James Hardie class action begins in Auckland with arguments over where liability lies

Building owners taking part in a $250 million cladding class action against James Hardie have packed the courtroom gallery.

Building owners taking part in a $250 million cladding class action against James Hardie have packed the courtroom gallery for the start of interlocutory applications at the High Court in Auckland.

The action involves 1,100 Auckland leaky building owners who are making negligence claims against various James Hardie group companies for failure of fibre cement cladding products. They are backed by litigation funders. The case relates to buildings spanning the time period 1983 to 2010 and all but four of them are residential properties.

The plaintiffs allege they have suffered financial losses and significant health issues arising from the use of non-performing cladding materials marketed as Harditex, Monotek, and Titan board.

Last month the High Court ruled that 15 new plaintiffs could join the action, a decision opposed by James Hardie.

The three legs of the plaintiffs' claim are that there was negligence in the design, development, manufacture, and promotion of the cladding products, that they should have been withdrawn when the company realised there were problems, and that there were breaches of the Consumer Guarantees Act and the Fair Trading Act.

Lawyers representing the James Hardie group of companies 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 operational companies only.

Mark O'Brien QC, representing the plaintiffs, said the holdings companies owed a "duty of care" to the plaintiffs because Harditex, which is the product involved in most of the claims, was designed and developed by the James Hardie group, not just the New Zealand subsidiaries. The New Zealand company shared common directors with the Australian parents, and still do.

"They owed a direct duty of care, they 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, though the parent company of the group, James Hardie Industries, retained the same directors and management.

The parent company has opposed the claim being heard in New Zealand, a move being resisted by the plaintiffs. The defendants are also seeking further details of the plaintiffs' claim against them.

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 were given High Court permission to pursue a $25m 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.