Cridge v Studorp Ltd [2024] NZCA 483
Last week, the Court of Appeal handed down its judgment in the only remaining weathertightness class action against James Hardie (two similar actions settled in August 2021 and April 2023 respectively). The Court upheld the High Court finding that manufacturers of cladding products owe a duty of care in negligence to homeowners. However, the Court agreed that James Hardie had not breached its duty of care. It also dismissed related claims under the Fair Trading Act 1986.
Our analysis of the Court of Appeal's judgment is set out below, along with our thoughts on several lessons that can be taken from the judgment for the conduct of future class actions and complex litigation generally.
Background
The defendants - two James Hardie companies - manufactured, designed and supplied a cladding system called Harditex between 1987 and 2005 that was used in the construction of approximately 117,000 buildings in New Zealand. The plaintiffs brought a class action representing owners of 149 properties built using Harditex. They claimed that Harditex was "inherently defective" (ie would fail irrespective of how it was installed) because it lacked adequate drainage and drying capabilities, and that their homes had suffered water damage as a result. They also claimed that James Hardie provided misleading information in the technical information provided for Harditex.
The class action began with a stage-one trial of the plaintiffs' two properties, as well as six other test properties from the class. The High Court trial took 84 days and produced over 70,000 pages of evidence. Both sides called a long list of expert witnesses. The essential conclusion of the High Court was that the test properties were water damaged, but this was due to incompetent building work.
On appeal, the plaintiffs advanced a "complete re-litigation" of the High Court's factual findings in a two-week hearing. James Hardie sought to support the High Court's decision on other grounds, namely, that it did not owe a duty of care and that the claims were time-barred.
Manufacturers owe a duty of care
Since the 1960s, New Zealand law has recognised that builders owe a duty of care to subsequent purchasers. This duty of care has been extended to engineers, architects and building inspectors. However, before this case, it had not been extended to manufacturers of building products, although the Supreme Court considered the issue arguable in Carter Holt Harvey v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78.
Applying the usual two-stage test for recognising a novel duty of care, which involves consideration of the proximity of the relationship between the parties and any relevant policy factors, the Court determined that James Hardie did owe a duty of care:
- Foreseeability of harm was considered obvious.
- There was sufficient proximity between a manufacturer and a homeowner despite the intermediate role played by the builders who installed Harditex. In particular, the Court emphasised that it was only imposing a duty of care in relation to conduct within a manufacturer's control, ie the manufacture, design and supply of the cladding system.
- Responding to a submission that manufacturers have no general duty to avoid economic loss from selling a defective (but not dangerous) product, the Court noted this was not a case about "mere defects of quality" as the water damage posed a health risk. Whether the duty can extend to other types of defect will need to "await future cases", the Court said.
The Court did not consider a novel duty analysis necessary for the plaintiffs' misleading information claim. Rather, any misleading information in the technical instructions would constitute negligent misstatement, which already has well-established requirements.
No finding of negligence
The Court conducted a thorough review of the expert evidence and, like the High Court, ultimately preferred James Hardie's experts over the plaintiffs' experts on the basis that James Hardie's experts had greater expertise and gave less partisan evidence.
The Court accepted that the test properties were water damaged. However, the Court found that these properties had not been built in compliance with James Hardie's instructions and contained significant workmanship defects. The Court reasoned that, if any of the class members owned a property that was water damaged despite being built in compliance with James Hardie's instructions, the plaintiffs would have selected that property as a test property.
The Court of Appeal agreed with the High Court that the technical instructions did not contain misleading information and that installation of Harditex did not require building expertise beyond the skill of a reasonable builder.
Limitation: reasonable discoverability principle applies
Since the claims related to conduct before 2011, they fell under the Limitation Act 1950 (now replaced by the Limitation Act 2010). Under the 1950 Act, tort claims could not be brought more than six years after the cause of action accrued. A negligence claim usually accrues once both the negligence and its resulting damage have occurred. However, for latent building defects, accrual only occurs once the damage is reasonably discoverable - since the damage is the loss in value of the property, and value is only lost once the defect becomes apparent.
James Hardie argued that the reasonable discoverability approach did not apply since, if its product was "inherently defective" as the plaintiffs claimed, any building would be damaged from the outset. The Court of Appeal rejected this argument, concluding that there was no reason why a hidden defect created by a manufacturer should be treated differently.
James Hardie also argued that the damage became reasonably discoverable in 2002 when the leaky building crisis came to the public's attention. The Court of Appeal, however, did not think that it was reasonable to expect every homeowner to call in an expert to investigate their home if it was not showing any signs of weathertightness problems.
Since the Building Act longstop does not apply to manufacturers, James Hardie only had the protection of the general 15-year longstop (applicable to proceedings, like this one, filed after 1 January 2011).
Fair Trading Act claims also failed
The Fair Trading Act claim focused on the description of the qualities and attributes of Harditex in James Hardie's technical instructions.
The Court of Appeal found that the target audience of the technical information was competent professionals who could read the descriptions in light of their building knowledge. The Court said the trial Judge's approach was consistent with the case law to consider the documents "as a whole and in context". The technical information did not contain misleading statements, except for potentially one statement that fibre cement is "completely unaffected by water" when, in fact, it does absorb water but then dries.
In any case, the Court of Appeal found no evidence that the plaintiffs or their builders relied on these statements, so they caused no loss. Claims under the Fair Trading Act for earlier versions of the technical information were also time-barred pursuant to the Fair Trading Act limitation period applicable at the time.
Observations
There are several lessons that can be taken from the Court of Appeal's judgment for future class actions and complex litigation generally:
- Briefing credible experts is critical - the finding that Harditex was not defective went against established (but untested) belief prevailing through earlier leaky building litigation. That finding largely depended on which party's experts the Court preferred. The Court of Appeal repeatedly emphasised the greater expertise and impartiality of James Hardie's experts.
- An appeal is no replacement for trial on factual issues - while the Court of Appeal reconsidered the evidence, it properly acknowledged the trial Judge's advantages of seeing and hearing all of the witnesses and "evaluating the evidence as it unfolded over a three-month period" (compared with the two weeks it had to hear submissions). In that context, it is perhaps unsurprising that the Court reached the same conclusions on the factual issues.
- Stage one class action hearings can have stage two impacts - the Court of Appeal judgment contains conclusions on causation and limitation that would have been significant at a stage two trial, had the plaintiffs succeeded in establishing negligence. Some of these findings went beyond the common issues and individual claims of the representative plaintiffs and seemed to rule out potential stage two liability being established by some class members.
- Class action plaintiffs need to carefully choose their test cases - the Court of Appeal was willing to draw an adverse inference that there was no better case available within the class than the test cases before the Court. It is clear that the Court expects representative plaintiffs to engage with class members to identify the most meritorious claims and present them at trial.