The Minister of Education v Carter Holt Harvey Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeASHER J,Asher J
Judgment Date04 Apr 2014
Neutral Citation[2014] NZHC 681
Docket NumberCIV-2013-404-001899

[2014] NZHC 681

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Judges:

Asher J

CIV-2013-404-001899

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
Counsel:

J Farmer QC, NF Flanagan and KC Chang for Plaintiffs

DJ Goddard QC, RG Simpson and JQ Wilson for Defendant

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.

The issues were: whether Carter Holt owed a duty of care; whether the CGA applied; whether Carter Holt had made negligent misstatements; whether Carter Holt had a duty to warn and whether the claims were time barred under s393 BA 04,

Held: For Carter Holt to owe the plaintiffs a duty of care, the loss suffered by the plaintiffs as a result of Carter Holt's breach of that alleged duty of care had to be foreseeable. The foreseeability of the loss was clearly established. As the manufacturer of shadowclad, Carter Holt at the strike out stage, could be taken to be able to foresee that its product would be used as cladding and if the system leaked that could lead to the weakening and rotting of structures. Foreseeability must be grounded in a relationship of sufficient closeness, or proximity.

In discussing proximity, the obvious starting point was the BA 04. The 2004 Act and its forerunner, the Building Act 1991 (the 1991 Act), established the statutory framework for how building work was regulated in New Zealand. While all building work was required to comply with the requirements set out in the Building Code, both parties accepted that under both the 1991 and 2004 Acts, when Carter Holt manufactured and indirectly supplied the shadowclad it was not carrying out “building work” in terms of either of the Acts. While all building work was required to comply with the requirements set out in the Building Code, both counsel accepted that under both the 1991 and 2004 Acts, when Carter Holt manufactured and indirectly supplied the shadowclad it was not carrying out “building work” in terms of either of the Acts. There were no duties imposed on the supplier of building components by either Act.

While the absence of this factor indicating a duty of care was to be noted, it was far from determinative of the issue of proximity. The plaintiffs also relied on more general breaches of the relevant recognised building standards that applied in the industry at the relevant time. These included standards in documentation produced by industry bodies and industry authorities. They did not all derive from the BA 04 or the Building Code.

There were a number of cases which found there to be no duty of care because the parties had placed themselves in a position whereby their relationship was governed by contract. When commercial parties governed their relationship by contractual provisions, there was a greater reluctance to find the requisite proximity, and there might be policy reasons not to find a duty of care. On the face of it, it was open to the plaintiffs to protect themselves against defects in the cladding by contract. Although school boards were involved, the contract was essentially commercial.

While the contractual chain and commercial nature of the parties pointed against there being sufficient proximity, other factors, such as vulnerability, could point to there being sufficient proximity. The plaintiffs were vulnerable in the sense that they could not engage experts to inspect for defects as no defects were likely to have been apparent.

There was a considerable degree of commercial separation between the parties. In cases of indirect supply Carter Holt had no direct contact with the schools and indeed may have manufactured and supplied the product to wholesalers or building product stores years before the panels were acquired and used in the building, and those products may have passed through various hands. There was not enough evidence to indicate that the parties could have been reasonably expected to individually negotiate warranties to cover leaking panels. The relationship between the parties might be sufficiently proximate.

In New Zealand it was clear that the distinction between physical damage and economic loss was not critical in determining whether a duty of care was owed. In North Shore City Council v Body Corporate 188529 (Sunset Terraces) the interest of protecting the health and safety of non-owners was specifically recognised as relevant in assessing the existence of a duty of care. The Courts were concerned to protect the habitation interest of those who use buildings. It would generally be the case that in the context of leaky buildings the failure of materials or workmanship would not lead to direct physical damage. Nevertheless, such failures allowed damage to develop as a consequence of water ingress. Risks to the health of occupants followed. It was a factor that weighed in favour of finding a duty of care.

A further policy consideration was the impact of recognising a duty on other established areas of law and whether it would cut across those areas. Recognising a duty would not conflict with the BA. While manufacturing and supplying building products was not covered by the BA, it could be argued that because the Building Code established certain minimum performance-based requirements that relied on building elements functioning effectively, recognising a duty of care may assist with the functioning of the Building Code and BA.

There were a number of factors which militated against the finding of a duty of care. The decision as to whether there was a duty was finely balanced. Bearing in mind the recent warnings of the Supreme Court against precluding cases where the circumstances are capable of giving rise to a duty of care from going to trial, to the statement of claim or any portion of it in relation to this cause of action would not be struck out. It was s arguable that there was the necessary proximity between Carter Holt and the plaintiffs. While there was force in the policy argument of commercial certainty, this did not sufficiently militate against the possibility that a duty might be found.

“Supplier” under s2 CGA (interpretation) meant a person who, in trade supplied goods to a consumer by transferring the ownership. It was arguable that Carter Holt transferred the ownership or the possession of goods under a contract of sale, but when Carter Holt supplied the goods to a wholesaler, it did not supply them to a consumer. A consumer was defined under s2 CGA as a person who acquired from a supplier goods or services of a kind ordinarily acquired for personal, domestic consumption and did not acquire the goods for the purpose of resupplying them in trade. When Carter Holt supplied a wholesaler or any party who would re-supply the goods in trade, it was not supplying to a consumer.

Carter Holt did not become a supplier by indirectly supplying the plaintiffs. Such an argument ignored the definition of supplier in s2 CGA which required Carter Holt to have been a party to a contract through which the shadowclad was transferred to the plaintiffs. Only in cases of direct supply could Carter Holt have been such a party. Carter Holt did not act as an intermediary. It was the source of the goods.

However s6 CGA, s7 CGA and s13 CGA also applied to manufacturers. Carter Holt was as a manufacturer in that it carried out the business of assembling, producing or processing goods. The guarantee sections applied to a manufacturer when another person supplied the goods. Carter Holt was a manufacturer that produced goods and it was arguable that consumers who acquired those goods, with or without a direct contract with the manufacturer, could be the beneficiaries of the guarantees set out in the CGA. The fact that the goods might have been incorporated ultimately into whole buildings did not necessarily mean that the CGA could apply. In all the circumstances it cannot be said that the claims based on s6, s9 and s13 CGA were so clearly untenable that they could not possibly succeed.

Carter Holt submitted that to succeed in negligent misstatement the plaintiffs had to establish that there was a special relationship between Carter Holt and the plaintiffs, and that Carter Holt had assumed responsibility to the plaintiffs to take reasonable care concerning the truth of its statements about shadowclad. In the context of a supply of a specialist building product, the designer and manufacturer of a cladding system had a special skill which it could expect would be relied on in relation to the functionality and performance of the product. It was arguably foreseeable that consumers like the plaintiffs would rely on the statements as to quality and systems provided by Carter Holt. It could be established that, as a longstanding specialist manufacturer of building products, Carter Holt knew about the risk characteristics and had a duty to warn the plaintiffs about them.

A cause of action in negligent failure to...

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1 cases
  • Paine v Carter Holt Harvey Ltd
    • New Zealand
    • High Court
    • 11 Julio 2019
    ...86 Body Corporate 348047 v Auckland Council [2014] NZHC 2971 [ Imperial Gardens Apartments]. 87 At [12]. 88 At [12]. 89 Minister of Education v Carter Holt Harvey Ltd [2014] NZHC 681 and Minister of Education v James Hardie New Zealand [2014] NZHC 90 Court of Appeal (Civil) Rules 2005, r 1......

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