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Do suppliers and appraisers of cladding products owe a duty of care?

03-Apr-2017

The cladding of numerous properties throughout New Zealand, predominantly built in the 1990s and 2000s, has failed leaving homeowners facing a huge bill and emotional turmoil. Sometimes defects and damage are not discovered until over ten years after the property was constructed; leaving the owners unable to sue the councils, builder and other construction parties involved. However, cladding manufacturers and appraisers can still probably be pursued.        

Ten year limitation period under the Building Act 2004

Under the Building Act 2004 homeowners have ten years within which to sue the construction parties.

In Thomson v Christchurch City Council[1]  the homeowner claimants appealed the decision of the Tribunal not to join the cladding manufacturer, Equus Industries Ltd. The court found that there was a tenable argument that the ten year long stop did not apply to the manufacturer’s production of specifications. The cladding manufacturer was joined as a respondent in the Weathertight Homes Tribunal (the Tribunal) claim.

The High Court, Court of Appeal and Supreme Court in Carter Holt Harvey Ltd v Minister of Education[2] have found that this ten-year limitation period does not apply to a cladding manufacturer.

Fifteen year limitation period under the Limitation Act 2010

Under the Limitation Act 2010 an additional fifteen-year limitation longstop also applies.[3] Therefore, owners of homes built within the last fifteen years can still file court proceedings against product manufacturers. ­

Duty of care of an product manufacturer ­­

The founding father of negligence is Donoghue v Stevenson [1932] AC 562. Donoghue v Stevenson found that a manufacturer of products, sold so that the products reach the consumer in the form in which they left with no reasonable possibility of intermediate examination, owes a duty to the consumer to take reasonable care.

In Body Corporate 192346 v Symphony Group[4] Plaster Systems Limited applied, in part, to have the claim against it struck out. At paragraph 36 the court found that there was an arguable duty of care for Plaster Systems to ensure compliance with the Building Code, consistent with the obligations in the Plaster Systems guarantee.

The Tribunal has found in a procedural order that a cladding manufacturer owes a duty of care.[5]

In Auckland Council v Abraham[6] the council appealed the decision of the Tribunal not to join the cladding manufacturer Plaster Systems Limited as a respondent to the High Court. The court focused on the alleged inherent defect within the cladding system, the failure of the jamb/sill junctions due to the failure of the silicone sealant to adhere to the corner soakers, which the court said was tenable. The court did not consider whether a duty of care would be owed.

In the Supreme Court decision in Carter Holt Harvey Ltd v Minister of Education the Minister of Education came away with the win. The Supreme Court largely agreed with the Court of Appeal’s reasoning and concluded it was arguable that Carter Holt owed a duty of care, and that the determination of whether Carter Holt owed a duty should be resolved at trial. The Supreme Court said negligent misstatement needed to be decided after hearing the evidence and this cause of action, which the Court of Appeal had struck out, came back in.

Counsel for Carter Holt, Mr Goddard, raised two anomalies that he said could arise with the ten year limitation period not applying to product manufacturers: [7]

(a) Firstly, the treatment of an architect who prepares plans for a single house and an architect who prepares plans for a standard house to be built by a large construction company for numerous future clients. Mr Goddard said if each architect made the same error in their design, and were then sued by the owner of the affected houses, the architect of the single house would be able to rely on the ten year limitation but the architect who did not perform work on a specific building could not. 

(b) Secondly, a manufacturer of kitset buildings where the kitset components are manufactured in a factory process for onsite assembly by builders. Mr Goddard said that if the manufacturer made the components to order for a specific property, it would have the benefit of the ten year long stop, but if it made the without any particular property in mind at the time of manufacture, it would not.

The court said that there could be some arbitrariness in the scope of the longstop provision. But that was a consequence of a line being drawn and wherever that line is drawn, those falling outside it will argue there is unfairness.

In my opinion the line would be relatively simple to draw. For the two examples given, technical information or plans drawn by an architect or kitset home supplier for a specific property, or a specific group of properties, would be covered by the ten year long stop. Technical information or plans supplied that do not attached to a specific property, or a specific group of properties, would NOT be covered by the ten year long stop.

This touches a separate issue. The court has classified Shadowclad as the supply of a product; being the plywood sheeting. Many cladding manufacturers are more like a supplier of a collection of products and tools, with a generic guide on how to put the products together (a kit set almost but where things are bought separately). In my opinion a cladding manufacturer is likely to be found, after a full trial, to owe a duty of care for the generic supply of those products: the cladding, accessories and technical information.

Duty of care of a product appraiser

The Court of Appeal found in the decision of Struthers v Patterson Co-Partners Architects Limited[8] that an appraiser of construction products in New Zealand, BRANZ Ltd (BRANZ), does not owe a duty of care to homeowners. The negligence claims were strike out, the Fair Trading Act cause of action was not.

In the Australian decision of Bathurst Regional Council v Local Government Financial Services Pty Ltd[9] local councils pursued a number of parties including ratings agency Standard and Poors for financial products that had performed poorly during the economic downturn. The causes of action included negligence and negligent misstatement. The Federal Court in Australia found Standard and Poors were liable for the losses of the local councils.

There are similarities between the situation of Standard and Poors and BRANZ. Both were paid a fee, and for that fee they undertook steps that they deemed appropriate to appraise a product[10] and issued an appraisal. BRANZ appraisals reviewed various construction products and provided BRANZ’s expert appraisal of the product. If BRANZ had not taken adequate steps, or if it had made mistakes, upon which it made statements in an appraisal which were found to be incorrect, then it seems illogical that BRANZ does not owe a duty of care to construction parties that specifically relied on those statements causing them loss. However, that is the current status of the law.

Summary

In summary, in the writer’s opinion, the courts in New Zealand are highly likely to find that cladding manufacturers owe a duty of care for the generic manufacture and supply of cladding products or systems. The law, as it currently stands care of the High Court, is that a cladding appraiser will not owe a duty of care for appraisals of cladding products. The writer considers that there is considerable scope to argue that a duty of care should be imposed, and if such a matter was to find its way to the Court of Appeal or Supreme Court a duty of care would be likely to be found. 
 

[1] Thomson v Christchurch City Council HC Chch CIV-2010-409-002298 [28 March 2011]

[2] Minister of Education v Carter Holt Harvey Ltd [2014] NZHC 681, Carter Holt Harvey Ltd v Minister of Education & Ors CA420/2013 [2015] NZCA 321

[23 July 2015], and Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95 [29 July 2016]

[3] Section 23B and 62, The Limitation Act 2010

[4] Body Corporate 192346 and Ors v Symphony Group and Ors HC AK CIV-2004-404-2323 November 2005

[5] Sauvarin v Auckland Council

[6] Auckland Council v Abraham & Ors [2015] NZHC 622 [31 March 2015] and in particular paragraph 35.

[7] At paragraph 117 to 120 of the Supreme Court decision.

[8] Struthers v Patterson Co-Partners Architects Limited And Ors HC AK CIV-2003-4043232 [30 May 2007]

[9] Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200

[10] A financial product (Standard & Poors) and a construction product (BRANZ).