The Court of Appeal has recently dismissed the homeowners’ appeal from the High Court decision of Cridge v Studorp Limited [2024] NZCA 483. The case concerned the potential liability of James Hardie New Zealand Limited (James Hardie) for alleged defects in its cladding product, Harditex. This Court of Appeal decision is the first time that an appellate court has held after a full trial that the manufacturer of a cladding product owes a duty of care in negligence to the building’s owner.

Background

The case concerned a dispute between James Hardie, a manufacturer and supplier of a sheet cladding system called Harditex, and a group of homeowners whose homes were built using Harditex. The homeowners claimed that Harditex was defective as it failed to prevent water ingress, which had caused moisture-related damage to their homes.

At first instance, the High Court found that James Hardie owed a duty of care in negligence to the homeowners. However, based on the specific facts and evidence, the High Court rejected the homeowners’ claim that Harditex had caused or contributed to the water damage to their homes. The homeowners appealed.

Appeal

The Court of Appeal dismissed the homeowners’ appeal, upholding the decision of the High Court. The grounds on which the Court dismissed the appeal are intensely fact specific, and based on the evidence that was before the Court. Since Harditex was discontinued from the New Zealand market well over 15 years ago, the real value of this decision lies in the Court’s findings on the duty of care owed by a product manufacturer.

Before this judgment was issued, the New Zealand law on whether a product manufacturer owed a duty of care to a homeowner was not conclusively settled. The only relevant authority on this issue was the Supreme Court’s decision in Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95. The decision was made on an appeal of a strike-out application only. For this reason, the Court merely held that the duty was “arguable” and the substantive legal and policy issues were left for trial, which never ultimately eventuated. This left the gate open for the argument that a duty of care should not apply to a building product manufacturer.

James Hardie argued against a duty of care. It argued that two factors must be taken into account when considering the limits of a manufacturer’s duty of care in a construction context [1]:  

• the manufacturer’s inability to control the conduct of those involved in the installation of the product; and 
• the economic nature of the claimants’ alleged loss.

In relation to proximity, James Hardie argued that the relationship between a homeowner and a manufacturer is not comparable to the “close and direct relationship” between a homeowner and builder. Also missing are the concepts of control and responsibility, which underpin the accepted and long-standing liability imposed on builders and local authorities [2]. James Hardie argued that the circumstances faced by manufacturers are different because the functionality of the product depends on the work done by builders and designers, who exercise control over and assume responsibility for the completed building, and manufacturers are unable to ensure that these entities comply with the technical instructions in carrying out this work [3].

While these two factors were not explicitly adopted by the Court, the formulation of the duty of care limits the manufacturer’s liability to its involvement in the “design, manufacture and supply” of the product, thereby implicitly acknowledging that a manufacturer will have limited ability to control how the product is installed into the building [4]. This difficulty was demonstrated in the current case, where the cladding on each of the eight test properties had been installed differently from the instructions in James Hardie’s technical information brochures. However, the Court noted that the homeowners’ claim related only to matters within James Hardie’s control, and did not require James Hardie to attempt to guarantee a builder’s workmanship [5].

The Court upheld the finding of the High Court that James Hardie did owe a duty of care in negligence to the homeowners [6]. This conclusion was described as a “natural extension of existing authority” and is in line with the previous decision of the Supreme Court in Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95. The Court of Appeal articulated the duty of care in the following terms [7]:

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.

Importantly, this formulation does not limit the duty of care to residential homes [8].

The Court’s observations regarding the ‘duty to warn’ as an aspect of negligence should also be noted. The Court recorded that 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” [9]. While this decision sets out a standard test for the duty of care which will apply, these types of cases are intensely fact-specific, and whether a manufacturer is ultimately held liable will depend on the circumstances at hand.

Comments

The Court of Appeal’s decision in this case confirms that manufacturers of cladding products have a duty of care in relation to defective building products. This expands the scope of the existing duty of care which is applicable to builders and local authorities.

This duty of care, as currently formulated, applies only to manufacturers of cladding products. In principle, there is no reason why the duty cannot, in the future cases, be recognised in relation to manufacturers of other building products which are intended to be a key component in a building. If so, the formulation of this duty of care may have implications for offsite manufacturers of modular building products. These types of products are increasingly common in the market following the passage of the Building (Building Products and Methods, Modular Components, and Other Matters) Amendment Act 2021 and it is likely that manufacturers of these products will be subject to the same duty of care as that imposed on James Hardie.

Manufacturer liability and the ‘duty to warn’ may become more (even) topical, given the current Government’s plan to introduce legislation enabling the use of building materials from overseas jurisdictions (with an initial focus on Australia) without the need for such products to be certified for use domestically. Manufacturers and/or distributors of building products that ultimately take advantage of this proposed regime will need to ensure that their products are suitable for use in the New Zealand conditions and climate.

This article was co-authored by Lydia Sharpe, a Senior Solicitor, in our Construction team.

Footnotes

1. At [74].  
2. At [53].  
3. At [54].  
4. At [77].  
5. At [61].  
6. At [72].  
7. At [77].  
8. At [78].  
9. At [82].