2011-2012 Annual Report - Full Version - PDF - Palmerston North ...

Note 27Contingencies Council GroupActual Actual Actual Actual2012 2011 2012 2011$000 $000 $000 $000Contingent liabilitiesBuilding Act claims and RiskPool insurance (net of provision) 1,054 546 1,054 546Financial guarantees 32 59 32 59Other legal proceedings 10 - 10 -Uncalled share capital - - - -Housing improvement suspensory loan 480 480 480 480Total contingent liabilities 1,576 1,085 1,576 1,085Financial Statements Note 27Litigation◊As at 30 June 2012, there was one legal actionbeing taken against PNCC for which notice ofan action had been received totalling $500k(2011 $218k). This claim is being contested withany liabiliity uncertain and will be substantiallycovered by PNCC’s public liability or professionalindemnity insurance policies which have anexcess payment requirement against all claims.Building Act Claims◊ The Building Act 2004 imposes certainobligations and liabilities on local authoritiesin respect to the issue of building consents andinspection of work done.◊◊PNCC has 13 claims unresolved including oneclaim lodged with the Weathertight HomesResolution Service (WHRS), four claims withthe Financial Assistance Programme, and oneother weather tightness claim as at 30 June2012 (2011, 15). These claims relate to weathertightness issues of homes in the PalmerstonNorth area and name PNCC as well as otherparties. It is not yet certain whether theseclaims are valid and whom will be liable for thebuilding defects, therefore, PNCC is unable toassess it’s exposure to the claims and the timingof any payment is uncertain. The costs of anysuccessful claims against PNCC are expectedto be substantially covered under PNCC’sinsurance policies with a maximum potentialliability for the weather tightness claims toPNCC of $560,000 (2011 $620,000) and $150,000(2011 $90,000) for seven other building claims.A provision has been recognised for weathertightness claims, refer note 21. In addition PNCChas made budgetary provision in future years forany potential liability.PNCC is also exposed to potential future claimswhich have not been advised. The amount ofthese claims and any potential liability are notable to be reliably measured and are thereforenot quantifiable.RiskPool Insurance◊ PNCC obtains public liability and professionalindemnity insurance cover from New ZealandMutual Liability RiskPool. This operates as amutual fund where each member makes anannual contribution to obtain cover, howevershould claims exceed contributions then callscan be made on the members of that fund year,for the shortfall amount. RiskPool have advisedthat a further call of a similar amount to the$262,000 incurred in 2011 will be required incalender 2012 for past pool periods due toweather tightness claims with the potential offuther calls. PNCC has recognised a provision tocover RiskPool calls, refer note 21, however asthe amount and timing is uncertain the actualpotential liability remains unknown. In additionPNCC has made budgetary provision in futureyears for any potential liability.Financial Guarantees◊ The value of guarantees disclosed as contingentliabilities reflects PNCC’s assessment of theundiscounted portion of financial guaranteesthat are not recognised in the statement offinancial position. PNCC is the guarantor of thebank loans for a small number of communityorganisations within facilities built on PNCCland. PNCC is obligated under the guaranteesto make loan repayments in the event theorganisation defaults on a loan arrangement.◊◊NZ IAS 39 requires financial guarantees to berecognised at their fair value based on theprobability PNCC will be required to reimburse aguarantee holder for a loss incurred, discountedto present value. The portion that remainsunrecognised, prior to discounting to fair value,is disclosed as a contingent liability. The valueof financial guarantees recognised has beenassessed as $0, because PNCC believes that theprobability of being called upon to honour anyguarantees given is currently unlikely.PNCC is a participating employer in a DefinedBenefit Plan Contributors Scheme (“thescheme”), which is a multi-employer definedbenefit scheme. If the other participatingemployers ceased to participate in the scheme,PNCC could be responsible for the entiredeficit of the scheme. Similarly, if a number ofemployers ceased to participate in the scheme,PNCC could be responsible for an increasedshare of the deficit.Housing improvement suspensory loan◊ In 2010 and 2011 PNCC received a total of$480,000 as part of a housing improvementscheme operated by Housing New Zealand. Thisloan has been utilised in improving communityhousing, is interest free and secured againstthose housing units. The loan is suspensoryproviding PNCC continues to own the units for20 years, as is intended. PNCC has treated thisas a grant and not a loan and included this inrevenue for capital expenditure as it intendsto own these units indefinitely. Should any ofthese units be sold within the 20 year period therelated loan would be repayable.174Palmerston North City Council Annual Report 2011/12