TRACEY JANE CRIDGE, MARK ANTHONY UNWIN, KATRINA MCKELLAR FOWLER AND SCOTT WOODHEAD s AND STUDORP LIMITED AND JAMES HARDIE NEW ZEALAND LIMITED
[2024] NZCA 483
•26 September 2024 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA555/2021 [2024] NZCA 483 |
| BETWEEN | TRACEY JANE CRIDGE, MARK ANTHONY UNWIN, KATRINA MCKELLAR FOWLER AND SCOTT WOODHEAD |
| AND | STUDORP LIMITED |
| AND | JAMES HARDIE NEW ZEALAND LIMITED |
| Hearing: | 1–11 August 2022 and 27 June 2023 |
Court: | French, Brown and Gilbert JJ |
Counsel: | J A Farmer KC, R J B Fowler KC, T J Rainey, J T Wollerman, E S K Dalzell and D A Fry for Appellants |
Judgment: | 26 September 2024 at 11.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BIn the event the parties cannot agree on costs and require a determination from the Court, leave is reserved for costs memoranda to be filed within 15 working days of this judgment.
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Table of Contents
Para No
Introduction [1]
Background [14]
The Harditex product [14]
The homeowners’ claim [21]
The High Court decision [31]
Did James Hardie owe a duty of care? [36]
Our general approach to the factual issues [84]
Fitness for purpose: moisture management [86]
Mechanisms of water ingress and egress [90]
Deflection [97]
Drainage [103]
Drying [111]
Arguments on appeal [116]
Durability: fungal decay [138]
Empirical evidence [149]
The Biodet reports [160]
James Hardie internal communications [167]
BRANZ papers [171]
Statements in patents [176]
Expert conference statement [182]
Allunga documents [186]
Differential movement [214]
Flexural strength [216]
Vulnerabilities resulting from construction details [222]
The h-mould and corners [225]
Base of the sheet [263]
Windows [289]
Building movement [299]
Buildability [303]
Identification of the intended user [309]
Evidence of builders called by the homeowners [315]
The test properties [334]
Bay Lair [351]
Woodhouse [357]
San Vito [365]
Ambassador [377]
Carnelian [385]
Golf Road [390]
The Esplanade [395]
Portsmouth [405]
The claim under the Fair Trading Act [412]
The target audience [417]
False and misleading conduct [428]
Causation [439]
Were the negligence claims of the named appellants time‑barred? [447]
Costs [465]
Outcome [468]
Introduction
From 1987 until 2005, Studorp Ltd and James Hardie New Zealand Ltd (James Hardie)[1] manufactured and sold a sheet cladding system called Harditex for use in residential houses. A group of homeowners whose houses were built using Harditex claimed that Harditex was an inherently defective product that was not fit for purpose. They further claimed it had either caused or contributed to cause their homes to suffer water ingress and moisture-related damage.
[1]Studorp Ltd manufactured the product until 1998 when James Hardie New Zealand Ltd took over manufacture and associated sales and promotion. James Hardie New Zealand Ltd was briefly registered as 2XL Ltd, and Studorp Ltd was previously known as James Hardie Building Products Ltd and James Hardie & Coy Pty Ltd. We use the name James Hardie throughout most of the judgment except when needing to differentiate James Hardie New Zealand Ltd and/or Studorp Ltd from other entities in the James Hardie group of companies.
The inherent defects relied on included the absorbent nature of the Harditex sheets and allegations that the cladding system allowed significant water ingress at various locations, principally the base of elevations, horizontal control joints, exterior corners and penetrations such as joinery/cladding junctions. It was alleged that not only was the system vulnerable to water ingress, it did not have adequate drainage and drying capabilities to manage the water that entered the wall assembly.
The homeowners further alleged that Harditex required a level of building expertise beyond the skill level of a reasonably competent builder, and that James Hardie provided inadequate and misleading information to consumers and builders.
Two sets of homeowners, the named appellants, filed proceedings against James Hardie in the High Court, seeking to hold the company liable in damages. They sought and obtained a court order allowing them to bring their proceedings in a representative capacity on behalf of all current and previous owners of properties clad with Harditex who consented to being represented.[2] The class comprises an additional 144 owners of 149 properties.
[2]Cridge v Studorp Ltd [2016] NZHC 2451 [representative orders judgment], substantively upheld in Cridge v Studorp Ltd [2017] NZCA 376 [representative orders appeal]. Pursuant to High Court Rules 2016, r 4.24(b).
As is usual practice in class actions, it was decided that the first stage of the representative proceeding would be to try the claims of the representative plaintiffs in full, that is to say, the claims of the named appellants Ms Cridge/Mr Unwin and Ms Fowler/Mr Woodhead. The High Court also ordered that the trial of those claims would be determinative of the following issues as between the parties and the represented class members:[3]
(a)whether a duty of care was owed by James Hardie;
(b)if so, whether that duty was breached as alleged; and
(c)whether the statements made in James Hardie’s technical literature were misleading and deceptive.
[3]Representative orders judgment, above n 2, at [86], confirmed in representative orders appeal, above n 2, at [60].
For the purposes of the proceeding, the houses[4] of six members of the represented class were selected as test properties in addition to the homes of the named appellants. This resulted in a total of eight properties being subjected to invasive testing and inspection in order to analyse the extent and causes of the moisture damage. For ease of reference, throughout the judgment — except when it is necessary to distinguish between the homes of the named appellants and those of other class members — we refer to all eight properties as “the test properties”.
[4]One of the properties was a motor lodge.
The hearing in the High Court before Simon France J lasted almost four months. During that time, extensive expert evidence was given, as well as evidence from some of the homeowners themselves. The evidence can be conveniently identified as being of three main categories: evidence of the relevant building science, evidence about the test properties and evidence of testing conducted by both parties for the purposes of the litigation.
The Judge held that James Hardie owed a duty of care to the homeowners but in all other respects rejected the homeowners’ claim.[5] He found they had failed to prove Harditex was an inherently flawed product unable to deliver a watertight and durable house.[6] He said he was satisfied that Harditex worked and that, while capable of improvements, it was fit for purpose.[7] The Judge accepted, as indeed did James Hardie, that the test properties were water damaged and should not be.[8] However, he concluded that the cause of the damage to the test properties was more likely to be incompetent building and poor texture coating than inherent defects associated with Harditex.[9]
[5]Cridge v Studorp Ltd [2021] NZHC 2077, [2022] 2 NZLR 309 [substantive judgment] at [678], [686] and [888].
[6]At [687] and [889].
[7]At [97] and [889]–[890].
[8]At [6].
[9]At [889].
The effect of this judgment was to spell the death knell not only of the claims of the named appellants but also the claims of the represented class members.
The homeowners now appeal. As will become apparent, their counsel have left no stone unturned. They challenge almost all of the Judge’s factual findings, on multiple grounds, so that to a significant extent the appeal has involved a complete re‑litigation of most trial issues. For its part, James Hardie seeks to support the judgment on grounds other than those on which the judgment was based. These “other grounds” include the assertion that James Hardie did not owe any duty of care to the homeowners in tort and the assertion that the claims were time‑barred.[10]
[10]Of the issues raised by James Hardie, we address only the duty and limitation issues due to their general importance. We do not address the other issues raised, namely the Judge’s treatment of the James Hardie RDH testing, the Building Research Association of New Zealand (BRANZ) appraisal, the Biodet reports, and the evidence about the quality of technical instructions provided by other cladding manufacturers.
The number of issues for our determination is thus significant and multifaceted. Further, the issues are not discrete but rather overlap and impact on each other. For example, what the water damage to the test properties reveals obviously bears on any assessment of the competing views of the relevant building science and vice versa. Yet at the same time, each of the main factual issues requires a separate detailed discussion. This makes ordering the material in the judgment more difficult than usual because, as the Judge also observed,[11] the case does not readily lend itself to a progressive statement or unravelling of the reasons leading to the ultimate answer.
[11]Substantive judgment, above, n 5, at [10].
In those circumstances, we consider it helpful at the outset to both state our conclusion — which is that the appeal should be dismissed — and provide a brief statement of our key reasons for reaching that conclusion. Those reasons are:
(a)Criticisms of the Judge’s assessment of the expert evidence relating to the alleged inherent defects of Harditex and the causes of the water damage in the test properties are unjustified.
(b)Our own assessment of the evidence confirms that, generally speaking, on several key issues the James Hardie experts had greater expertise and gave their evidence in a more measured and less partisan way than some of the experts called by the homeowners.
(c)Neither the evidence derived from the test properties nor the testing conducted for the litigation undermined the evidence of the James Hardie experts. On the contrary, the test properties tended to support the James Hardie claim that, when properly constructed and maintained, Harditex was fit for purpose.
(d)None of the test properties had been built in compliance with the James Hardie installation instructions and all contained significant building defects. They did not provide a meaningful test of the Harditex system.
(e)It is reasonable to assume that had any of the class members owned a property which had suffered water-related damage despite being constructed in accordance with the James Hardie instructions and relevant building regulations, that property would have been selected as one of the test properties.
(f)The technical instructions provided by James Hardie were adequate and, with one possible exception, did not amount to operative misstatements.
This summary of our key reasons does not include any of the points raised by James Hardie to support the judgment on other grounds. That is because our factual findings on the evidence are sufficient to determine the outcome of the appeal. Although we do address the duty and limitation issues, the appeal does not turn on the existence of a duty or on otherwise meritorious claims being defeated because they are out of time. Rather, the appeal turns on whether any legal obligations — assuming they existed — were in fact breached.
Background
The Harditex product
Like the Judge, we consider it helpful to begin with an explanation of the Harditex product. As will be apparent from our introductory section, Harditex is both the name for a cladding sheet and a cladding system.
James Hardie launched Harditex in 1987. In 1999, the company initiated the Harditex Improvement Project. The improvements identified by the Project were integrated into a new cladding product called Monotek which was developed and released in New Zealand in mid-2001. Both Harditex and Monotek remained on the market until 2005 when Harditex was discontinued.
It was estimated by one witness that between 1987 and 2005, approximately 117,000 dwellings were built in New Zealand using Harditex.
The system, which is a direct-fixed panel cladding system, comprised the following components:
(a)Rectangular 1.8–3.0 m by 1.2 m fibre cement sheets with a thickness of 7.5 mm.[12] These were installed vertically over a timber framing, with the sheets nailed directly to the timber frame with dozens of nails. The nailing resulted in what the Judge described as “a significant clamping effect between sheet and timber frame”.[13]
(b)Breathable building paper/wrap between the frame and the sheet, which was stapled to the timber frame.[14]
(c)Jointing systems.
(d)A coating process.
(e)Polystyrene architectural shapes designed to be affixed to Harditex and provide architectural trim details for windows, arches, cornices and columns.
[12]Subsequent to Harditex’s introduction to the market, sheets with 0.9 m width and 9 mm thickness became available.
[13]Substantive judgment, above n 5, at [14].
[14]Throughout the judgment we use the terms building paper and building wrap interchangeably.
For completeness, we note that at trial, there was a dispute between the expert witnesses as to whether the Harditex system was a face-sealed system or a concealed barrier system, the concealed barrier being the building wrap. As the Judge noted, the significance of the distinction is that a face-sealed system is a system reliant on keeping out all water that hits the exterior surface. No rainwater is meant to get behind the cladding and therefore there is no purpose-built capacity to drain away any water that does get behind the cladding.[15]
[15]Substantive judgment, above n 5, at [44].
The Judge took the view that the label did not matter for the purposes of the case because if the homeowners were correct and there was inadequate moisture management capability, it was immaterial whether it was an unsuccessful face-sealed system or an unsuccessful concealed barrier system.[16] He went on to say that, to the extent an answer was needed, he considered Harditex was not a face-sealed system and that it was never intended to be one because no one thought the system would keep out all rainwater.[17]
[16]At [49].
[17]At [50].
This issue of whether Harditex was meant to be a face-sealed system was not a focus of the appeal. And we therefore do not address it further, other than to say we consider the approach taken by the Judge makes sense.
The homeowners’ claim
The homeowners alleged Harditex suffered from a number of inherent defects which when viewed as a whole came together to comprise a system which was not and never was fit for the purpose of producing a weathertight and durable cladding. Given these inherent defects, it was said to be inevitable that Harditex houses would fail even if they were constructed by a competent builder who complied with good building practice and the installation information provided by James Hardie. In short, the product was defective when it left the factory.
The specific inherent defects alleged were summarised by the Judge in the following terms:[18]
Inherent defect one – The Harditex sheet is inherently moisture absorbent and will therefore absorb moisture and, when directly fixed to the timber framing, permits the transfer of moisture to adjacent building elements such as the [building wrap] and the framing.
Inherent defect two – The Harditex cladding system (which is direct fixed to the framing of the building) allows water ingress at various locations including at the base of sheets, at horizontal control joints, at penetrations including window junctions, at junctions with other building elements, through areas where cracking occurs and elsewhere.
Inherent defect three –The Harditex cladding system does not adequately manage drainage and drying of any water that penetrates or accumulates within the Harditex cladding system and underlying areas. This is contrary to sound water management principles.
Inherent defect four – The Harditex cladding system fails to adequately accommodate normal building movement (whether that arises due to thermal activity, effect of moisture, seismic activity, structural movement through wind pressure or through other normal and expected causes of building movement), which leads to cracking, water ingress and damage.
Inherent defect five – The Harditex sheet is not durable. It absorbs moisture and is prone to damage from exposure to moisture, including swelling, rotting and decay.
Inherent defect six – The Harditex 1991 Technical Information was inadequate and incapable of providing a cladding system which was fit for its purpose as a durable and weathertight exterior wall cladding system and able to meet appropriate standards and requirements for building.
Inherent defect seven – The Harditex 1991 Technical Information fails to specify a method of installation of the Harditex cladding system which makes adequate allowance and contains sufficient tolerances for the typical conditions that exist on a building site, including climatic conditions, the skill and precision of a reasonable cladding installer and the tolerances to which buildings are constructed.
Inherent defect eight – The Harditex 1991 Technical Information failed to provide details and specifications for important and commonly occurring details including face sealed window junctions, terminations of the horizontal control joints and exterior and interior corners.
Inherent defect nine – The maintenance requirements for the Harditex cladding system were vague, and impractical or impossible to achieve.
[18]At [24].
As will be apparent, the alleged “inherent” defects included aspects of various editions of the James Hardie Technical Information (the JHTIs). These were information brochures or manuals containing specific installation information, rules and explanations. The homeowners claimed there were faults in the design and installation details and that the instructions were inadequate.
The first JHTI was produced in 1987. Thereafter there were new or updated versions in every year (bar 1990 and 1997) until 1998. There were two versions in 1998 and they were the last versions. As the Judge noted, over the years the documents evolved becoming increasingly longer and more detailed.[19] The first version was eight pages long with 10 diagrams,[20] whereas the final version ran to 43 pages and included 69 diagrams.
[19]At [696].
[20]Two being diagrams of accessories, a nail and reinforcing tape.
The homeowners’ complaints about the content of the JHTIs fell into two broad categories. First, they claimed there were faults in the design and installation details, and that the instructions were inappropriate and inadequate. Secondly, they claimed that the JHTIs contained misrepresentations about the attributes of Harditex, in particular that Harditex was suitable, proven, durable and complied with the building code.[21]
[21]See Building Regulations 1992, sch 1 [building code].
The statements of claim pleaded causes of action under ss 9 and 10 of the Fair Trading Act 1986 and the tort of negligence. As regards the negligence claim, the duty of care said to be owed was articulated in the following terms:
At all material times James Hardie owed the plaintiffs a duty to exercise reasonable care and skill in relation to the design, development, manufacture, testing and supply of its Harditex building products, approved accessories and technical information documents …
The pleadings went on to state that as part of this duty, James Hardie owed the plaintiffs a duty to take all reasonable care and skill in any one or more of the following respects:[22]
[22]This summary of the pleadings is taken from the Cridge/Unwin statement of claim but the pleading in the Fowler/Woodhead statement of claim is in identical terms aside from the specified JHTI versions (“up to and including the Harditex July 1998 [JHTI]”) and the inclusion of a duty owed in respect of “when making statements in the JHTI (from June 1993 up to and including the Harditex February 1996 Technical Information) that Harditex had gained BRANZ/BTL Appraisal Certificates Nos. 229 and 243”.
(a)When designing, manufacturing and supplying the Harditex building products and related accessories;
(b)When deciding the composition of and manufacturing [of] the Harditex fibre cement sheets;
(c)When designing, manufacturing and supplying the Harditex Cladding System;
(d)When deciding the content of the Harditex 1987 [JHTI] and the Harditex July 1991 [JHTI];
(e)When undertaking all related work to design, prepare, amend and issue the Harditex 1987 [JHTI] and the Harditex July 1991 [JHTI] …;
(f)When testing and/or deciding the testing reasonably required for its Harditex building products and the Harditex Cladding System in order to be satisfied that the products and systems were fit for their intended purpose and able to achieve the performance expected in the circumstances;
(g)When monitoring, assessing and responding to emerging information about moisture ingress, defects and damage with the Harditex cladding systems and to warn those affected as appropriate;
(h)When undertaking all of the work, functions, duties, obligations and responsibilities of a responsible designer, manufacturer and supplier of exterior cladding products and their associated cladding system;
(i)When considering and determining whether to withdraw the Harditex Cladding System from the market and to warn those affected regarding the withdrawal of the product and the reasons for the withdrawal … ;
(j)When making changes to the JHTI and installation instructions, to adequately research, test and verify such changes and to notify the market … ; and
(k)When releasing to the market Monotek cladding … .
As the Judge noted, the negligence claim revolved round three aspects: the product and the system, the technical literature (the JHTIs), and evolving knowledge of issues with Harditex and whether that gave rise to an obligation either to modify the product or warn consumers about the known risks.[23]
[23]Substantive judgment, above n 5, at [664].
As the Judge also noted, there was a large degree of overlap between the negligence claim and the claims under the Fair Trading Act.[24]
[24]At [887].
The primary remedy sought by the plaintiffs in all causes of action was the cost of repairing their properties.
The High Court decision
The hearing in the High Court took 84 days and involved a significant number of expert witnesses, exhibits and reference material.[25] The trial record runs to over 70,000 pages. The judgment itself is some 274 pages.
[25]At [9].
The Judge structured his judgment around the pleaded inherent defects and then addressed issues of testing done on model walls and the test properties before addressing the relevant legal principles. He reached the following key findings:
(a)As a matter of law, “a cladding manufacturer and seller owed a duty of care to the owner for the time being of a house reliant on such cladding for its weatherproof qualities”.[26] That duty is recognised as including a duty to warn consumers of any potential risks.[27]
[26]At [664] and [678].
[27]At [745]–[747], citing Carter Holt Harvey Ltd v Minister of Education [2015] NZCA 321 [Carter Holt Harvey (CA)] at [129]–[130].
(b)On the evidence, James Hardie did not however breach that duty because:
(i)Harditex (both the system and the cladding) was a proven and tested product fit for the purpose of ensuring a durable, weathertight building.[28]
[28]Substantive judgment, above n 5, at [687], [689], [866] and [893]–[899].
(ii)The testing undertaken by James Hardie was of a standard expected of a reasonable manufacturer.[29]
[29]At [688], [866] and [893]–[899].
(iii)The system was not prone to rot and decay, and therefore representations to that effect were true.[30]
[30]At [26], [221] and [864].
(iv)The system could be installed safely by a reasonably competent builder and was therefore buildable.[31]
(v)The JHTIs’ installation instructions were adequate for reasonable and competent builders.[32]
(vi)There were no known issues with Harditex that gave rise to a need to issue a public warning or to modify the product.[33]
(vii)The fact the product was capable of improvement did not mean it was unfit for purpose.[34]
(viii)None of the test properties were examples of the alleged inherent flaws in action. What they exemplified was poor workmanship.[35]
(c)For the purposes of the Fair Trading Act, the internal conduct of a corporation involving the design and testing of goods without more is not conduct “in trade”.[36]
(d)The target audience of the JHTIs were professional designers and builders capable of reading a JHTI as a whole and bringing to the exercise pre-existing knowledge of building practice.[37]
(e)The statements in the JHTIs did not constitute false or misleading conduct for the purposes of ss 9 and 10 of the Fair Trading Act.[38]
(f)There was no evidence that either the representative plaintiffs or their builders had relied on the JHTIs.[39]
[31]At [689].
[32]At [740]–[744] and [879].
[33]At [832].
[34]At [826].
[35]At [549]–[550].
[36]At [844]; and Fair Trading Act 1986, ss 9 and 10.
[37]Substantive judgment, above n 5, at [846]–[848].
[38]At [887].
[39]At [850].
As mentioned, the homeowners now challenge all of the Judge’s key factual findings. They say the findings were contrary to the weight of the evidence and to a significant extent the result of the Judge’s erroneous view that building science contained in published literature should be preferred to “empirical evidence” based on test results and the examination of damaged buildings by experts.
The homeowners also challenge the integrity of the High Court hearing due to the late discovery of certain documents concerning testing undertaken by James Hardie at a site in Queensland (the Allunga documents). The late discovery in combination with the Judge’s refusal to allow the recall of a James Hardie witness for cross-examination about those documents is said to mean the trial may have miscarried.
Before turning to assess the various grounds of the homeowners’ appeal, it is logical to first address the legal question raised by James Hardie as to whether the Judge was correct to find that James Hardie owed a duty of care to the homeowners.
Did James Hardie owe a duty of care?
This case represents the first time that a New Zealand court has held following trial that the manufacturer of a building product intended to be a key component in a building owes a tortious duty of care to the building’s owner.
The Judge formulated the duty issue as being whether:[40]
James Hardie as a cladding manufacturer and seller owed a duty of care to the owner for the time being of a house reliant on such cladding for its weatherproof qualities.
[40]At [664].
Having found that such a duty did exist, he then addressed its application in relation to three areas, namely: the product and the system; the JHTIs; and the duty to warn.[41] These correspond to the matters pleaded in the statement of claim summarised above at [27].
[41]At [686].
In holding that a duty was owed, the Judge relied on the 2016 Supreme Court decision of Carter Holt Harvey Ltd v Minister of Education where, in the context of a strike-out application, the Court unanimously held it was arguable that the manufacturer of a cladding sheet and system did owe such a duty.[42]
[42]At [678(a)]; and Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78 [Carter Holt Harvey (SC)].
The Supreme Court reached that conclusion after conducting the well‑established two-stage proximity and policy inquiry that a court is required to undertake when deciding whether it would be just, fair and reasonable to recognise a novel duty of care.[43] At the first stage, a court is concerned with everything bearing upon the relationship between the parties: whether the claimed harm was a reasonably foreseeable consequence of the alleged wrongdoer’s actions;[44] and the degree of proximity between the alleged wrongdoer and the claimant. At the second stage, the court considers matters external to the parties, namely the effect imposition of the claimed duty would have on society and the law generally.[45] Resolution of the second stage has been said to depend ultimately on judicial conceptions of desirable policy.[46]
[43]Carter Holt Harvey (SC), above n 42, at [14]–[72]. Richardson J sets out the two-stage inquiry in South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 (CA) at 305–306. See also North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 at [157]–[160] per Blanchard, McGrath and William Young JJ.
[44]In novel cases, it has been said that foreseeability is at best a screening mechanism to exclude claims which must obviously fail because no reasonable person in the shoes of the wrongdoer would have foreseen the loss: see North Shore City Council v Attorney-General, above n 43, at [157] per Blanchard, McGrath and William Young JJ.
[45]South Pacific Manufacturing Co Ltd, above n 43, at 305–306; and Carter Holt Harvey (SC), above n 42, at [14].
[46]Smith v Fonterra [2021] NZCA 552, [2022] 2 NZLR 284 at [96], citing Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [5.4], now found in Stephen Todd (ed) Todd on Torts (9th ed, Thomson Reuters, Wellington, 2023) at [4.4].
In order to understand the various challenges made by James Hardie to the Judge’s finding of a duty in this case, it is necessary first to provide a brief summary of the relevant legal landscape.
As a result of developments in New Zealand case law beginning in the 1970s, it is now well established that a builder who constructs a defective building may be liable in negligence to a subsequent purchaser of that building for the diminution in value of the building arising from the existence of the defect.[47] Liability is imposed even though the loss suffered by the homeowner (whether measured on the basis of diminution in value or the cost of repairs)[48] is properly categorised as economic loss.[49] The owner is not required to wait until the defect manifests itself in damage to the house or causes health issues but may claim for the cost of what is essentially a pre‑emptive repair.[50]
[47]See for example Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA) at 417 per Woodhouse J, at 422 per Cooke J, and at 406 per Richmond P (dissenting on the facts); and Johnson v Mount Albert Borough [1977] 2 NZLR 530 (SC) [Johnson v Mount Albert Borough (SC)] at 532; aff’d Mount Albert Borough v Johnson [1979] 2 NZLR 234 (CA).
[48]See Leisure Investments NZ Ltd Partnership v Grace [2023] NZCA 89, [2023] 2 NZLR 724 at [184] for a discussion on how loss is to be measured.
[49]Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) [Hamlin (PC)] at 526.
[50]Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 [Spencer on Byron] at [45], quoted in Carter Holt Harvey (SC), above n 42, at [66].
The imposition of tortious liability in those circumstances represented a significant departure from traditional tort law.[51] Previously, any tortious liability on the part of a negligent builder had been limited to the creation of a defect which caused either personal injury or physical damage to property other than the building itself. As Stamp LJ put it in Dutton v Bognor Regis Urban District Council, the law was that:[52]
I have a duty not carelessly to put out a dangerous thing which may cause damage to one who may purchase it; but the duty does not extend to putting out carelessly a defective or useless or valueless thing.
[51]There was always, of course, contractual liability to the original owner for whom the defective house had been built: see for example Bowen v Paramount Builders (Hamilton) Ltd, above n 47, at 414–415 per Richmond P.
[52]Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 (CA) at 415.
The modern tort law about defective buildings, which began in the 1970s,[53] has also entailed the imposition of negligence liability on other participants in the construction process such as engineers and architects as well as the regulatory authorities responsible for inspecting and approving the building work.[54]
[53]See Bowen v Paramount Builders (Hamilton) Ltd, above n 47, which was decided in 1977.
[54]See for example Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC); Young v Tomlinson [1979] 2 NZLR 441 (SC); and Johnson v Mount Albert Borough (SC), above n 47. And see Spencer on Byron, above n 50, at [193].
This line of authority has inevitably raised questions about whether the court should also recognise a duty of care on the part of the manufacturer of an inherently defective chattel or product. In the 1976 Court of Appeal decision of Bowen v Paramount Builders, Cooke J commented that he:[55]
[Did] not see why the law of tort should necessarily stop short of recognising a duty not to put out carelessly a defective thing, nor any reason compelling the courts to withhold relief in tort from a plaintiff misled by the appearance of the thing into paying too much for it.
[55]Bowen v Paramount Builders (Hamilton) Ltd, above n 47, at 423.
That approach was not, however, adopted in the 1999 High Court decision of NZ Food Group (1992) Ltd v Amcor Trading (NZ) Ltd.[56] It concerned the supply of vegetable fat that was not of merchantable quality. It was supplied to a processor who blended it to make a chocolate substitute which in turn was used by a confectionary manufacturer. The confectionary products were contaminated and were subsequently recalled. In the High Court, William Young J said it was “far from clear” whether either the supplier or the processor owed a tort duty of care to the confectionary manufacturer in addition to any contractual obligations there might be.[57] The Judge characterised any negligence claim by the confectioner against the supplier as likely being one about a product (the vegetable fat) that was less valuable than it should have been and which rendered less valuable other products with which it was blended. In those circumstances it would have been a case of economic loss meaning no duty of care was owed.[58]
[56]NZ Food Group (1992) Ltd v Amcor Trading (NZ) Ltd (1999) 9 TCLR 184 (HC).
[57]At 192 and 194.
[58]At 192–193.
That decision was not of course a case about manufacturers of building materials. But it is relied on by James Hardie to support its key proposition that the Judge’s ruling in this case represents too radical a change to product liability law. It points out that New Zealand law has never before recognised that a manufacturer selling a defective (but not dangerous) product has a general duty to avoid economic loss to a third party. And that is said to be for a good reason. According to James Hardie, the “broad and unqualified duty” upheld in this case will have the effect of conferring an “indefinitely transmissible warranty of quality” on homeowners,[59] raising the spectre of indeterminate liability.
[59]Citing Stephen Todd “Leaky Buildings: Limitation Issues and Successive Owners” in Steve Alexander and others The Leaky Building Crisis: Understanding the Issues (Brookers, Wellington, 2011) 123 at 125.
James Hardie says further that the position of manufacturers of building products is not analogous to that of builders and building inspectors and accordingly the Judge was wrong to perceive the imposition of a duty in this case as a natural extension of existing case law about latent defects in buildings. It contends too that the Judge erred in effectively treating Carter Holt Harvey as a binding precedent and overlooked the provisional nature of the Supreme Court’s ruling.[60]
[60]Carter Holt Harvey (SC), above n 42.
We agree the Supreme Court ruling was provisional. It only held that the claimed duty was “arguable” and it did not purport to finally resolve the legal/policy issues which were expressly left for trial.[61] As it happened, the trial never eventuated.
[61]At [72].
However, while we agree the Supreme Court’s decision was provisional, we do not agree the Judge treated it as effectively binding. That is not a fair reading of the judgment. We would also point out that the evidence in this case was directed at breach and did not address policy/proximity issues — such as the insurance implications of recognising a duty or contractual allocation of risks. It is therefore difficult to see how the trial evidence has impacted to any significant extent on the cogency of the Supreme Court’s analysis.
We are supported in that conclusion after undertaking the two-stage duty inquiry ourselves in light of the evidence and having regard to the legal submissions made to us by James Hardie.
First, foreseeability of harm is beyond argument. A manufacturer of cladding sheets and systems promoted for use as exterior wall cladding must be taken to have foreseen that its cladding products would be used in buildings. Further, such a manufacturer must also be taken to have foreseen that if those products were defective (due to not being weathertight) this could lead to a weakening and rotting of component structures, the development of mould (with its attendant health risks), and reduced durability.
While foreseeability of harm is accepted, proximity is however very much disputed. In relation to proximity, James Hardie contends that the relationship between a homeowner and a manufacturer is not in the same category as the close and direct relationship between a homeowner and a builder. Also missing, in James Hardie’s submission, are the associated concepts of control and responsibility, which are submitted to underpin the liability of builders and local authorities.
Those fundamental concepts are said to be absent in the case of the manufacturer because the functionality of the product is dependent upon the separate work of builders and designers — work that the manufacturer is unable to control. The builders and the designers are the parties who exercise control over and assume responsibility for the completed building as a whole. Likewise, the work of the building inspector is also directed to the proper completion of the finished dwelling as a whole. In addition, in the case of building inspectors, there are issues of community expectations and reliance in play, factors which again are absent in the case of a manufacturer.
Developing this central submission, counsel for James Hardie, Mr Hodder KC, further submitted that the different roles and expectations of manufacturers as compared to builders and building inspectors are reflected in the Building Act 2004 and its predecessor the Building Act 1991. Those Acts are focused on building work and building control.[62]
[62]Building Act 1991, long title. See also Building Act 2004, s 3.
Mr Hodder noted that while designers, builders and building consent authorities are expressly referenced in the purpose section of the Building Act 2004 there is no mention of manufacturers.[63] Section 3(b) of the Building Act 2004 states that one of its purposes is “to promote the accountability of owners, designers, builders, and building consent authorities who have responsibilities for ensuring that building work complies with the building code”. Also, unlike builders and building inspectors, manufacturers do not undertake “building work” as defined by the Act.[64] Building products are instead regulated by an appraisal process.[65]
[63]Building Act 2004, s 3(b).
[64]Section 7.
[65]Sections 268–272.
The fact manufacturers are not engaged in “building work” under the Building Act, has the further consequence that, unlike others who have been held liable for defective buildings, they will not have the protection of the Act’s longstop limitation period.[66] That, in turn, is said to create unfair commercial uncertainty and was another factor against recognising a tort duty.
[66]Section 393.
Mr Hodder acknowledged the existence of s 14G of the Building Act 2004, which does impose a direct statutory obligation on manufacturers and suppliers of building products. Section 14G provides:
14G Responsibilities of product manufacturer or supplier
(1)In subsection (2), product manufacturer or supplier means a person who manufactures or supplies a building product and who states that the product will, if installed in accordance with the technical data, plans, specifications, and advice prescribed by the manufacturer, comply with the relevant provisions of the building code.
(2)A product manufacturer or supplier is responsible for ensuring that the product will, if installed in accordance with the technical data, plans, specifications, and advice prescribed by the manufacturer, comply with the relevant provisions of the building code.
(3)A person who supplies a building product is responsible for ensuring that the person complies with Part 4B (building product information requirements).
However, Mr Hodder pointed out that this provision only came into force in 2013 and therefore did not apply during the period that Harditex was on the market.[67] It was a specific change in response to the leaky buildings crisis,[68] and thus, he contended, not a situation of statutory obligations being imposed to reflect existing tortious liability. Mr Hodder therefore drew support from the enactment of s 14G rather than the other way round.
[67]Building Amendment Act 2013, ss 2 and 7.
[68]In particular the Hunn Report: Don Hunn, Ian Bond and David Kernohan Report of the Overview Group on the Weathertightness of Buildings to the Building Industry Authority (Building Industry Authority, 31 August 2002).
As well as inconsistency with the Building Act, Mr Hodder argued that a tortious action would cut across the carefully designed legislative regimes of the Consumer Guarantees Act 1993 and the Fair Trading Act to which manufacturers and suppliers are subject. In his submission, given the protection afforded consumers by those statutes, they should be left to cover the field so to avoid the risk of doctrinal incoherence and indeterminate liability likely to flow from the Judge’s ruling.
In our view, the objections raised by James Hardie are significantly overstated. As the outcome of this proceeding graphically illustrates, the imposition of a duty of care on a manufacturer does not translate to guaranteeing the workmanship of a builder. It is therefore wrong in our view for James Hardie to call in aid its inability to control the builder. The homeowners’ claim relates only to matters within the control of James Hardie. Unlike a claim against a building inspector, the claim here does not seek to make the manufacturer liable for a latent defect negligently created by another.
Many of James Hardie’s concerns are also based on factual scenarios which are not this case. This was not a case about building products generally, regardless of their significance to the building. Nor was it a case about mere defects of quality. It was a case about a building product that forms a key component in a building and alleged latent defects which could cause or had in fact caused significant damage, including structural damage and damage which posed a health risk. Whether the duty can extend to other types of building product and/or defects will, in accordance with the common law tradition, await future cases.
We observe too that while the relationship between the builder and the first owner of the building is more direct and proximate than that between manufacturer and owner, it is important to bear in mind that the builder’s duty of care is not limited to the first owner with whom the builder will usually be in a contractual relationship. It extends to subsequent purchasers.[69]
[69]See at [42] above.
For completeness, we record that while in some novel duty cases the vulnerability, or lack thereof, of the claimants may be a relevant factor, it did not feature in James Hardie’s submissions. That was appropriate given that in Carter Holt Harvey, the Supreme Court held that the vulnerability factor did not have much significance, and, to the extent that it did, was not a factor militating against the finding of a duty of care.[70] As the Court pointed out, in a case involving latent defects which are only able to be identified with the assistance of specialists, the building owner cannot be expected to know of the defects and take steps to protect themselves against them.[71]
[70]Carter Holt Harvey (SC), above n 42, at [55].
[71]At [55].
As regards the arguments about the statutory framework, similar arguments were also raised in Carter Holt Harvey and rejected by the Supreme Court.[72]
[72]At [38]–[40].
In relation to the Building Act, the Supreme Court accepted that as a manufacturer and supplier of building materials, Carter Holt Harvey was not under any direct statutory duty at the time it supplied its cladding sheets and systems.[73] It also accepted that the absence of any such obligation meant that one factor which contributed to the finding in Spencer on Byron, that councils owed a duty of care to the owners of commercial buildings, was not present.[74] However, the Court went on to say it did not view that as a significant distinguishing factor because:[75]
[40] … Although the 2004 Act and the building code do not apply to manufacturers, the cladding sheets and cladding system produced by [Carter Holt Harvey] are “building elements” to which certain requirements of the building code apply. Even though those requirements are not directly imposed on manufacturers, they define the standards manufacturers are required to meet in products, so that when they are used in a building the building will be code compliant. In addition, the cladding sheets are building materials in respect of which the powers in ss 20 and 26 of the 2004 Act can be exercised. In light of these factors, the duty of care sought to be imposed on [Carter Holt Harvey] is, arguably, no greater than that of which it would already have been aware because of the building code requirements applying to building elements and the provisions of the 2004 Act applying to building materials.
[73]At [38].
[74]At [40], referring to Spencer on Byron, above n 50.
[75]Carter Holt Harvey (SC), above n 42.
James Hardie has not advanced any submissions or pointed to any evidence that suggests the last sentence in the above passage has been shown to be an incorrect assumption.
The Supreme Court also rejected an argument that because the Consumer Guarantees Act provides remedies for defective goods and services, the Court should be cautious about imposing more onerous duties under the law of tort and altering the balance struck by the legislation. The Court did not see the existence of statutory protections as precluding liability in tort.[76]
[76]At [41].
We acknowledge that the Supreme Court went on to state that because the proceeding before them included a claim under the Consumer Guarantees Act, the significance of liability under that Act (if any) on the negligence claim could be evaluated at trial.[77] However, the present case did not include a claim under the Consumer Guarantees Act and there was no relevant evidence adduced bearing on that issue.
[77]At [41].
Importantly too, in a later section of its judgment dealing with policy factors, the Supreme Court unequivocally and emphatically rejected the suggestion that a tortious duty of care standing alongside the statutory warranties in the Building Act and the guarantees in the Consumer Guarantees Act was contrary to Parliament’s intention and would make the law incoherent. The Court said it did “not see any such indication” of an intention on the part of the legislature to exclude tort law.[78]
[78]At [62].
Finally, we note that although the Supreme Court held that Carter Holt Harvey was not covered by the longstop limitation provision of the Building Act,[79] there is no suggestion in the judgment that this was considered an impediment to recognising a duty or even a countervailing factor to be taken into account.
[79]At [129].
Drawing all these threads together, we are satisfied the Judge did not err in holding that James Hardie owed a duty of care in tort to the homeowners. That conclusion was a natural extension of existing authority and in accordance with the Supreme Court decision in Carter Holt Harvey.
If, contrary to his primary submission, we were to find there to be a duty, Mr Hodder asked us to articulate the limits of the duty in a clear and relatively precise manner. He contended that the Judge had paid insufficient attention to the scope of the duty and had effectively dealt with issues about the scope of the duty as breach issues, whereas recent case law emphasises the importance of considering scope of duty as a distinct analytical step.[80]
[80]Citing Meadows v Khan [2021] UKSC 21, [2021] AC 852 at [33]–[41].
Mr Hodder acknowledged that had the Judge embarked on a separate scope of duty inquiry, it would not have made any difference to the outcome in this particular case. However, he contended that for future cases it was of crucial importance for the limits of the duty to be stated with precision. Mr Hodder further submitted there were two factors critical to understanding the limits of a manufacturer’s duty of care in the building context. The first was the inability to control the conduct of those involved in the installation of the product and the second was the economic nature of the claimants’ alleged loss.
Having regard to these factors, Mr Hodder submitted that the duty of care should be articulated along the following lines:
As a manufacturer of Harditex cladding components (being the Harditex boards and related components manufactured or supplied by James Hardie) and designer of the Harditex system, James Hardie owed a duty to owners of relevant residential buildings to use reasonable care and skill to ensure that Harditex cladding components were fit for their intended purpose, namely use as building-standard-compliant components in a residential building cladding system constructed in accordance with manufacturer technical specifications and advice; applicable building standards; and good building practice.
We accept that a duty of care cannot be formulated in the abstract and must be articulated in relation to the kind of harm to be avoided and the class of person to whom the duty is owed.[81] That may or may not necessitate a scope of duty inquiry as a separate analytical step. In the circumstances of this case, we are not persuaded a separate scope of duty inquiry was either necessary or helpful. Further, for reasons we have already traversed, this was not a claim seeking to make James Hardie liable for a defect created by someone else, but defects said to have been created by James Hardie itself.
[81]Attorney-General v Strathboss Kiwifruit Ltd [2020] NZCA 98, [2020] 3 NZLR 247 at [193].
We consider Mr Hodder’s suggested formulation of the duty to be unnecessarily restrictive and wordy. We consider the duty is more appropriately and simply formulated in the following general terms: the manufacturer of a cladding product intended for use as a key component in the construction of a weathertight building owes a duty of care to an owner of the building to exercise reasonable care and skill in the design, manufacture and supply of the product so as to prevent loss from damage to the building caused by water ingress.
As will be apparent, we have not limited the duty to residential homes. That distinction is no longer made in the case of builders and local authorities for reasons that we consider are equally applicable to manufacturers.[82] Further, the buildings at issue in Carter Holt Harvey were not residential homes but schools. Yet that was not seen as an impediment to recognising a duty.[83]
[82]Spencer on Byron, above n 50, at [214]–[216] per McGrath and Chambers JJ, at [26] per Tipping J and at [22] per Elias CJ, applied in Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2017] NZSC 190, [2018] 1 NZLR 278.
[83]Carter Holt Harvey (SC), above n 42.
As will also be apparent we have not included the JHTIs in this formulation. That is because we consider that, correctly analysed, any negligence claim regarding alleged errors and deficiencies in the technical instructions properly falls within the realm of negligent misstatement. The prerequisites of liability for negligent misstatement are well established and do not raise any novel duty issue.[84]
[84]See Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL); and Caparo Industries Plc v Dickman [1990] 2 AC 605 (HL).
Mr Hodder accepted that, in principle, if there were negligent misstatements in the JHTIs then James Hardie could potentially be liable. However, because of the need to establish reliance in negligent misstatement claims, any liability would be limited to builders.[85]
[85]Citing Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) at 181 per Lord Goff; Boyd Knight v Purdue [1999] 2 NZLR 278 (CA) at [47] and [54]–[59] per Blanchard J; and McNamara v Auckland City Council [2012] NZSC 34, [2012] 3 NZLR 701 at [168] per Blanchard, McGrath and William Young JJ.
The Judge did not engage in a Hedley Byrne/Caparo analysis.[86] Instead he appears to have treated the claim as one of carelessly failing to provide appropriate assistance so as to ensure the product would be installed correctly and safely. Given our finding that none of the JHTIs contained actionable misleading and untrue statements,[87] the same outcome is reached regardless of which approach is adopted.
[86]Hedley Byrne & Co Ltd v Heller & Partners Ltd, above n 84; and Caparo Industries Plc v Dickman, above n 84.
[87]See below at [428]–[438].
Finally, we agree with the Judge that a duty to warn is best viewed as an aspect of the negligence claim and not as a stand-alone cause of action.[88] A manufacturer who was aware of deficiencies in its product that rendered it unfit for its intended purpose and likely to cause harm but then did not remove that product from the market or warn of the risk of harm would clearly be negligent.
[88]Substantive judgment, above n 5, at [745]–[747], citing Carter Holt Harvey (CA), above n 27, at [129]–[130]; and Carter Holt Harvey (SC), above n 42, at [77]. See also Andrews Property Services Ltd v Body Corporate 160361 [2016] NZCA 644, [2017] 2 NZLR 722 at [98]–[105].
Having confirmed the existence of a duty of care, we now turn to the critical issue of whether, on the facts, the duty was breached.
Our general approach to the factual issues
As indicated, this is an intensely factual appeal involving a very large volume of contested evidential material. The homeowners submitted that we “should not attribute to the Judge a special or superior position to the assessment of the evidence and the findings of fact that he has made”. In so far as that is a submission that we are required to reach our own independent view on the evidence, we agree. However, in undertaking that assessment, it is equally clear as a matter of case law and common sense that we must also be mindful of the advantages enjoyed by the trial Judge.[89] The trial Judge not only saw and heard all the witnesses but also had the advantage of evaluating the evidence as it unfolded over a three-month period. We have therefore approached the analysis of the evidence on that basis.
[89]Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [31]; Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 199 per Thomas J; and Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13].
The majority of the Judge’s factual findings ultimately related to the question of whether Harditex was fit for purpose, the relevant purpose being to ensure a durable weathertight building in accordance with the regulatory building standards. On appeal, Mr Farmer KC, for the homeowners, described this as “the real issue” in the case.
Fitness for purpose: moisture management
It was common ground at trial that the building code does not require all water to be excluded from a wall assembly. What the code does however require is that water be managed so as to avoid undue dampness and/or damage to building elements.[90]
[90]Building code, cl E2.3.2.
It was also agreed this could be expressed as a rate issue, the issue being the rate of wetting versus the rate of drying and redistribution. The amount of water that enters must not exceed the moisture storage capacity of the components of the wall assembly. That in turn requires adequate resistance to water ingress to reduce the rate of wetting as well as adequate management of any moisture which does enter the assembly.
The framework of the discussion about moisture management both in the evidence and the High Court judgment thus centred around the “deflection, drainage, drying [capabilities] and durability” of the Harditex system.[91]
[91]Substantive judgment, above n 5, at [23].
In order to understand that evidence, and the arguments on appeal, it is necessary first to provide a brief and simplified overview of the mechanisms of water ingress and egress.
Mechanisms of water ingress and egress
As explained by one of James Hardie’s experts, Dr Lstiburek, there are five primary mechanisms by which liquid water may enter a wall assembly from the outside.
The first two, gravity and momentum, both require a gap in the wall assembly for water to enter and are generally associated with a joint, penetration and/or construction defect. Gravity will cause water running down the face of the cladding to enter the wall assembly if the water entry path also runs downwards. Momentum describes the mechanism of water ingress where the water hits the wall at an angle or splashes against it or against a gap.
The third mechanism is surface tension which may carry water horizontally into a gap in the cladding. The fourth is wind pressure which can result in water being forced through even very small gaps in the cladding when the pressure at the outer face of the cladding is greater than the pressure at the inner face.
The fifth mechanism, which featured large in the case, is capillary action. From a water ingress perspective, capillary action operates in two ways. It can draw water into narrow gaps between two surfaces (for example the gap between the back of a cladding sheet and a flashing upstand) or it can draw in liquid water through the pores of the cladding itself. Thus, unlike the other mechanisms, it is not necessarily dependent on a gap in the cladding. The latter form of capillary action is called “wicking” — a term that appears frequently in the evidence.
The smaller the pore, the greater the capillary force. Both concrete and wood are porous, but the distance water will travel through concrete is much greater than wood because the pores in concrete are so small.
The most common building techniques used to minimise or eliminate capillary action through building materials are to paint the building material so as to block the pores or to use sealant to seal the relevant gaps.
In relation to water that has migrated inside a wall assembly, the two principal mechanisms by which water escapes from a wall assembly are drainage and drying. We pause here to signal that in order to understand the competing views, it is important to distinguish between water that is inside the wall assembly but has only made its way to the back face of the cladding and water that has gone further.
Deflection
The less water that enters the wall assembly, obviously, the better. In terms of deflection, the primary water barrier in the Harditex system was the exterior surface of the fibre cement sheets. It was common ground among the expert witnesses that if coated the sheets would deflect liquid water.
It was common ground too that the building paper would also operate as a secondary, albeit imperfect, water barrier — imperfect chiefly because of nail holes.[92]
[92]The homeowners also contend building paper is imperfect because it will degrade if exposed to prolonged moisture.
The building wrap was said to also assist in distributing any water that penetrates the cladding over a greater area of the wall so that the water is not concentrated in a single spot. That in turn means that although a consequent rise in moisture content of the timber will affect a greater area, it will be able to dry more easily.
Where the experts principally diverged was about other functions building wrap might perform in terms of moisture management. According to the James Hardie experts, it performed more than just deflection and was “key to the behaviour of the water in a wall”.
As they explained it, that was because building wrap is not only hydrophobic (closed to liquid water) but also vapour permeable (open to water vapour). Therefore, unless there are gaps or holes in the wrap, any liquid water that penetrates past the cladding can only pass through the building wrap in vapour form. This was said to significantly slow the passage of water from the outside to the inside of the building wrap, making it more likely that the water will be disposed of by drainage and drying before it accesses the timber framing. Further, any vapour that does diffuse through the wrap and into the timber framing will do so at approximately the same rate as it is able to diffuse out of the timber (dry).
For reasons we discuss in the next section, building wrap was also considered to play a direct role in drainage.
Drainage
One of the main areas of controversy between the parties was the system’s drainage capacity.
The Harditex system did not have a designed cavity or other drainage facility behind the cladding, as is now mandatory.[93] However, according to the experts called by James Hardie, there were nevertheless drainage paths. Those drainage paths were said to be the small gaps that inevitably, that is to say always, exist between the back of the Harditex sheets and the front of the building wrap. Those gaps, which made drainage unavoidable, were said to be the result of the fundamental characteristics of the materials used in the system including the lapping of the building paper within which gravity will operate.
[93]Although there is some uncertainty in the evidence as to exactly when cavities became mandatory for fibre cement cladding systems, the general consensus seems to be that it was July 2005: see Department of Building and Housing Approved Document for New Zealand Building Code External Moisture Clause E2 (3rd ed, amendment 1, 1 July 2005).
As the Judge acknowledged, at first blush this suggestion might seem surprising given the system required the sheets to be tightly nailed to the framing.[94] However, according to the James Hardie experts, the clamping effect can never be uniform and across the surface of the wrap there was a large surface not held to the back of the sheet by a nail. These experts further relied on the fact a timber frame is never uniform and, therefore, gaps are also created by the timber variations. Where the water encounters a clamp, it works its way around the clamp until gravity asserts itself. In short, notwithstanding the clamping effect, drainage still occurs.
[94]Substantive judgment, above n 5, at [54].
The experts who propounded this drainage by “small gaps” analysis were Dr Lstiburek and another James Hardie witness, Dr Straube. Both were internationally recognised as experts on building failures and weathertightness in particular.
Dr Lstiburek was described by the Judge as “an excellent witness” and “pre‑eminent in the relevant fields”.[95] He had some 38 years’ experience as a forensic engineer in building failures and was the author of numerous publications, several of which had won awards. He was a consultant to a large number of major manufacturers of building products and had been called on to assist with major leaky buildings crises that occurred in North America.
[95]At [47] and [125].
Dr Straube holds a doctorate in civil engineering which focussed on moisture control in enclosure walls, a topic which over a 30-year period had become his “life[’s] work”.[96] During those 30 years, he had undertaken extensive laboratory work as well as consultancy work with government agencies and major product manufacturers, being involved in projects throughout the world.
[96]At [48].
While the experts called by the appellants accepted that drainage in small gaps can occur, they pointed out the lack of certainty as to where the inconsistencies will occur within the frame. The homeowners’ main expert on this point, Mr Hazleden, was particularly critical of the fact that drainage by “small gaps” was not a design feature of Harditex. He stressed that a properly designed system should have an intentional drainage path, not an accidental or fortuitous one.
In accepting the evidence of Dr Straube and Dr Lstiburek, the Judge said he found the “small gaps” scientific literature convincing.[97] This included what the Judge described as “numerous articles and research reports”.[98] He concluded that although there would not be as much drainage as there would be with an intentionally designed cavity, drainage nevertheless happened.[99]
Drying
[97]At [58].
[98]At [59].
[99]At [74].
The Judge acknowledged that the fact drainage does occur did not mean that all water drains away. Some of the moisture will not drain but will be absorbed into the uncoated back of the fibre cement sheet.[100] That raised the issue of whether the Harditex system had sufficient drying capacity.
[100]At [86].
It was common ground that an uncoated Harditex sheet was absorbent. The dispute was whether that was a good thing or a bad thing, given that only the exposed parts of the sheet were required to be coated. As mentioned, the homeowners contended the absorbency was an inherent defect, being a pathway for moisture transfer from sheet to timber. James Hardie contended the absorbency was an important aspect of the moisture management system because it meant that water was safely absorbed and stored in the Harditex sheet until it left as vapour. That was provided, of course, that the amount of water concerned did not exceed the moisture storage capacity.
In preferring James Hardie’s contentions, the Judge relied on the evidence of Drs Lstiburek and Straube, which he found was supported by building science and computer modelling done for the purpose of the litigation. It showed there was no risk of condensate run-off developing or occurring within the walls. Any moisture within the Harditex system would dry out.[101]
[101]At [97]–[100].
The Judge concluded:[102]
[127] My conclusion is that the Harditex system has not been shown to be conceptually flawed from a moisture management perspective. Rather, the way it manages moisture reflects well-established principles of moisture management. The contrary evidence was not convincing, and it is notable that current software modelling reaches the same conclusion. The evidence did not cause me to believe relevant James Hardie personnel understood all the mechanisms by which the moisture management was achieved, but that it worked and had done so with sheet systems for a long time was understood.
[102]Footnote omitted.
The Judge therefore rejected the existence of inherent defects one and three.[103]
Arguments on appeal
[103]Substantive judgment, above n 5, at [128].
Mr Farmer challenged the Judge’s findings regarding the drainage and drying aspects of moisture management on two key grounds.
Erroneous analysis of the expert evidence
The first challenge was that the Judge erred in preferring building science in published literature to empirical evidence based on examination of damaged buildings by experts and litigation-specific testing. As will be apparent from later sections of our judgment, this same criticism is levelled at a number of other findings, counsel for the homeowners even referring at one point of their submissions to the Judge’s “preoccupation” with building science and to him being “blinded” by building science.
The homeowners also contend that generally the Judge did not correctly assess the “value” of their expert witnesses’ evidence and/or expertise, and at the same time overlooked deficiencies in the evidence of the James Hardie witnesses. In short, the Judge was unduly influenced by the James Hardie experts.
We consider the criticisms are unfounded.
In relation to moisture management, where there was a conflict of evidence as between the James Hardie experts — most notably Drs Straube and Lstiburek — and the homeowners’ experts, we consider the Judge was amply justified in preferring the evidence of the former.
Scientific evidence as to the physical properties of building elements, their capacity to store water, and the principles of physics that govern water transfer in both liquid and vapour form was, in our view, critical. We consider it untenable to argue otherwise and point out that, in contrast to James Hardie, the homeowners did not call any witnesses credentialed as building scientists.
Further, in so far as the suggestion is that Drs Straube and Lstiburek were academics without practical experience in the real world, that is simply not the case as evidenced by their work experience summarised above at [107] and [108]. Further, they were familiar with New Zealand conditions.
It is also in our view wrong to argue, as the homeowners do, that the Judge should not have placed the weight he did on Dr Lstiburek’s evidence because of concessions Dr Lstiburek made in cross-examination. Mr Farmer went so far as to suggest that the concessions Dr Lstiburek made in cross-examination established that the system was not fit for purpose. Having reviewed the concessions relied on, we disagree. The concessions did not detract from the central core of Dr Lstiburek’s evidence and, if anything, only serve to demonstrate that he was an expert who was not advocating for the party who called him.
The homeowners called several witnesses to give expert evidence on moisture management. Their main witness on the topic was, as discussed above, Mr Hazleden. Mr Hazleden is a Canadian architect. As also already indicated, there was general agreement between him and Drs Lstiburek and Straube about the principles of moisture management and on the moisture management features of the Harditex system. Their key point of difference was the sufficiency of those features.
Although an architect, and not a building scientist as such, Mr Hazleden was, we accept, well qualified to give opinion evidence on moisture management. His specialist area of expertise was in building envelope and weathertightness issues. However, no doubt influenced by his architectural background, his evidence was, as the Judge put it, presented through a design lens.[104] As the Judge rightly observed, from a design perspective, it is desirable that a system have an in-built overcapacity, but from a litigation viewpoint, that is less important than the issue of whether a product in fact works.[105]
[104]At [61].
[105]At [61].
Mr Hazleden did also provide evidence bearing on whether the system worked or not. This however was primarily based on computer modelling work that he had undertaken, and which the Judge found to be unreliable.[106]
[106]At [62]–[68].
The modelling involved identifying the likely level of water penetration of a Harditex wall in Wellington and Auckland and then calculating the likely drying capacity. The results were that the drying capacity was less than the likely wetting.
Dr Straube, who has significant experience in analysis of wall claddings and computer modelling, was highly critical of the assumptions and inputs underlying each of Mr Hazleden’s wetting and drying models. Dr Straube also testified there were better models available that are commonly used for the same exercise of predicting or simulating the behaviour of materials within a building enclosure.
Significantly, in his reply evidence, Mr Hazleden did not provide any response to Dr Straube’s criticisms of his drying model. Inevitably, and in our view, correctly, the Judge drew the inference that the criticisms were well founded.[107] Further, in our view, it logically follows that if the drying model could not be relied on, then the ultimate conclusion must also be unreliable.[108]
[107]At [64].
[108]At [64].
The second expert witness called by the homeowners on moisture management was Ms Hugens. She was an experienced structural engineer, specialising in the analysis of high performance buildings and the thermal and moisture effects on the building envelope.
Ms Hugens gave evidence of computer modelling that she had undertaken on the Harditex system using software developed by one of James Hardie’s witnesses, a Dr Künzel. The software programme, known as Wärme und Feutche Instationär (WUFI), was one of the better computer models identified in Dr Straube’s evidence. Significantly, with the exception of issues relating to mould growth which we address later, Ms Hugens agreed that any moisture which enters the Harditex wall enclosure will not accumulate but will increase and decrease in volume. She also accepted that moisture within the Harditex system will dry out and that the modelling showed there was no risk of condensate run-off developing or occurring within the walls.
Another witness called by the homeowners who gave evidence about moisture management was Mr Wutzler. Mr Wutzler is a registered building surveyor and remediation specialist with extensive experience and expertise in analysing houses affected by water ingress. However, when it came to issues about building science and the mechanisms of failure, the Judge was, in our view, right to have “considerable reservations” about the scope of Mr Wutzler’s evidence on those points, having regard to his limited formal training and building experience.[109] Dr Lstiburek and Dr Straube, who did have the relevant qualifications and expertise, explained for example that Mr Wutzler’s proposed mechanisms for water entry violated fundamental physics.
[109]At [94].
Another witness who gave evidence about moisture management on behalf of the homeowners was Mr Lalas, a façade engineer with more than 39 years’ experience, including consultancy work for James Hardie. The Judge found he was not an expert witness on whom reliance should be placed, noting that his evidence reflected inflexibility that was not appropriate for an expert witness,[110] and that:[111]
There were too many aspects where his evidence was based on errors, and on careless misreadings of material; much of his evidence … was outside his expertise; there was incorrect use of publications, and he made allegations of impropriety about witnesses for the other side that were unfounded and can only be explained by the lack of objectivity that permeated his evidence.
[110]At [587].
[111]At [582].
We agree with that assessment.
Absence of a proper design
The second appeal challenge to the Judge’s findings was that even if drainage did fortuitously occur, the absence of a proper design meant by definition that the system was not fit for purpose. As Mr Farmer put it, how can a drainage system that relies on good luck rather than good management amount to moisture management as required by the building code. In response to a question from us, Mr Farmer confirmed his submission was that the absence of a cavity was fatal to any finding of fitness for purpose. That was so even though cavities only became compulsory in 2005.
We do not accept that submission. In our view, the Judge was right to proceed on the basis that for the purposes of this litigation what mattered is whether the system actually worked to provide a weathertight cladding system. The fact it was capable of improvements did not of itself mean it was unfit or that James Hardie had breached any duty of care.
It follows from all of the above that we are satisfied the homeowners failed to prove that the absorbency of the Harditex sheet was an inherent defect and that the Harditex system did not adequately manage drainage and drying of any water that penetrated or accumulated within the cladding system.
Durability: fungal decay
Inherent defect five alleged that the Harditex sheet was not durable.
Although durability is sometimes regarded as an aspect of moisture management,[112] the Judge dealt with it under its own discrete heading. That was presumably because it related to whether the sheet itself, as distinct from the system, was fit for purpose. In considering durability, the Judge held that a 50-year period of durability was the relevant touchstone because Harditex sheets can be used as a bracing element.[113] That approach is not challenged by either party.
[112]Durability requires assemblies and materials that are tolerant of moisture.
[113]Substantive judgment, above n 5, at [129].
The main mechanism of failure alleged by the homeowners was that Harditex was susceptible to fungal decay.
It was accepted that mould can grow on an uncoated Harditex sheet and in limited circumstances on a coated surface. The central debate was fungal decay within the sheet. At issue were two components of the sheets: cement which made up 28.5 per cent, and cellulose fibres which comprised seven per cent. The cellulose fibres were wood fibres taken from trees[114] that had been through processing which removed food sources for decay fungi from the wood fibre.
[114]Most commonly Pinus radiata (the Monterey/Radiata/Insignis pine).
The main expert witness called by the homeowners on the topic of fungal decay and rot was Dr Wakeling.[115] He testified that notwithstanding the processing, the cellulose fibres still retained the properties of wood and were actually rendered more vulnerable by the removal of lignin, one of the food sources utilised by decay fungi. In his opinion, given the absorbency of the Harditex sheets, these vulnerable fibres were exposed to moisture, rendering decay inevitable.
[115]For details of Dr Wakeling’s credentials see [150].
James Hardie disputed these contentions and adduced evidence that because the cement mix is highly alkaline, that prevented the sheets from being susceptible to fungal decay. It was conceded that, in service, the alkaline level of the cement will reduce over time, but according to James Hardie’s evidence, it would never drop to a level which would allow fungi to survive.
James Hardie’s main witness on this topic was Dr John, a professor of building materials at a leading engineering school in Brazil. He has extensive experience in major research projects and investigations relating to the durability of building materials with a particular focus on the durability of cellulose fibre cement. He testified that Dr Wakeling’s observation of fungal decay of cellulose fibres in the Harditex sheets was inconsistent with published literature. He also stated that in more than 30 years of studying the durability of cellulose fibres in various types of cement and cement products, he had not seen any evidence of biodeterioration of cellulose fibres embedded in fibre cement. He said categorically that in his experience cellulose fibre cement does not rot.
For his part, Dr Wakeling did not accept the alkaline levels would remain sufficiently high to prevent decay.[116] He also opined that in any event, the wood fibres form an interconnecting network within the cement matrix which enables the fungi to migrate from fibre to fibre without engaging with the cement matrix. He said further that he had seen decay fungi within cement fibre and Harditex itself on “numerous” occasions.
[116]Dr Wakeling also appeared to suggest that some fungi survive in very high alkaline environments.
The Judge was critical of the evidence given by Dr Wakeling and placed limited weight on it.[117] He preferred the expert evidence adduced by James Hardie which the Judge found was supported by a body of published literature as well as the agreed statements of an expert panel convened for the purposes of the litigation.[118]
[117]Substantive judgment, above n 5, at [160].
[118]At [171]–[173].
On appeal, the homeowners submit the Judge’s analysis of the evidence on fungal decay was deficient and resulted in erroneous conclusions. In particular, it is contended that the Judge:
(a)was too dismissive of Dr Wakeling’s evidence, given he is a world‑leading authority;
(b)failed to take into account the compelling empirical evidence that Harditex degrades as a result of fungal decay;
(c)wrongly gave no weight to incriminating statements by James Hardie itself in patent applications;
(d)erred in his treatment of what were called the Biodet reports;
(e)failed to take internal James Hardie group communications and the Building Research Association of New Zealand (BRANZ) opinions into account;
(f)wrongly relied on the expert panel’s agreed statement;
(g)failed to take into account or give proper weight to James Hardie’s own test results pointing to the capacity of fibre cement sheets to decay;
(h)overstated the conclusions from the published literature relying on outdated and generalised statements; and
(i)wrongly dismissed documents called the Allunga documents which had been discovered post-trial and which were entirely consistent with the empirical evidence adduced by the homeowners.
The Judge held it was not misleading to say the sheet had been proven by testing, because the evidence established it had been.[233] On appeal, the homeowners appear to dispute the existence of any such evidence and submit the results from the Allunga testing in fact support the opposite conclusion to that claimed in the JHTIs. However, for the reasons already discussed, the Allunga results are of very limited probative value. Further, there was evidence of favourable pre-release testing conducted by James Hardie as well as testing conducted by BRANZ.
[233]Substantive judgment, above n 5, at [866].
The Judge acknowledged that some of the other JHTI statements were false and misleading if read as absolute propositions. However, he went on to hold that the product was not being sold in its raw state and that the target audience would have understood the implicit qualification, namely that these attributes held good provided the Harditex sheet was properly installed, texture coated and maintained in accordance with the JHTI and good practice.[234] If those things were done, it was a durable substrate, immune to permanent water damage and would not rot or burn.
[234]At [864].
This was not a complete answer, as the Judge himself accepted, to the statement in the 1991 edition that “fibre cement is completely unaffected by water”.[235] That is because even on James Hardie’s own evidence the sheet was absorbent and had a wet‑dry cycle. The Judge however concluded the statement was not misleading when seen in context. Rather, it should be viewed as “clumsy shorthand” for the fact the sheet will return to its initial state if allowed to dry.[236]
[235]At [865] (emphasis added).
[236]At [865].
On appeal, the homeowners submitted the Judge erred in reading down the claimed attributes in this way. They also pointed out that none of the statements at issue contained any such proviso or qualification and further that the implication of a proviso was contrary to the express representations that Harditex does not rely solely on coating for its performance.
We disagree and consider the approach taken by the Judge as being entirely consistent with case law that the impugned conduct must be considered as a whole and in context.[237] The need to texture coat the sheeting was always an express requirement in the JHTIs. Also, from the very beginning of the JHTIs, it was stated that the work of texture coating should only be undertaken by a licensed applicator. This was a clear indication that texture coating was very important.
[237]Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199, cited with approval in Geddes v New Zealand Dairy Board CA180/03, 20 June 2005 at [80].
In our assessment, no one reading any of the JHTIs could reasonably have interpreted the representation that Harditex did not rely solely on the texture coating for its performance to mean texture coating was somehow irrelevant and not required or had no impact on performance. By 1991, the JHTI included a statement that James Hardie insisted on high standards for any texture coating manufacturer recommended for use on Harditex. Coating was always an integral part of the system.
That said, we consider the homeowners are on stronger ground about the potentially misleading nature of the 1991 claim that Harditex is “completely unaffected by water”.[238] There is some force in their argument that viewing it as “clumsy shorthand” may have been unduly favourable to James Hardie and that “the target audience could not possibly have worked out that there were periods when the cladding lost strength from water absorption but that ultimately all would be well”. Interestingly, it appears no other JHTI made the “completely unaffected” claim either before or after 1991. After 1991, the word “completely” was removed.
[238]Emphasis added.
In addition to claims about the attributes of the sheets, the homeowners also relied on statements made about the Harditex system. On appeal, their counsel submitted that the most significant of these was a statement contained in the 1987 to 1994 JHTIs that “[o]ffering the durability and peace of mind of fibre cement, Harditex is the complete cladding system for today’s architectural trends”.[239]
[239]This specific wording was that in the 1991–1994 JHTIs, however the 1987–1989 JHTIs were substantively the same.
The homeowners contend the Judge wrongly characterised this as “a broad marketing type proposition” and submit that rejecting liability on those grounds would render the Fair Trading Act ineffective.[240] However, the submissions do not address why the statement is considered misleading and it is unclear to us whether the objection is taken to the use of the word “complete” to describe the cladding system or the use of the word “durability”. If the latter, for reasons already traversed, we would not perceive that to be misleading. If the former, “complete” would seem an accurate description.
Causation
[240]Substantive judgment, above n 5, at [877].
Section 43 of the Fair Trading Act relevantly provides that relief may be granted to a person who has suffered loss or damage “by” conduct that breaches ss 9 or 10. It is well established that the word “by” requires a causal nexus between the misleading conduct and the loss or damage.
The leading authority on causation under the Fair Trading Act is the decision of the Supreme Court in Red Eagle Corp Ltd v Ellis.[241] In that case, the Court endorsed the following propositions:[242]
(a)The language in s 43 requires a practical or common-sense concept of causation.
(b)The court needs to ask whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage. It need not be the sole cause, but it must be an effective cause.
(c)There must be a clear nexus between the conduct and the loss or damage.
(d)A claimant’s own conduct may be an operating cause.
[241]Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.
[242]At [29]–[30].
To similar effect is the statement in a decision of this Court (quoted in Red Eagle)[243] that:[244]
[T]here must be a sufficient relationship between the impugned conduct and the loss or damage to make it reasonable to say that the loss or damage is the consequence of the conduct.
[243]At [29], n 19.
[244]Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA) at 38 per Tipping J.
In this case, there was no evidence that the named appellants were aware of the existence of the JHTIs at the time of purchase, let alone read them or specifically relied on any of the impugned statements. Nor was there evidence that the builders and designers involved in any of the test properties had engaged with the JHTIs. In those circumstances, the Judge concluded causation had not been established.[245]
[245]Substantive judgment, above n 5, at [849]–[851].
On appeal, the homeowners argue this finding was contrary to the broad approach to causation endorsed in Red Eagle. They argue that the builders must have relied on the JHTIs because they had to under the regulatory scheme. In those circumstances, the onus was on James Hardie to establish the builders had disregarded them. They also contend that in any event the Judge’s finding was contrary to Canadian case law where manufacturers of medical products have been unable to avoid liability for inadequate warnings by asserting the claimant’s doctor would or should have warned their patient.[246]
[246]Referring to Hollis v Dow Corning Corp [1995] 4 SCR 634; and Buchan v Ortho Pharmaceutical (Canada) Ltd [1986] 54 OR (2d) 92.
We agree that a broad approach is taken to causation under the Fair Trading Act. The “but for” test does not apply and there can be more than one cause. However, the claimant must still prove some causal nexus. And here there was none. The claims of the homeowners under the Fair Trading Act and the negligence claim of the patients in the Canadian cases are not comparable. The homeowners’ Fair Trading Act claim is for damage based on positive assertions, not a failure to warn about possible risk.
We conclude that, with one possible exception, none of the impugned statements amount to false or misleading conduct. Any claim based on the one possible exception must however fail because of the lack of a causal nexus and because it is in any event time‑barred.[247]
[247]It is not necessary for us to address the application of disclaimer clauses in the JHTIs.
We turn now to the final topic for our consideration which concerns a general limitation issue raised by James Hardie regarding the application of the Limitation Act 1950 in relation to the negligence claim. We have already addressed the issue of time limitation under the Fair Trading Act at [423]–[427].[248]
Were the negligence claims of the named appellants time‑barred?
[248]James Hardie also raised a time limitation related issue arising from an amendment to the pleadings. We do not consider it necessary to address that issue which involves the application of well-established principles and is entirely case specific, with no bearing on the outcome.
James Hardie contends it had a complete limitation defence to the negligence claims made by the named appellants, a defence which was not considered by the Judge.
For the purposes of time limitation periods, the homeowners’ claims in negligence are governed by the Limitation Act 1950. Although that Act has been repealed and replaced by the Limitation Act 2010, it continues to apply to claims based on actions and omissions before 2011.[249] It therefore applies to the claims in this case.[250]
[249]Limitation Act 1950, s 2A; and Limitation Act 2010, s 59.
[250]This was not disputed by the parties.
Section 4 of the Limitation Act 1950 relevantly provides that actions in tort cannot be brought after the expiration of six years from the date on which the cause of action accrued. It is therefore crucial to identify the date of accrual because it sets time running. The traditional view was that a cause of action accrued when every material fact which the plaintiff must prove in order to succeed had occurred or come into existence (the occurrence test). In a negligence action, that meant the facts giving rise to a duty of care, the breach of that duty and the resulting damage — usually the last in time — all had to be in existence.[251]
[251]Williams v Attorney-General [1990] 1 NZLR 646 (CA) at 678.
A series of cases in the 1980s and 1990s however held that for the purposes of a negligence action involving latent building defects, the date of accrual and hence the start date of the six‑year limitation period was the date on which the damage was reasonably discoverable and not, as previously thought, when the defect was created, that is to say when it came into existence.[252]
[252]See for example Hamlin (PC), above n 49.
The reasonable discoverability test was applied by this Court beyond the building context to claims for exemplary damages in personal injury cases. The first was a claim against the perpetrator of sexual abuse and the second a negligence claim involving the manufacture and distribution of a medical product.[253]
[253]S v G [1995] 3 NZLR 681 (CA); and GD Searle & Co v Gunn [1996] 2 NZLR 129 (CA). In Searle, the plaintiff suffered from a condition which she only realised after reading a magazine article was due to a medical device. In Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721, at [2] per Blanchard J, [38] per Tipping J, [101] per McGrath J and [142]–[143] per Henry J, the Supreme Court however rejected the suggestion that reasonable discoverability was of general application for limitation purposes.
This judge‑made doctrine of reasonable discoverability was developed to ameliorate the obvious injustice of a claim being time‑barred before a plaintiff even knew or could reasonably have known they had suffered damage. The doctrine however raised the spectre of cases being heard many years after buildings had been constructed thereby imposing too onerous and unfair a burden on defendants and the insurance industry. The legislative response, designed to strike a just balance between those competing interests, was the introduction of an overriding 10-year longstop period in both the 1991 and 2004 Building Acts.[254]
[254]Building Act 1991, s 91; and Building Act 2004, s 393.
As noted above at [57], the 10-year longstop provisions under the Building Act do not apply to manufacturers of building products. However, because these proceedings were filed after 1 January 2011 and relate to actions or omissions before that date, they are subject to a 15‑year longstop provision inserted into the 1950 Limitation Act in 2011.[255]
[255]Limitation Act 1950, s 23B. This provision was not raised by either party.
As regards the date that time started to run, Mr Hodder argues that in this case the correct test to apply is the occurrence test and not the reasonable discoverability test. Therefore, he says, time started to run when the named appellants first acquired their properties with the latent defects, which, with one exception, was more than six years before they issued their proceedings.[256] In support of that proposition, Mr Hodder referred us to a Supreme Court decision where it was said that where a product (in that case a prenuptial agreement) is created with an inherent flaw, damage arises from the outset rather than when the flaw ultimately manifests itself.[257]
[256]The exception is Mr Woodhead, who purchased his property the year the claim was filed. James Hardie does not maintain that they have a limitation defence against him.
[257]Thom v Davys Burton [2008] NZSC 65, [2009] 1 NZLR 437.
In our view, for limitation purposes the present case is however more appropriately considered in the defective building context. In that context, the rationale for applying the reasonable discoverability test is that the homeowners’ claim is one for economic loss (the diminution in value of the building). Therefore, as a matter of logic, it is only when the latent defect is known or manifests itself in obvious signs pointing to its existence, that the value of the house drops. Until then, the owner suffers no loss whatsoever. A house with a hidden defect retains its value and can be sold.
We see no reason as a matter of principle or logic why that test should not also apply where the hidden defect is created by the manufacturer of a key component of a building. Labelling it as a product liability claim does not inexorably drive the outcome. We therefore reject Mr Hodder’s submission that the date of acquisition was the date the cause of action accrued.
In the event we were to hold the named appellants could rely on the reasonable discoverability test, Mr Hodder submitted that the claims were in any event also statute barred under that test. He pointed out that even under the reasonable discoverability test, a plaintiff cannot postpone the start of the limitation period by shutting their eyes to the obvious,[258] and contended that in the circumstances of this case that would mean the clock started ticking at the point in time at which a reasonable person would call in an expert.
[258]Hamlin (PC), above n 49.
Developing that submission, Mr Hodder advanced the following argument. The leaky buildings crisis came to public attention about the time the Hunn report was released in August 2002.[259] The report highlighted the number of failures in direct‑fixed monolithic building designs. The named appellants knew they had a property of that general character and their own claim was premised on the basis that by August 2002 a reasonable cladding expert would have regarded such a cladding system was inherently defective. Therefore, time started to run in August 2002 which meant a claim filed in 2015 was well out of time.
[259]Hunn report, above n 68.
There is an obvious irony in that submission, given James Hardie’s insistence that Harditex was a sound product and it had no knowledge of any problems, or reason to be concerned.
In any event, in our view, it would not be reasonable to expect every owner of a home with monolithic cladding to call in an expert to investigate whether the cladding on their house had a latent defect if the home was not demonstrating any of the well‑publicised signs of weathertightness problems.
Ms Cridge and Mr Unwin did obtain a pre-purchase report from a builder in November 2005, which noted rot to framing under the sub-floor access door. But the report writer did not identify any weathertightness issues nor did they recommend further investigation. Ms Fowler noted cracking in the cladding of her house, but, on several occasions, asked the builder to fix this and was satisfied with the repairs done. A professional report she acquired in 2015 noted that there were “[n]o obvious visible signs of mould, decay or water ingress”.
Mr Woodhead’s evidence was that before purchasing the property in 2015, he obtained two pre-purchase reports, one of which was from a company which specialises in cladding systems. Neither report raised weathertightness issues. Both said the property was sound. Mr Woodhead acknowledged he knew there was a leaky home problem with some monolithic clad properties, but the property he was buying had a steeped gabled roof, no balconies or water traps, wide soffits as well as what appeared to be good flashings around windows. It was only after a discussion with Ms Fowler that the alarm bells rang and he instructed Mr Wutzler’s company to undertake testing. By then it was too late and he was legally committed to the purchase.
Just as cracking and sticking doors in a house have been held insufficient to put a homeowner on notice they have defective foundations,[260] we are not persuaded that the matters relied upon by James Hardie had the effect of triggering the start of the limitation period under the 1950 Limitation Act in respect of the named appellants.
[260]Hamlin (PC), above n 49; and Hamlin v Bruce Stirling Ltd [1993] 1 NZLR 374 (HC).
We appreciate that because the 10-year longstop provisions in the Building Acts of 1991 and 2004 do not apply to manufacturers, adopting the reasonable discoverability test leaves manufacturers vulnerable to historic claims. However, that consideration must be tempered by the fact that in relation to proceedings filed after 1 January 2011 a 15‑year longstop based on a manufacturer’s negligent act or omission (whether that takes the form of the manufacture or supply of a defective product, a negligent misstatement or failure to warn) will apply under either the Limitation Act 1950 or the Limitation Act 2010.[261] For the purposes of these proceedings, filed in August and October 2015, that would appear to mean that at best for the homeowners, only claims about properties built after August or October 2000 would be in time. It is, however, not necessary for us to make any definitive finding.
Costs
[261]Limitation Act 1950, ss 23A and 23B; and Limitation Act 2010, s 11(3).
Although the usual practice is for this Court to determine costs in its substantive judgment, counsel did not have an opportunity to make submissions on costs.
If counsel cannot agree on costs, and require a determination, we reserve leave for costs memoranda to be filed within 15 working days of the release of this judgment.
It may assist counsel to indicate our provisional view that costs should follow the event both in relation to the substantive appeal and the unsuccessful application to adduce further evidence. We also provisionally consider costs should be calculated on the basis of a complex appeal, band B with certification for three counsel. Although James Hardie did not succeed on the duty and some aspects of the limitation issues, those matters occupied relatively limited time and would not, in our provisional view, warrant any reduction.
Outcome
The appeal is dismissed.
In the event the parties cannot agree on costs and require a determination from the Court, leave is reserved for costs memoranda to be filed within 15 working days of this judgment.
Solicitors:
Dalzell Wollerman, Wellington for Appellants
Chapman Tripp, Auckland for Respondents
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