The Minister of Education v Carter Holt Harvey Ltd

• Jurisdiction: New Zealand
• Judge: ASHER J
• Judgment Date: 04 April 2014
• Neutral Citation: [2014] NZHC 681
• Docket Number: CIV-2013-404-001899
• Court: High Court
• Date: 04 April 2014

Under the Consumer Guarantees Act 1993, the Fair Trading Act 1986, and the Building Act 2004

BETWEEN

The Minister Of Education

First Plaintiff

The Secretary For Education

Second Plaintiff

The Ministry Of Education

Third Plaintiff

Board Of Trustees Of Papatoetoe West School

Fourth Plaintiff

Board Of Trustees Of Howick Intermediate School

Fifth Plaintiff

Board Of Trustees Of New Plymouth Boys' High School

Sixth Plaintiff

Board Of Trustees Rototuna Primary School

Seventh Plaintiff

and

Carter Holt Harvey Limited

Defendant

[2014] NZHC 681

Judges:

Asher J

CIV-2013-404-001899

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application to strike out the first plaintiff's claims concerning leaky school buildings — first plaintiff alleged the defendant manufacturer's cladding sheets and cladding systems installed in various school buildings throughout New Zealand were defective — first plaintiff claimed negligence, negligent misstatement and breach of the Consumer Guarantees Act 1993 (CGA), Fair Trading Act 1986 and Building Act 2004 — whether the defendant owed the plaintiff a duty of care — whether defendant was a supplier under the CGA — whether supply of building materials constituted “building work” under s393 Building Act 2004 (limitation defences) and consequently was time barred.

Counsel:

J Farmer QC, NF Flanagan and KC Chang for Plaintiffs

DJ Goddard QC, RG Simpson and JQ Wilson for Defendant

JUDGMENT OF ASHER J

This judgment was delivered by me on Friday, 4 April 2014 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Table of Contents

Para No
Introduction	[1]
Strike out principles	[6]
First issue – negligence	[10]
Foreseeability	[12]
Proximity	[15]
(a) The Building Acts and the Building Code	[16]
(b) The contractual relationship between the parties	[24]
(c) Vulnerability	[42]
(d) Conclusion on proximity	[47]
Policy considerations
(a) Damage to buildings and health	[50]
(b) Unfair apportionment of responsibility	[57]
(c) Commercial certainty	[60]
(d) Cutting across other areas of law	[65]
(e) Concluding analysis on duty of care	[68]
Second issue – the Consumer Guarantees Act
The issues	[74]
“Supplied” to a consumer?	[79]
Carter Holt as “manufacturer”	[85]
Are the items that were supplied “goods”?	[87]
Conclusion on CGA claim	[92]
Third issue – negligent misstatement	[94]
Fourth issue – negligent failure to warn	[99]
Fifth issue – are the proceedings time barred?
Key provisions	[104]
Purpose and policy of the Act	[111]
The words “relating to”	[124]
Work on a specific building	[128]
Other cases	[135]
Overview	[143]
Summary of conclusions	[150]
Result	[153]

Introduction

1 The plaintiffs own or administer various schools in New Zealand affected by weathertightness failures. They have issued proceedings against the four defendant manufacturers alleging that the cladding sheets and cladding systems 1 installed in various school buildings throughout New Zealand are defective. The defendants have applied to strike out the proceeding.

2 At the outset of the proceedings the first, second and fourth defendants advised the Court that the cases against them had been settled and they did not pursue the strike out application, which is now supported only by the third defendant, Carter Holt Harvey Ltd (Carter Holt).

3 Carter Holt is a producer of plywood cladding sheets. These are used by builders and designers in the construction of the exterior walls of buildings. The Carter Holt cladding product that is the subject of the claim is called “shadowclad”. This cladding has been used in building numerous school buildings. The plaintiffs assert that shadowclad and the “system” supplied with it are inherently defective and causes damage because shadowclad allows water to enter. 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 can be installed with the cladding sheets.

4 The plaintiffs allege five causes of action against Carter Holt:

• (a) First cause of action: Carter Holt was negligent in designing, manufacturing, importing, and/or supplying the cladding sheets and cladding systems that were defective. It is alleged that the defendants owed a duty of care to the plaintiffs “to design, manufacture by import, and supply cladding sheets for use on the school buildings that complied with recognised Building Standards, the Building Code

  requirements and the Building Acts.” Various facts and circumstances are set out from which it is alleged the duty of care arises.

  Carter Holt says this cause of action cannot succeed because Carter Holt was not sufficiently close and proximate in its supply of the shadowclad and the system. Carter Holt itself did not perform building work and simply supplied cladding sheets as part of a contractual chain. Even if there was sufficient proximity, it is submitted that policy reasons would militate against recognising a duty of care;

• (b) Second cause of action: Carter Holt breached the guarantees set out in ss 6, 8, 9 and 13 of the Consumer Guarantees Act 1993 (CGA). Carter Holt submits that the CGA does not apply to the supply of the cladding through third parties to the plaintiffs. It is submitted there was in fact a supply of a building or buildings by third parties, and such supplies do not fall under the CGA;

• (c) Third cause of action: Carter Holt negligently misstated the nature, characteristics and suitability of the cladding sheets and cladding system. Carter Holt says that no duty to take care arose in relation to the statements made by them to the plaintiffs;

• (d) Fourth cause of action: Carter Holt negligently failed to warn the plaintiffs about the risk characteristics of the cladding sheets and cladding system that could cause damage to the plaintiffs' buildings. Carter Holt asserts that no such duty arises; and

• (e) Fifth cause of action: 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 system. This claim was not the subject of the strike out submissions.

5 In addition to submitting that none of the first four causes of action could succeed, Carter Holt argued that the claims in negligence are subject to the 10 year long stop limitation in s 393 of the Building Act 2004.

Strike out principles

6 The principles that govern the determination of a strike out application are well established and do not need to be set out in detail. 2 In summary:

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

• •The jurisdiction is to be exercised sparingly, and only in a clear case where the Court is satisfied it has sufficient material to safely make a decision.

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

• •The Courts should be cautious to strike out a claim alleging a novel duty of care. This is particularly so where the hypothetical facts cover a range of factual possibilities. In that context, deciding wide public policy questions may lead to an unfocussed approach because the inquiry is then set against too broad a factual canvas.

7 Where an order for strike out is sought on the basis that a particular duty of care does not exist, it has been held by the Supreme Court that the question for the Court is: 3

[W]hether the circumstances relied on by the plaintiff are capable of giving rise to a duty of care …. If a duty of care cannot confidently be excluded, the claim must be allowed to proceed. It is only if it is clear that the claim cannot succeed as a matter of law that it can be struck out.

…

The case must be ‘so certainly or clearly bad’ that it should be precluded from going forward. Particular care is required in areas where the law is confused or developing.

8 The Court of Appeal considered the approach to a strike out application where there was no existing duty of care owed by a building company to a city council in Blain v Evan Jones Construction Ltd. 4 The Court of Appeal observed: 5

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

9 Where the parameters of a duty of care are developing, as is the case in relation to liability for leaky buildings, a Court should be cautious of pre-empting a full contextual analysis of duty of care issues which can only occur at a trial.

First issue – negligence

10 The plaintiffs claim that Carter Holt owes the plaintiffs a duty of care in designing, manufacturing and supplying the cladding sheets and cladding systems to be used in schools. Carter Holt denies that it owes the plaintiffs such a duty. The central question when deciding whether a novel duty of care should be recognised in New Zealand is whether, “in light of all the circumstances of the case, it is just and reasonable that such a duty be imposed.” 6

11 In determining whether it is just and reasonable to impose a duty of care, the courts in New Zealand have adopted a two stage framework as set out in South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd (South Pacific) 7 and Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd (Rolls-Royce). 8 The Court considers first whether the loss was foreseeable and whether there is a sufficient relationship of proximity such that in

the contemplation of a wrongdoer, carelessness on...