Building suppliers potentially liable to end users in negligence/Consumer Guarantees Act 1993

Timothy Bates of Auckland law firm Legal Vision.


Many schools located around New Zealand owned or administered by the Ministry of Education have been affected by weathertightness issues.


The Ministry filed a product liability claim in the High Court against four manufacturers of products used for the construction of school buildings, including Carter Holt Harvey Ltd (CHH).


Plywood cladding sheets (Shadowclad) were used in the construction of these schools. It was claimed by the Ministry of Education that this cladding system was inherently defective, and has caused damage because Shadowclad allows water to enter, particularly when it is installed without a cavity behind it.


These proceedings concern an unsuccessful attempt by CHH to strike out claims based upon negligence, negligent misstatement and the Consumer Guarantees Act 1993 in the High Court. This was appealed to the Court of Appeal.


CHH’s liability for negligence 

It was alleged by the Ministry that CHH owed it a duty of care in designing, manufacturing and supplying the cladding sheets and cladding systems which were used on the school buildings. CHH denied a duty was owed.


The Court of Appeal applied a two-stage test, first looking at factual and policy aspects of the relationship between the parties, following which the second stage looked at external considerations.


As part of the stage 1 process, the Court of Appeal agreed with this statement of Judge Asher:

“A manufacturer such as Carter Holt can be taken to have forseen Shadowclad would be used on buildings. If Shadowclad or the cladding system were defective, such that they have failed to fulfil their weathertightness function or caused water to enter buildings, that could lead in due course to a weakening and rotting of the component structures and the growth of fungi in those buildings, capable of damaging human health.”


Forseeabilility of damage/loss was deemed established by the Court of Appeal. It then went on to consider proximity. Important in this assessment was the dismissal of CHH’s main argument that the chain of contracts resulting in the supply of Shadowclad ought to control the allocation of risk for damage, rather than any tortious obligation imposed.


In particular, CHH was relying upon the decision of Rolls Royce NZ Ltd v CHH. The Court of Appeal was not attracted to such an argument, and concluded that the Rolls Royce decision was distinguishable and the contractual chain argument would not, in this instance, preclude CHH owing a duty to an end consumer to manufacture its product carefully.


The Court of Appeal also rejected CHH’s other main argument to the effect that since CHH, as a building product manufacturer, was not subject to the impact of regulation by the Building Act 2004, its predecessors and the Building Codes issued thereunder, the absence of legislative contemplation of duties upon a manufacturer in this area weighed against the requisite proximity existing for a duty of care to apply in negligence.


Whilst the Court of Appeal agreed it was a factor to weigh up in assessing whether a duty of care ought to be imposed, it ruled it was not decisive.


Overall, the court ruled that the claim against CHH based in negligence ought not to be struck out. Furthermore, it also ruled the cause of action based upon an alleged failure of CHH to warn of dangerous features in the Shadowclad product also survived the strike out application, as did the causes of action brought pursuant to the Consumer Guarantees Act 1993.


However, the cause of action based upon negligent misstatement by CHH as to inaccurate statements made about the cladding system was struck out by the Court of Appeal, because the Ministry was not able to establish reliance upon these statements by the Ministry. This was the only cause of action struck out on appeal.


The decision is also notable for describing as “unclear” the distinction often made by judges and lawyers alike as to recoverability in negligence for damage to property, as opposed to pure economic loss.


The Court of Appeal ruled that it was arguable that both types of loss are recoverable in negligence, as is the cost of measures taken to prevent future damage.


The decision is finally also notable for ruling that causes of action brought against building product manufacturers and suppliers were not subject to the long stop 10-year limitation period as stipulated in section 393(2) of the Building Act 2004.


Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.