Carter Holt Harvey Ltd v Minister of Education

• Jurisdiction: New Zealand
• Judge: O'Regan J
• Judgment Date: 29 July 2016
• Neutral Citation: [2016] NZSC 95
• Docket Number: SC 93/2015
• Court: Supreme Court
• Date: 29 July 2016

BETWEEN

Carter Holt Harvey Limited

Appellant

and

Minister of Education

First Respondent

Secretary for Education

Second Respondent

Ministry of Education

Third Respondent

Board of Trustees of Orewa Primary School

Fourth Respondent

[2016] NZSC 95

Elias CJ, William Young Glazebrook, Arnold and O'Regan JJ

SC 93/2015

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Appeal against a Court of Appeal (CA) decision refusing to strike out causes of action in negligence and negligent failure to warn – cross-appeal by the respondents in relation to the CA's decision to strike out a negligent misstatement claim – the appellant manufactured cladding sheets and cladding systems that had been installed in various schools throughout New Zealand which were owned or administered by one or more of the respondents – a large number of school buildings had been affected by weathertightness issues and it was alleged that those problems had arisen because the cladding sheets and cladding systems supplied by the appellant were defective – whether the appellant owed the respondents a duty of care – whether the appellant had a duty to warn – whether the respondents' claims in negligent misstatement were arguable – whether s393 Building Act 2004 (“BA”) (limitation defences) applied to the respondents claims.

Apperances:

D J Goddard QC I M Gault and J Q Wilson for Appellant

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

• A The appellant's appeal is dismissed.

• B The respondents' cross-appeal is allowed.

• C The order striking out the negligent misstatement cause of action is quashed.

• D The appellant must pay to the respondents (collectively) costs of $45,000 and reasonable disbursements, to be fixed if necessary by the Registrar.

JUDGMENT OF THE COURT

REASONS

(Given by O'Regan J)

Table of Contents

The respondents' claims	[1]
Grounds of appeal	[5]
Pleaded defects	[7]
Pleaded loss	[9]
Strike-out principles	[10]
Are the respondents' claims in negligence arguable?	[13]
Is it arguable that CHH owes the respondents a duty of care?	[14]
Proximity	[16]
The parties' relationship	[17]
Contractual matrix	[20]
Statutory framework	[29]
Vulnerability	[43]
Conclusion on proximity	[56]
Policy factors	[57]
Incoherence, commercial certainty and contractual chains	[59]
Loss and damage claimed	[63]
Health and safety	[69]
Statutory framework	[71]
Conclusion on duty of care	[72]
Is it arguable that CHH had a duty to warn?	[73]
Are the respondents' claims in negligent misstatement arguable?	[78]
Does s 393 of the 2004 Act apply to the respondents' claims?	[86]
Meaning of the words	[90]
Scheme of the Act	[98]
The nature of the claim	[101]
Statutory history	[105]
Particular building	[109]
Case law	[112]
Anomalous results	[116]
Position of regulatory	[122]
Contribution	[126]
Conclusion on s 393(2)	[129]
Result	[132]
Costs	[133]

The respondents' claims

1 The appellant, Carter Holt Harvey Limited (CHH), manufactures cladding sheets and cladding systems that have been installed in various schools throughout New Zealand owned or administered by one or more of the respondents. The cladding sheet product is known as “Shadowclad”. The respondents say that a large number of school buildings have been affected by weathertightness issues and allege that these problems have arisen because the cladding sheets and cladding systems supplied by CHH are defective. 1

2 The respondents commenced proceedings against CHH. 2 There are five causes of action against CHH:

• (a) A claim in negligence in relation to the design, manufacture and/or supplying of defective cladding sheets and cladding systems.

• (b) Breach of the guarantees in ss 6, 9 and 13 of the Consumer Guarantees Act 1993.

• (c) Negligent misstatement in promotional material relating to the cladding sheets and cladding systems.

• (d) Negligent failure to warn about the risk characteristics of the cladding sheets and cladding systems.

• (e) Breach of s 9 of the Fair Trading Act 1986 by the provision of misleading or deceptive information about the nature, characteristics and suitability of the cladding sheets and cladding systems.

3 CHH applied to the High Court for an order striking out the causes of action described in (a)–(d) of [2] above. It did not seek to strike out the Fair Trading Act cause of action. The case came before Asher J. He dismissed the application to strike out the claims and ruled that all claims should go to trial. 3 In doing so, he

concluded that the “long stop” limitation provision in s 393 of the Building Act 2004 (the 2004 Act) did not apply in relation to the respondents' claims. 4

4 CHH appealed to the Court of Appeal. The appeal failed, except in relation to the negligent misstatement action which was struck out by the Court of Appeal. 5 The Court of Appeal also found that s 393 of the 2004 Act did not apply to the respondents' claims. 6

Grounds of appeal

5 CHH now appeals, with leave, to this Court against the refusal by the Court of Appeal to strike out the actions in negligence and negligent failure to warn, while the respondents cross-appeal in relation to the Court of Appeal's decision to strike out the negligent misstatement claim. This Court gave leave to appeal and cross-appeal. The approved grounds were whether the Court of Appeal was correct to conclude that: 7

• (a) the claims in negligence are arguable;

• (b) the claims for negligent misstatement are not arguable; and

• (c) s 393 of the 2004 Act does not apply to the respondents' claims.

6 CHH did not seek leave to appeal against the decision of the Court of Appeal refusing to strike out the cause of action based on the Consumer Guarantees Act.

Pleaded defects

7 The basis of the respondents' claim is that the cladding sheets and cladding systems manufactured, promoted and supplied by CHH contain inherent defects which cause damage to the buildings on which the cladding sheets are installed. The alleged defects include:

• (a) The preservative treatment is below the level required by the relevant standard and insufficient to prevent fungal rot.

• (b) The cladding sheets are inherently prone to absorbing significant amounts of moisture. In part this is because the end grains are exposed on all edges of the sheets. It is alleged that the absorbed moisture then gets transferred to the adjacent timber framing and building papers. This occurs because the cladding sheets have, in almost all cases to which the claim relates, been attached directly to the framing, rather than with the allowance of a cavity to allow moisture absorbed into the product to escape. 8

• (c) Aspects of the cladding system allow water to penetrate behind the cladding sheets.

8 It is alleged that not only do the cladding sheets cause damage to buildings, but they also provide an environment in which fungal spores can grow, which can be harmful to human health when inhaled.

Pleaded loss

9 The losses claimed by the respondents include:

• (a) The cost of repairing and replacing the cladding sheets. This is said to be necessary in order to prevent the defects in the cladding sheets leading to damage to the school buildings and/or posing a health risk.

• (b) The cost of repairing and replacing structural and other elements that have been damaged through the transference of moisture from the cladding sheets.

• (c) Damages associated with preventing interference with the health and safety of children and staff at the affected schools.

• (d) The diminution in value of school buildings (claimed as alternatives to the claimed losses in (a), (b) and (c) above).

Strike-out principles

10 There was no dispute as to the law applicable to strike-out applications, which is conveniently summarised in Attorney-General v Prince and Gardner. 9 There have been a number of expressions in judgments of this Court of the need for caution about striking out negligence claims in circumstances where a novel duty of care is alleged, particularly where the facts alleged in the statement of claim cover a range of different factual circumstances. 10 CHH's arguments are based on the premise that a duty of care would be novel in the present case, so those words of caution clearly apply.

11 Many of CHH's arguments are variations on arguments made (and rejected) in the earlier cases before this Court where this Court ruled that striking out the claims would be inappropriate and gave the warnings mentioned above. That suggests that, contrary to CHH's submissions, the duty of care said to arise in the present case is not novel, given the decisions of this Court in negligence cases decided over the last 10 years. 11 Rather, the case relates to the limits in the duty recognised by this Court in Spencer on Byron. That requires a close analysis of the facts, which makes the case unsuitable for resolution in an application to strike out.

12 The need for caution in relation to strike out applications does not arise in relation to the proposed limitation defence based on s 393 of the 2004 Act because it is a question of law that can be resolved at the strike-out stage.

Are the respondents' claims in negligence arguable?

13 The Court of Appeal found that it was arguable that CHH owed a duty of care to the respondents and also found there was an arguable duty to warn. It refused to strike out the claims for alleged breaches of those duties. We will deal with the duty of care issue first. The duty to warn issue can then be dealt with briefly.

Is it arguable that CHH owes the respondents a duty of care?

14 It was common ground in this Court, as it had been in the High Court and Court of Appeal, that the approach to...