The standard short form agreement template from Engineering New Zealand and ACE New Zealand has recently been upheld by the High Court, reinforcing the robustness of the contract widely used in engineering and construction.

The Court found the liability clause within the contract was enforceable, and therefore limited the extent to which companies using the contract could be held liable.

This maximum liability is $500,000 (exc. GST) in the Short Form Agreement and, in the Long Form Agreement, the maximum aggregate amount payable as specified in the Special Conditions.

The decision came as part of legal proceedings in which Tauranga City Council – which was party to a template agreement – is seeking $25 million for a failed transport hub that was found to have severe defects.

The Council sought compensation from the firms involved, alleging liability due to breaches of the Building Act 2004, Fair Trading Act 1986, and negligent misstatement. The liability clauses in the contract were upheld against all claims.

In her decision, Justice Tahana noted it was “surprising” the issue of liability under the Building Act in relation to the template clauses had not previously come before the courts, and “the evidence indicates that the market has behaved as though limitations of liability are enforceable.” As far as the Building Act is concerned, the judgment only comments on the effectiveness of the liability clauses for non-residential buildings.

The Engineering New Zealand ACE New Zealand template contracts are widely used along with their producer statements to establish and quantify engineers’ obligations to clients, and this decision found those liability clauses are superseded by those of Short and Long Form Agreements. This should give engineers confidence that these template agreements and producer statements are legally sound.

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