Government plans to head off leaky homes dilemma

The Government is moving to protect itself from the $1 billion leaky homes scandal, fearing public loss of confidence in its weathertight resolution service and the new Department of Building and Housing.

With the prospect of a taxpayer-funded bottomless pit for angry, litigious victims, the Government now plans to shift leaky building litigation to the Treasury.

Anticipating a flood of claims against the former Building Industry Authority, officials are devising strategies to handle court action and solve a conflict of interest between the Weathertight Homes Resolution Service and its new department.

Secret Cabinet documents on managing the authority's "potential liabilities" show how the Government hopes to shift the tide of claims away from the authority, which it merged into the new Department of Building and Housing last year.

"The financial implications for the Crown if they were to be realised would be very high," said the paper, released by associate finance minister Trevor Mallard and presented to the Cabinet's economic development committee.

"The BIA has insurance cover, however the total sum insured of $10 million would be insufficient to meet all claims should the BIA be found liable," the document said.

Government officials planned to keep the paper secret. Its recommendations only came to light following a request made under the Official Information Act.

Weathertight court action is aiming to target the authority, which knew about the crisis for six years before it took any steps to resolve the issue.

In that time, more than 20,000 houses were being built annually, many in the Mediterranean-style monolithic-clad design now known to be most at risk of leaking.

The paper said the authority had been named as a party in seven High Court cases and that the Auckland City Council had joined it as a third party in two cases. Decisions were some way off because the cases would not be heard until later this year or next year, it said.

But the authority has been named in 19 claims to the Weathertight Homes Resolution Service. The authority refused to enter mediation in 10 claims or had been removed as a party to claims in seven others, the paper said.

The paper examined how to solve a conflict of interest on leaky homes litigation between the authority and the service, which both come under the control of the Department of Building and Housing.

It feared a public loss of confidence in the department and service if the situation continued.

"The main areas where conflicts of interest could occur [are] if the chief executive of the department both administers the Weathertight Homes Resolution Act and manages the Building Industry Authority's weathertightness litigation," it said.

So it recommended litigation involving the authority be shifted from the department to the Treasury on April 1. Officials said that was too quick, so the transfer is now planned for July 1.

John Gray, who led the successful case against those involved in putting up Ponsonby Gardens, said he was aware of the conflict of interest.

Mr Gray and other residents won $701,000 at the Weathertight Homes Resolution Service last month.

"It's about time the Government got to grips with the magnitude of the problem - which is the length and breadth of the country - and faced up to the fact that the authority has responsibility for this problem," Mr Gray said. "It astounds me that they haven't cast their minds to the clear conflict of interest between the authority and the weathertight service."

He called for full Government compensation for leaky homes victims, who he said had done nothing wrong.

Yesterday, the weathertight service said it had 2244 active weathertightness claims but had only completed 293 resolutions

Leaky home claims

Homeowners allege the former Building Industry Authority:

* Was negligent in approving the use of untreated timber in 1998.

* Was negligent in failing to act when it received information on monolithic cladding and untreated timber problems.

* Was negligent in reviewing building certifiers and councils charged with inspecting houses.

* Failed to ensure private building certifiers were adequately insured.