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Leaky building owners say cladding defects "gut-wrenching"

Monday 21 November 2016 02:08 PM

Update: Leaky building owners say cladding defects "gut-wrenching" as class action gets underway in Auckland

By Fiona Rotherham

Nov. 21 (BusinessDesk) - (update adding in individual case, more detail)

By Fiona Rotherham

Ray and Marilyn Richards say their Mt Manganui leaky home recently sold for $350,000 below market value because of problems with the plaster cladding, now the subject of an estimated $250 million class action against James Hardie.

The couple made the trip to Auckland today to be among several leaky home owners involved in the suit, and sat in the gallery for the start of interlocutory applications at the High Court.

The action involves more than 1,000 owners of 365 buildings that are taking a litigation funding-backed case against the James Hardie group of companies for failure of fibre cement cladding products. The plaintiffs allege they have suffered financial losses and significant health issues arising from the use of the non-performing materials marketed as Harditex, Monotek, and Titan board.

The Richards say they bought their four-bedroom beachside home in a sought-after part of Mt Manganui for $430,000 in 2004. Their plan was to do it up and then on-sell it, downsizing to a smaller home and having some money left over for their retirement.

They spent a further $150,000 fixing remedial problems, including splits in the cladding before putting it on the market.

“It didn’t sell because then all the leaky homes business came out. We had all our eggs in one basket and this was meant to be our retirement fund,” says Marilyn Richards.

“It was gut-wrenching,” says her husband, Ray Richards. They had to spend more money on the house and recently sold it after ten years on the market for $650,000, well below the prices being achieved by smaller homes in their immediate neighbourhood.

They have accommodation provided as part of their job as resort managers, but the couple, in their sixties, say their future is uncertain because they now don’t have enough money to buy a smaller house in the area, are unlikely to get a mortgage at their age, and don’t have sufficient savings for their retirement.

All but four of the buildings involved in the class action are residential properties. The three legs of the plaintiffs' claim are that there was negligence in the design, development, manufacture, promotion and supply of the cladding products, that they should have been withdrawn when the company realised there were problems, and that there were breaches of the Consumer Guarantees Act and the Fair Trading Act.

The James Hardie companies being sued include the NZ manufacturers – James Hardie NZ (from 1998), Studrop Ltd (products spelt backwards) prior to 1998, the immediate parents of those companies James Hardie NZ Holdings and RCI Holdings Pty Limited, and the ultimate parent of the group, ASX-listed and Irish-registered James Hardie Industries PLC.

Lawyers representing the James Hardie group are seeking to have two of the seven defendant companies removed from the claim under a summary judgment application because they were simply holding companies in New Zealand and Australia, holding shares in the operational units.

“The wording of the pleadings is on the basis of control and an argument of an alter ego - being a single economic unit, and that is not part of the law in New Zealand or the basis liability is attributed,” said Jack Hodder QC for James Hardie.

He said the products were manufactured and sold in New Zealand by James Hardie NZ and that action should be taken against the four operational companies only.

Mark O’Brien QC, representing the plaintiffs, said the holdings companies should remain in the case because the products, at least Harditex which forms the basis for most of the claims, were designed and developed, poorly, by the James Hardie group, not the subsidiaries. The responsibility for the lack of proper testing of the products lies not with the NZ subsidiaries, but the overall group, he said.

“When in the 1990s it became apparent that there were problems, it was not just the local subsidiaries that failed to act sufficiently at the time and later – to withdraw the products and to warn homeowners and others of the issues – it was also the parent companies,” O’Brien told the court.

“They shared common directors, some of whom were also group executives, and they share knowledge. We say they shared responsibility. They owed a direct duty of care, breached it and should make good,” he said.

But Hodder said while it was orthodox that a group would set up subsidiaries and have the ability to appoint directors to them under its shareholding power, it doesn’t mean it then is liable for the actions of any subsidiary under company law.

The group underwent a major restructuring following asbestos liabilities in Australia in particular and tax structuring, O’Brien said. It only became the parent company in 2001 but directors of, and group executives reporting to, the former parent assumed the same role with JHI.

The parent company has protested jurisdiction in New Zealand, a move being resisted by the plaintiffs.

O’Brien said recent well-known examples of company groups which have accepted responsibility for faults and other issues include Samsung in respect of its Galaxy Note 7 and Vokswagen in respect of emission controls. “Responsible parent companies recognise responsibility. So should the law,” he said.

O’Brien told the High Court that the issues facing the leaky building owners were not isolated. In October, owners of leaky buildings in Wellington, known as the Cridge claim, were given High Court permission to pursue a $25 million representative action against the building materials firm.

In July the Supreme Court dismissed building product manufacturer Carter Holt Harvey’s appeal over a Ministry of Education claim the company was liable for the cost of fixing about 890 leaky schools. The judgment found that claims in relation to the defective building products could be argued, and would not be subject to the 10-year limitation under the Building Act.

There have also been multiple other claims and proceedings arising from alleged cladding defects.



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