Carter Holt Harvey Ltd v Minister of Education and Others

• Jurisdiction: New Zealand
• Judge: Stevens J
• Judgment Date: 23 July 2015
• Neutral Citation: [2015] NZCA 321
• Docket Number: CA238
• Court: Court of Appeal
• Date: 23 July 2015

BETWEEN

Carter Holt Harvey Limited

Appellant

and

Minister of education

First Respondent

Secretary Foreducation

Second Respondent

Ministry of education

Third Respondent

Board of Trustees of Orewa Primary School

FourthRespondent

[2015] NZCA 321

Court:

Randerson, Stevens and Cooper JJ

CA238

IN THE COURT OFAPPEAL OF NEW ZEALAND

Appeal against a High Court refusal to strike out claims against the appellant in negligence, breach of the Consumer Guarantees Act 1983 (CGA) and Fair Trading Act 1986 — product liability claims related to cladding systems installed in schools which were affected by weathertightness issues– whether it was arguable that the relationship between manufacturers and suppliers and the end user of the product was sufficiently proximate for the duty of care to exist — whether imposing a duty would cut across contractual allocation of risk — whether the absence of statutory duties on manufacturers and suppliers of building products told against the imposition of a duty — whether the CGA applied where a supplier acquired goods from a manufacturer, and used those goods to produce a different product that was then supplied to the relevant consumer — whether what was supplied to the respondents were whole or parts of whole buildings which were not covered by the CGA — whether the proceeding related to building work so that s393 Building Act 2004 (Limitation defences) applied to bar the respondents’ claims.

Counsel:

D J Goddard QC, I MGault and J Q Wilson for Appellant

J A Farmer QC, N F Flanagan and K C Chang for Respondents

• A Theappeal is allowed in part. The third cause of action in relation tonegligent misstatement is struck out. The appeal is otherwisedismissed

• B The appellant must pay the respondents oneset of costs for a complex appeal on a band A basis and reasonabledisbursements. We certify for second counsel

JUDGMENT OF THE COURT

Table of Contents

	Para No
Introduction	[1]
Striking out	[9]
Background	[14]
Pleadings	[17]
Firstissue — manufacturer's liability for negligence	[22]
High Court decision	[23]
Submissions on appeal	[26]
Our evaluation	[38]
Foreseeability	[41]
Proximity	[45]
(a) The parties'relationship	[47]
(b)Contractual matrix	[51]
(c)The statutory framework	[64]
(d) Vulnerability	[73]
Policy factors	[77]
(a) Incoherence, commercial certainty and contractualchains	[79]
(b) Loss anddamage claimed	[84]
(c)Health and safety	[94]
(d)Statutory framework	[97]
Conclusion on negligence duty	[99]
Second issue — negligent misstatement	[101]
Pleadings	[102]
High Court decision	[105]
Submissions on appeal	[108]
Evaluation	[112]
Reasonably capable of being relied upon?	[119]
Reliance in fact?	[123]
Third issue — negligentfailure to warn	[129]
Fourth issue — claims under the CGA	[138]
Submissions on appeal	[142]
Fifth issue — are partsof the proceeding time-barred?	[146]
High Court judgment	[154]
Submissions on appeal	[157]
Evaluation	[163]
Result	[176]
Costs	[178]
Postscript	[179]

REASONS OF THE COURT

(Given by Stevens J)

Introduction

1 Product liability as a basis for a common law tort claim wasestablished by the House of Lords in the landmark case of Donoghue v Stevenson. 1 Since then, a manufacturer of defectiveproducts has been subject to a duty to take care in designing andmanufacturing products regardless of the nature of the product, andwhether or not consumers were in a contractual relationship with themanufacturer.

2 Schools ownedor administered by parties related to the Ministry of Education(together, the respondents) have been affected by weathertightnessissues. They have filed a product liability claim against fourmanufacturers, including the appellant, Carter Holt Harvey Ltd (CarterHolt). 2 They say the cladding sheets andcladding systems installed in various schools throughout New Zealandare defective and were designed and manufactured by Carter Holt incircumstances giving rise to a tortious duty of care and other causesof action. 3 We were told a large number ofschools may be affected, possibly upwards of 1,400. 4

3 The plywood cladding sheets (called shadowclad) and cladding systems were used by architects and builders in the construction of the exterior walls of numerous school buildings. The respondents claim the shadowclad and the cladding systems are inherently defective and have caused damage because shadowclad allows water to enter, particularly when it is installed without a cavity behind it. Until 2005 shadowclad was a stand-alone product and Carter Holt did not provide any extra parts to go with the cladding sheets. Since 2005 Carter Holt has also provided

flashings that could be installed with the cladding sheets as part of the cladding systems

4 Carter Holt applied unsuccessfully in the High Court to strike the claim out. 5 It now appeals the judgment of Asher J, arguing that the tort claims (based on negligence, negligent misstatement and negligent failure to warn) and a claim under the Consumer Guarantees Act 1993 (the CGA) should have been struck out. Carter Holt also contends that all claims where the cladding was installed more than ten years before the proceeding was filed should have been struck out under s 393 of the Building Act 2004 (the longstop provision).

5 The respondents plead five causes of action against Carter Holt:

• (a) Carter Holt was negligent in designing, manufacturing, importing, and/or supplying the defective cladding sheets and cladding systems. Carter Holt owed a duty of care to the plaintiffs “to design, manufacture and supply cladding sheets for use on the school buildings that complied with Recognised Building Standards, the Building Code requirements and the Building Acts”. 6

• (b) Carter Holt breached the guarantees set out in ss 6, 8, 9 and 13 of the CGA.

• (c) Carter Holt owed a duty to the respondents to take care not to make false, misleading or negligent statements in relation to the cladding sheets or cladding systems that would result in damage to the school buildings.

• (d) Carter Holt knew or ought to have known (as manufacturer and designer) about the design defects in the cladding sheets and/or cladding system, and negligently failed to warn the respondents about the “risk

  characteristics” of the cladding sheets and cladding systems that could cause damage to the school buildings.

• (e) Carter Holt breached s 9 of the Fair Trading Act 1986 by providing information that was misleading or deceptive as to the nature, characteristics and suitability of the cladding sheets and cladding systems.

6 The strike-out application related only to the first to fourth causes of action. The Fair Trading Act cause of action will therefore proceed to a hearing in the High Court.

7 The issues for determination on appeal are whether the High Court erred in its determinations that it was arguable:

• (i) Carter Holt owed a tortious duty of care to the respondents in respect of the pleaded loss for the purpose of the negligence claim.

• (ii) Carter Holt owed a duty of care to the respondents under the tort of negligent misstatement.

• (iii) Carter Holt owed a duty of care to the respondents under the tort of negligent failure to warn.

• (iv) Carter Holt had a claim under the CGA.

• (v) The longstop limitation period under s 393 of the Building Act did not apply to bar any part of the respondents' claim.

8 A second appeal relating to particulars was also filed in this Court. 7 This appeal was by the respondents against parts of Fogarty J's judgment ordering them to provide certain particulars of these claims. 8 Carter Holt cross-appealed against parts of a second judgment of Fogarty J, which declined to order the provision of further

particulars of certain other aspects of the claim. 9 We were informed during the hearing that both the appeal and the cross-appeal on these questions had been settled

Striking out

9 There was no dispute as to the law applicable to a strike-out application. This Court in Attorney-General v Prince & Gardner conveniently summarised the applicable principles: 10

• (a) A strike-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even though they are not or may not be admitted.

• (b) Before the court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed.

• (c) The jurisdiction is one to be exercised sparingly, and only in a clear case where the court is satisfied it has the requisite material to safely make a decision.

• (d) The fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction.

10 In a case where a novel duty of care is alleged, the court should be cautious about striking the claim out. 11 This is particularly true where the facts alleged in the statement of claim cover a range of different factual circumstances. Where potentially new duties of care are in issue in a strike-out context, a range of public policy questions are to be considered. Special care is warranted because the inquiry is to be made on the basis of as yet untested pleaded facts, as opposed to facts proved at trial.

11 This Court in Blain v Evan Jones Construction Ltd considered the approach to be taken in a strike-out application, where there was no existing duty of care owed by a building company to a local council.1 12 The Court said: 13

We remind ourselves that the issue before us is whether it is arguable that a duty of care is owed to the Council by [the building company]. We are not deciding whether such a duty is actually owed.

12 In the case of an application to strike out on the basis that a particular duty of care does...