Post by Samuel Beswick, Frank Knox Memorial Fellow, SJD candidate, Harvard Law School
* At the outset I should disclose that I had a hand in drafting the plaintiffs’ claim as a solicitor at Meredith Connell, New Zealand, in 2012/13.
Although the paradigm case of a tort suit against a product manufacturer involves a claim of personal injury caused by the manufacturer’s allegedly defective product, there is a wealth of litigation concerning products whose defects do not pose a risk of personal injury. For example, currently progressing through the District Court of Minnesota is a class-action product liability lawsuit, which consolidates claims arising in eight states against James Hardie Building Products Inc. in respect of its allegedly defective Hardiplank cladding product. The plaintiffs contend that Hardiplank fails prematurely by allowing moisture ingress, which causes damage to underlying building structures and adjoining property. Their claims sound in negligence, breach of express and implied warranties, and breach of consumer protection legislation. The plaintiffs might find some reassurance in last Friday’s decision of the Supreme Court of New Zealand: Carter Holt Harvey Limited v. Minister of Education [2016] NZSC 95.
New Zealand has weathered a ‘leaky building crisis’ over the past two decades, the aftermath of a perfect storm of relaxed regulatory standards, sloppy construction practices, poor building design and extensive use of allegedly defective cladding products. Belying the myth that New Zealand ‘did away’ with tort law entirely, tort claims surged in response. Numerous cases have extended negligence liability in New Zealand to local councils (for negligent building inspections), builders, project managers, architects and engineers.
But until recently, claims against cladding product manufacturers proved slippery. Few seemed to be filed, and those that were settled quickly. That is until the Government intervened: not through legislating or policymaking, but by filing the country’s first product liability class-action lawsuit, on behalf of every public school (through its Board of Trustees) suffering weathertightness issues across the country. Two defendants (including James Hardie’s New Zealand subsidiary, which halted share trading upon being served with the lawsuit) promptly settled. The third, Carter Holt Harvey Limited (CHH), last week lost its bid to strike out (dismiss) the proceedings.
The New Zealand courts have confirmed as arguable all five of the Minister of Education’s claims based on (a) negligence in relation to the design, manufacture and/or supplying of defective cladding product; (b) breach of guarantees as to acceptable quality, compliance with description and express guarantees under the Consumer Guarantees Act; (c) negligent misstatement; (d) negligent failure to warn; and (e) misleading and deceptive conduct under the Fair Trading Act. The case is to be set down for trial. Meanwhile, two further consumer class actions are now underway.
The CHH lawsuit highlights two points of particular interest for tort lawyers. First, New Zealand stands almost unique in the common law world by not restricting product defect claims in tort to cases of personal injury or property damage. The Court of Appeal’s judgment confirmed that “New Zealand courts have firmly rejected a clear delineation between economic loss and physical damage in terms of recoverable loss.” That approach has encouraged a stream of negligence-based leaky building litigation in the country, which seems far from running dry. Contrast In re Hardieplank Fiber Cement Siding Litig. (Case No. 12-MD-2359), where almost all claims in negligence were dismissed as contrary to the economic loss doctrine (the cause of action remains only for a Minnesota subclass).
Secondly, the plaintiffs have secured against cladding manufacturers more favorable treatment on the issue of the limitations period for suit than others in the building industry. CHH failed to avail itself of a statutory “10 year longstop” limitation period for civil proceedings relating to building work, the Court accepting that cladding products were “building elements”, as distinct from “building work” to which the longstop applies. Building elements are a product, not a process, and they are intended to last the life of their warranty (at least 15 years). As the statutory 6-year limitation period for tort claims runs from the time hidden defects became “reasonably discoverable”, prompt plaintiffs may be able to assert product liability claims dating back even into the 1990s.
In a jurisdiction where tort duties have been imposed across the construction industry, it is right that cladding product manufacturers too should be held to account. Manufacturers’ arguments that the problem is not their product—but poor installation and maintenance—hardly seem compelling when hundreds of schools and tens of thousands of houses across the country wrapped in modern composite cladding systems are systemically failing. But the evidence will determine that question, soon enough.
Fascinating article. Do you travel to New Zealand much?
Thanks, Josh. I do when I can … it’s a long way from Cambridge!
Regulators in australia are at fault. Hardies is australian and Carter holt shadowclad used extensively. Yet regulators, certifiers are signing off these cladding systems.
Australias regulators know the,failure, in charge of complaints,stats and insurance. It seems Insurance the motive to hide faulty cladding, as this will be a payout.
Insurance should never be controlled by a Building regulator..
Now they are winging that defective houses are being sold..with defects. What goes around..
Hi Jane. Yes, regulators certainly bear some of the responsibility; it was action against local councils for negligent inspections that essentially kicked off New Zealand’s ‘leaky building litigation’: Invercargill City Council v Hamlin. But regulators don’t create the direct harm; they just fail to prevent it (arguably, they’ve also contributed to a ‘poor quality’ industry culture)—their liability runs concurrent with parties who cause the harm in the first place.
In my experience, even insured operators in the building industry resist these claims because of the reputational damage to their business. I expect ‘brand protection’ is a key concern for cladding manufacturers when assessing their litigation strategy too.