australia has utilised the system for over 30 years and can be seen as a test case for the effectiveness of this means of liability division. Construction and engineering disputes have been successfully litigated and resolved through proportionate liability, and the insurance market has adapted to incorporate this form of liability into coverage. This was achieved through the adoption of compulsory professional indemnity insurance for architects, builders, engineers, designers, surveyors and certifiers and the introduction of residential warranties.

New Zealand looks set to adopt much of the Australian position and has plenty of precedent to review if needed. The only mechanism of the Australian regime that may be regarded as unappealing is the ability to opt out of proportionate liability at the contracting stage.

Key takeaways

With its introduction in 2026, New Zealand still has the opportunity to refine and consult as to what the legislation will include, but everything seems to point to alignment with the Australian position as the best means of effectively implementing the change. With escalating defect claims, shrinking contractor margins and growing professional indemnity insurance pressures, is it only a matter of time before the UK is forced to reconsider its own joint and several liability framework? New Zealand’s move might be a preview of the debate coming our way.

If you have any questions relating to the information discussed in this article, please contact Nick Smith.