Minister of Education v James Hardie New Zealand
[2014] NZHC 3344
•19 December 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-001899 [2014] NZHC 3344
UNDER the Consumer Guarantees Act 1993, the
Fair Trading Act 1986, and the Building
Act 2004BETWEEN
THE MINISTER OF EDUCATION First Plaintiff
Plaintiffs continued over
AND
JAMES HARDIE NEW ZEALAND First Defendant
Defendants continued over
Hearing: 18 December 2014 Counsel:
NF Flanagan and J Carlyon for Plaintiffs
IM Gault and JQ Wilson for DefendantJudgment:
19 December 2014
JUDGMENT (No 2) OF FOGARTY J
This judgment was delivered by me on 19 December 2014 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Meredith Connell, Auckland
Bell Gully, Auckland
THE MINISTER OF EDUCATION v JAMES HARDIE NEW ZEALAND [2014] NZHC 3344 [19 December
2014]
THE SECRETARY FOR EDUCATION Second Plaintiff
THE MINISTRY OF EDUCATION Third Plaintiff
AND
BOARD OF TRUSTEES OF OREWA PRIMARY SCHOOL
Fourth Plaintiff
STUDORP LIMITED Second Defendant
CARTER HOLT HARVEY LIMITED Third Defendant
CSR BUILDING PRODUCTS (NZ) LIMITED
Fourth Defendant
Introduction
[1] In my first judgment dated 3 October last, I resolved an application by the defendant, Carter Holt Harvey Ltd (CHH), for further particulars. Both the plaintiffs (the Ministry) and CHH have respectively appealed that decision. In the meantime, pragmatically, the parties are proceeding to endeavour to give effect to the orders made on 3 October.
[2] Relevant to this dispute, the following orders were sealed:
(a) The Plaintiffs are to provide the following further particulars:
(i) As to paragraph 48 of the 3ASOC, for each of the buildings: (A) Particulars of the allegation that the building has
failed or will fail to meet the requirements of the
building code due to the Defects (as defined in the
3ASOC); and
(B) Particulars of which Cladding Sheets Defects and Cladding System Defects allegedly exist in respect of that building.
(ii) As to paragraph 49, for each of the buildings:
(A) Particulars of the nature of the damage to the buildings;
(B) Particulars of the various causes of the damage. (iii) As to paragraphs 48 and 49, identify:
(A) Which buildings the Plaintiffs say have already been damaged by:
(i) Moisture ingress behind the cladding of the building;
(ii) Decay to timber framing;
(ii) Corrosion of steel framing; and/or
(iv) The presence of mould or fungi;
(B) Which buildings the Plaintiffs say have not already been damaged by:
(i) Moisture ingress behind the cladding of the building;
(ii) Decay to timber framing;
(iii) Corrosion of steel framing; and/or
(iv) The presence of mould or fungi,
But which the Plaintiffs say will suffer such damage. (iv) As to paragraphs 5, 19, 31 and 35, for each of the buildings,
the period within which the building was constructed.
(v) For each of the buildings, particulars detailing the deficiencies in the context of whether or not accepted solutions were followed or attempted to be followed.
[3] The Ministry provided an initial transfer of particulars by way of a spreadsheet to CHH on 21 November. An amended claim, including an updated tranche of particulars, was provided to CHH on 3 December.
[4] A dispute has arisen between the parties regarding compliance with the judgment. The parties have discussed the issue but have been unable to resolve their dispute. In summary:
CHH says that:
The approach taken in the spreadsheet does not comply with the judgment. The Ministry provides “yes” or “no” responses to each category of particulars except construction date. This binary coding does not provide (and is not logically capable of providing):
(A) Particulars of the damage to the buildings;
(B) Particulars of the various causes of the damage;
(C)Particulars of the extent of compliance with E2/AS1; (E2/AS1 is a compliance document which includes a
number of acceptable solutions for fixing plywood sheet claddings to a building under construction. It includes fixing of plywood sheet claddings directly
fixed onto a building frame (without a cavity) of a light building which qualifies for this solution. Attached to this judgment is an extract from E2/AS1, showing the alternative fixings.)
(D) Particulars detailing the deficiencies in the context of whether or not acceptable solutions were followed or attempted to be followed in each particular case;
(E) Particulars of the allegation that the manufacturer is negligent notwithstanding the apparent utilisation of a compliance document.
[5] The Ministry says that, allowing for the ongoing inspection of a further large number of buildings, it has provided particulars in the format that CHH itself asked for. That it has, in paras 54 and 60 of the fourth amended statement of claim, specified to the extent to which the cladding was fixed using an acceptable solution and whether the acceptable solution was followed or attempted to be followed and provide particulars of negligence, notwithstanding the acceptable solution. The Ministry is of the view that CHH is now pursuing further particulars of a kind not contemplated by the Court when the orders were made in the judgment on 3 October last.
[6] Given this dispute, the parties have brought back these issues of compliance to the Court.
Issues for determination
[7] Counsel have helpfully resolved the matters in dispute further into three issues.
Plaintiffs’ issue
[8] The plaintiffs say that CHH is now going well beyond the particulars it asked for and which were the subject of the judgment on 3 October. That CHH is now
seeking to reargue the application to obtain particulars which are not only contemplated at the hearing of the application but which, in some instances, were expressly said by CHH’s then counsel not to be required. Counsel for the Ministry argue that it’s inappropriate for CHH to seek further particulars in this manner and that it must bring a fresh application for further particulars, rather than use the guise of non-compliance to ask now for what it did not then. This is, of its nature, a procedural issue.
[9] CHH, as defendant, formulates two issues:
(a) Have adequate particulars of damage caused by CHH’s negligence
have been provided.
(b)What is the correct interpretation of the requirement for “particulars detailing the deficiencies in the context of whether or not accepted solutions were followed or attempted to be followed in each particular case”, (Judgment at [120]) and have such particulars been provided in the fourth amended statement of claim and spreadsheet.
Analysis of adequacy of particulars
[10] The Ministry’s issue and the first issue of CHH can be taken together, keeping in mind the distinction between the Ministry providing adequate particulars in compliance with the order of the Court and the more general issue as to whether further particulars are being or can be sought by CHH.
[11] The particulars are provided for in a spreadsheet accompanying the statement of claim. The spreadsheet is currently 47 pages of size B paper. It names the school in the first column and where the school is a large one, it separates out different blocks of construction on the school grounds. For example, Insoll Avenue School in Hamilton City has three blocks named Block J, G and L, plus an administration Block H, a hall Block M and a storeroom number 4. In respect of each of these blocks, it specifies the Shadowclad construction as it was at the date of installation, the dates varying from 1995 through to 2009. It details whether there has been damage. Y = Yes Y(V) = Yes, seen visually. N = No. Then in separate columns it
deals with defects 7, 9, 10, 11, 12 and 13. These defects are defined in Schedule 2 of the claim. For example, defect 7 is where vertical sheet joints are formed with a shiplap over and under rebates which is prone to water penetration.
[12] Whether or not a defect is present is answered “Y = Yes or N = No”. Then there are two categories, moisture ingress behind cladding and any decay to timber framing. It is understood that decay to timber framing will be as a result of moisture. So these two categories need to be understood as taken together, an answer “Yes” to moisture ingress behind cladding can be combined with an answer “No” to any decay. Similarly, timber can be decayed by reason of moisture without moisture being visible, in which case the answer to decay to timber can be “Yes” but the answer to moisture ingress can at the same time be “No”. Then it has three other categories, including corrosion of steel framing and then the start date and end date of construction.
[13] At the September hearing before me, resulting in the 3 October judgment, one of the reasons why counsel for CHH wanted particulars of damage related to particular buildings was to identify buildings which were not showing any damage at all. Counsel for both parties had been in discussions about having a manageable trial whereby both sides used a sample of the Ministry’s buildings to test the competing arguments. Otherwise, if the case was conducted in a traditional manner, the trial could last up to five years, on CHH’s assessment. My judgment of 3 October obliged the Ministry to give particulars of damage in respect of each building, but for a different reason than that advanced by counsel for CHH, rather the reason being that damage is an essential element in proving the tort of negligence and so must be pleaded.
[14] Mr Gault, for CHH, submitted that particulars of the damage should be provided “on a more granular level”. In my judgment I had said that the purpose of pleadings is to plead the facts which support the claimed relief, not to plead the evidence. That it is a question of judgment in the particular case as to whether sufficient particulars have been provided. In the argument I heard before me in this hearing, CHH argued that it is insufficient to relate damage to blocks within a school
complex as a single building (block) can cover multiple classroom pods, can be single storey in parts, and multi storey in others. His submissions ran:
In the case of complex buildings, we have no real way to know at this stage what the plaintiffs will say about where the building leaks. CHH could wastefully test wings of buildings which are privately acknowledged not to leak. We could also misdirect our evidence gathering by overlooking what will be the relevant part of the building for trial. Furthermore buildings are being reclad or demolished regularly. For example, the school that the plaintiffs want to use as representative BOT, Orewa, is set to have many of its buildings reclad in the New Year. We will not be able to revisit our evidence gathering for this school after that. The same has been happening across the country. The plaintiffs control the demolition timetable and have unrestricted access rights. By contrast, the particulars are important for CHH in setting the parameters of the case, against which it will prepare its evidence.
[15] These are all issues to the potential prejudice of CHH which can be resolved by direction under the High Court Rules of case management. There are developing protocol relationships ongoing between these two responsible parties. These protocols can address these practical concerns. It is sufficient for the defects to be identified by block rather than more specifically pleaded, e.g. as to where in a complex block the leak or moisture ingress etc have been detected. That specific information can be provided at the very latest, if not earlier, when CHH experts go to visit. Similarly, although the Ministry must be able to control the demolition timetable, it is obviously important and to the potential detriment the Ministry’s case at trial, if they do not give CHH experts an opportunity to inspect the structure prior to demolition which would destroy evidence.
[16] Having been taken through the schedule in some detail, I am satisfied that it is a bona fide exercise by the Ministry to provide particulars. With reference to particulars, but excluding compliance with EA/AS1, the spreadsheet provides adequate particulars. Referring back to [3], A and B above, these particulars are adequate. If CHH considers it needs more particulars than provided by the spreadsheet, then I agree with Mr Flanagan’s submission that CHH should file an application for further particulars.
[17] Accordingly, with reference to the numbering orders made on 3 October as sealed, I am satisfied that the Ministry is complying with the orders in para 3(a)(ii),
(iii) and (iv). See [2] above. That leaves the orders (a)(i)(A) and (B) and (v) in [2] above which corresponds to issues (C), (D) and (E) in [3] above This is also CHH’s refined second issue described above in [9](b).
[18] There is a background to the E2/AS1, acceptable solution issue, which needs to be understood. At the hearing on 24 September last, Mr Simpson argued that CHH could not be negligent if the cladding was affixed in accordance with a statutory acceptable solution. This argument was addressed in paras [76] – [83] of the judgment of 3 October. These should be taken read. Of particular relevance to the second issue, paras [81] and [83] said:
[81] To sum up, I do not find it self-evident that compliance with acceptable solutions are, as a matter of law, a complete defence to a common law claim in negligence. But I accept the proposition that where there is apparent utilisation of a current compliance document, particularly an acceptable solution, there should be pleaded facts to support a contention that the manufacturer is nonetheless negligent to supply the Shadowclad product to the building industry for exterior cladding and/or to endorse the acceptable solutions for fixing the cladding.
[83] Accordingly, the amended request for further particulars, as appearing in the schedule to this judgment under the heading “defects”, is granted. In addition to those particulars, the plaintiffs are obliged to disclose the extent to which the cladding was fixed using a current or contemporary acceptable solution and to plead whether or not the application was defective notwithstanding it followed a solution.
[19] In response to this requirement, the Ministry introduced a new pleading in its first cause of action of negligence, para 54 (replicated also in para 60), hereafter referred to as 54 (60):
54The existence of Acceptable Standard E2/AS1 (the Standard) effective 1 July 2005 in respect of direct fixed plywood claddings does not mean Carter Holt Harvey did not breach its duty of care because:
(a) The Standard was not in effect at the time of the supply of the Shadowclad used for the buildings listed in Schedule 4, Column “E2/AS1” as N/A; or
(b) The Standard was not applicable to the buildings listed in Schedule 4, Column “E2/AS1” as N/A by virtue of those buildings having a risk score for the purposes of the Standard in excess of 6; and
(c) The Standard was not applicable to the supply of building materials by Carter Holt Harvey because:
(i) Carter Holt Harvey was not a person who “complied” with the Standard in respect of any particular building, as it merely manufactured or supplied cladding; or (in the alternative)
(ii) The Standard is only “complied” with by installation of cladding, not the mere manufacture and/or supply of it;
And;
(d) Shadowclad did not comply with the Standard because the Standard requires that wall claddings comply with the requirements of clauses E2.3.2, E2.3.3, E2.3.5 and E2.3.7 of the Building Code, and Shadowclad did not by virtue of the Cladding Sheets Defects; and
(e) Shadowclad did not comply with the Standard because it was not chemically treated as required in accordance with NZS 3602 (as particularised in Schedule 6); and (in the alternative)
(f) In the event that Shadowclad complied with the Standard, that is merely one factor to be considered in determining whether Carter Holt Harvey breached its duty of care and is outweighed by those factors particularised in [38] to [48] above.
[20] CHH argued before me in this hearing that pleading 54 (60) does not satisfy the order. Mr Gault submitted that it does not plead whether or not the application was defective, notwithstanding it followed a solution. That the plaintiffs are obliged to disclose the extent to which the cladding was fixed using a current or contemporary acceptable solution and to plead whether or not the application was defective, notwithstanding it followed a solution. As an example he referred to block EEC at Awahono School in the spreadsheet. It is coded as “E2 follow” which the plaintiffs use to mean that the builders attempted to follow E2/AS1. The building is coded as “Y(V)” which we know, from above means “Yes, there appears to be damage on a visual basis”. It is coded as N/A for moisture ingress, decay and mould which means that the building has not been in fact assessed yet for these damages. “E2 follow” is not a pleading as to whether the installation was in fact compliant with E2/AS1 as distinct from an attempt to comply and whether if it does comply with E2/AS1, whether the building is defective, notwithstanding that and, if so, to detail the deficiencies.
[21] To better understand this issue, it is necessary to step back and record some general characteristics of the case not immediately apparent from the pleadings.
[22] Mr Flanagan, for the Ministry, has confirmed that all the buildings, the subject of this claim, have the Shadowclad plywood claddings affixed directly to the building frame without a cavity. In this context, it needs to be understood that the statutory acceptable solutions provide alternatively for direct fixing to the frame or allowing for a cavity. (See the attached diagram.) Accordingly, it is not necessary for the Ministry to address the hypothetical question of whether or not there would have been any damage or future failure of the buildings had the Shadowclad been applied using the cavity option.
[23] But in addition to numerous pleadings throughout the statement of claim, referring to the direct fixing of the plywood cladding to the frame, the statement of claim also pleads inherent deficiencies or defects in the product. Paragraph 39 of the statement of claim pleads:
39Carter Holt Harvey’s Cladding Sheets and Cladding Systems, when directly fixed on a building frame (without a cavity) of a Light Building, contain and contained each of the inherent defects set out in Schedule 2, including the Cladding Sheets Defects (Cladding Systems Defects) and summarised at paragraph [45](a)(i) – (viii).
[24] Schedule 2 lists a large number of alleged cladding sheet defects and cladding system defects. As an example the first item says:
Defects with the Shadowclad Cladding Sheets and Cladding System include:
1Shadowclad takes in and retains more moisture than the protection offered by the preservative treatment would otherwise allow because it is inherently prone to absorbing significant amounts of moisture for example:
a.by capillary action through end grain timber at all cut edges, particularly lower drip edges (and it is a particular feature of Shadowclad that there is an end grain cut edge on every side of a Shadowclad sheet), and
b.it also experiences uptake of moisture by diffusion, air movement, adsorption, absorption, capillary movement and liquid flow.
[25] Paragraph 54 (60) of the amended statement of claim does not attempt to plead E2/AS1 with reference to specific damage. Rather, para 54 (60) is a generic pleading. Subparagraph (c) appears to remove the relevance of the standard E2/AS1 as a matter of law to the discharge of the duty of care of CHH. And (d) appears to argue that E2/AS1 is inherently inconsistent with the building performance requirements which is what cls E2.3.2, E2.3.3 and E2.3.7 require. This pleading
54 (60) appears to repeat other pleadings, e.g. para 41, that the CHH product cannot, in fact, be reliably, in the real world, installed without the risk of failure. Both paras (c) and (d) of para 54 are to an extent pleading law. They are pleading aspects of the regulatory environment within which the question of CHH’s conduct as to breach of duty of care or not has to be examined.
[26] Paragraph 54 (60) needs to be read against the prior pleadings of a duty of care. These essentially plead specialist expertise and knowledge by CHH. Paragraph 48 pleads that due to the inherent cladding sheet defects and the cladding system defects and the risk characteristics, the school buildings have failed or will fail to achieve compliance with recognised building standards, the Building Code requirements and the Building Act. These are all described as failures.
[27] Paragraphs 48 and 54 (60) can be in interpreted as pleading that CHH expertise was such that it should have known that the “acceptable solution” E2/AS1 would likely not meet the underlying building performance criteria recorded in [26] above.
[28] Mr Flanagan’s explanation for why CHH offers this generic pleadings,
54 (60) rather than responding, as the Court had anticipated, building-by-building, is that the plaintiffs’ case will be made by calling experts to testify that it was foreseeable that the cladding sheets and the cladding systems for installing the sheets incorporated the inherent defects pleaded in Schedule 2 of the statement of claim so that, with that knowledge, CHH was in breach of a duty of care to supply the cladding sheets, at the very least for directly affixing to a building frame. The same experts will apparently be of the opinion that the cladding will fail.
[29] So it became apparent during oral argument that the plaintiffs claim for damages will not depend upon, and be computed wholly from compensation for actual physical damage but, rather significantly as economic loss. Economic loss, it will be alleged, follows from a responsible judgment made by the Ministry to replace the cladding and, in some cases, the entire building because of damage which has occurred or “will occur”; in turn because of the legal obligation on the Crown to provide schools to comply with school aged children’s right to free State education and with that obligation to provide a safe and healthy environment. This is captured in para 49 of the claim which pleads:
49As a result of the Failures the Plaintiffs have suffered and will suffer the following loss (inter alia):
(a) The cost of repairing and replacing the Cladding Sheets and the Cladding Systems on the School Buildings;
(b) The cost of repairing and replacing structural elements (including building framing) of the School Buildings that have been damaged by:
(i) moisture ingress behind the cladding and within the
School Buildings; and
(ii) decay to timber framing, or corrosion of steel framing, and the presence of mould and/or fungi;
(c) The costs of preventing staff and students suffering interference:
(i) with the education of children; and
(ii) with their health and safety;
(d) Diminution in the value of the School Buildings;
(e) The cost of providing replacement administrative and staff facilities and additional resources on account of interruptions to the operation of the Schools;
(f) Lack of access to and use of portions of the Schools while necessary repairs and remediation works are being undertaken;
(together, Loss).
[30] It is apparent that the calculation of loss will be a combination of the cost of making good physical damage and recognising economic loss of the buildings. The trial issue in respect of negligence will be on any breach of duty of care and,
secondly, whether or not the plaintiffs have suffered damage as a consequence of that duty to the same extent as the Crown expenditure taken in response to the Crown’s perception as to the deficiencies of the cladding sheets and the cladding systems on the school buildings.
[31] The Ministry’s response to the orders of this Court on 3 October, in respect of E2/AS1, is to endeavour to fit the requirements of particulars to the plaintiffs’ theory of the case which, in large part, does not depend on proof of actual damage but relies on expert evidence that the cladding “will fail”. And it appears from the pleadings that that is based on the proposition that the cladding has inherent deficiencies which, coupled with the difficulty of applying it in “real world” conditions, leads to the conclusion that the Shadowcladding should never have been used in the first place, must be replaced, and such damage as has already occurred also be compensated for.
[32] That noted, the spreadsheet, however, does provide for the plaintiff to provide particulars of damage to the extent that it is visible and more so when it has been invasively inspected or repaired. In my judgment of 3 October I discussed to some extent the more liberal approach to the recovery of economic loss for negligence in the New Zealand common law jurisdictions than say in the United Kingdom jurisdiction. I do not think the New Zealand position on economic loss can be stated with any more clarity. My first judgment emphasised that across the common law jurisdictions, the core proposition is that damage is an essential element in a successful claim in negligence. It is also apparent from the pleadings that the plaintiff is pleading damage where it can. The plaintiffs’ case is not wholly dependent on expert evidence of a priori character based on alleged inherent deficiencies in the Shadowclad product. To the extent that it will depend on expert evidence, that expert evidence is buttressed by proof of damage as alleged throughout the 47-page spreadsheet, which forms part of the statement of claim.
[33] I am functus officio on the judgment of 3 October. In that judgment I resolved a dispute between the parties as to the relevance of attempts to comply with the accepted solution E2/AS1. While that judgment remains, the Ministry is bound by it. The spreadsheet already records whether there has been an attempt to follow
the accepted solution. But the Ministry is proposing not to record particulars of that attempt, let alone plead whether the Shadowclad had been installed in accordance with the acceptable solution and, if so, give particulars as to how any subsequent damage is the result of negligence on the part of CHH.
[34] The statement of claim already pleads in generic fashion the ‘inherent’ cladding defects in the system defects, which appeal to “real world” conditions and the difficulties of builders complying with the acceptable solution when constructing the building. The spreadsheet can be included to give the answer “Yes” or “No” as to whether or not the Shadowclad has been fitted in accordance with the acceptable solution E2/AS1. Where the answer is “No”, it can have additional binary answered questions as to answering “Yes” or “No” to whether particular requirements have been satisfied.
[35] None of this is inconsistent with the generic pleadings in para 54 (60) which plead that E2/AS1 is irrelevant to the question of negligence or not.
[36] As a result of this matter being re-litigated before me, I have considered whether the particulars relating to compliance with the acceptable solution or not should be pleaded rather by way of statement of defence than in the statement of claim. I have decided, firstly, and principally, that I am functus officio on the orders I made on 3 October. Second, I am comforted by the fact that recovery of causes of action in the tort of negligence drive off proof of damage. The facts of that damage have to be proved. The failure of the cladding has to be proved. Where cladding has failed, the failure has to be pleaded with sufficient particularity for the defendant to know of the plaintiffs’ case. Therefore the plaintiff when proving damage has to explain the damage in a way that relates it to the particular defendant. For example, it is insufficient to plead that the Shadowclad sheeting has failed on the east upper elevation of Block H of School X. It is necessary to plead the cause of failure in a way that relates it to the duty of care of the defendant. In this case, that may be because the defendant’s product depends on a fixing system which could not be relied on to be done according to specification, in the real world conditions imposed by the upper side of the east elevation of that building, in that locality.
[37] For these reasons, while not disturbing or criticising paras 54 and 60, I am satisfied that the Ministry has not complied with the 3 October judgment in respect to pleading particulars of defects relating the defects or failures to the regulated acceptable solution E2/AS1.
[38] I am not going to attempt, without the benefit of submissions, to devise a further set of binary answered questions for the spreadsheet. I leave that to the parties. The judgment in this respect is an interim one. If the parties cannot agree to the appropriate extensions to the spreadsheet, then I will hear argument to resolve implementation of the orders in the judgment of 3 October as to pleading in respect of E2/AS1.
[39] Against the possibility of an application for further particulars (if the parties cannot resolve out of Court enhancement of the spreadsheet), I record in this judgment an observation I made about “concessions” made in interlocutory hearings. One of the complaints of the Ministry were that the former counsel for CHH, Mr Simpson, had made concessions in the hearing which CHH was now going against in pursuing these particulars. My approach is to confine the enforceability of concessions to the particular interlocutory application being made. This is very complex litigation. The goal of the Court in hearing interlocutory applications, and in related case management, is to ensure a just and efficient trial, delivering a just outcome efficiently. It is common enough and usually responsible for the parties to adjust their position as facts and difficulties of process emerge. The solution may be to impose some costs if the parties change their positions significantly on the pleadings in the course of getting the case ready for trial. But concessions will not be allowed to get in the way of readying the case for trial. Different issues arise after the pleadings have been closed.
[40] Costs are reserved. I am inclined to the view that costs of this hearing should lie where they fall as each party has had some success.
APPENDIX
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