James Hardie cladding systems on trial

Since the early 2000s, some building experts have claimed that James Hardie cladding systems marketed and sold from the 1990s are defective. These experts say the systems allow water ingress and require installation methods that cannot practically be achieved in real world conditions.

James Hardie has always argued there is nothing inherently wrong with its cladding systems and that installation failures and poor workmanship are to blame for the weathertightness failures in houses clad with James Hardie products.

Wherever the truth lies, thousands of homeowners throughout New Zealand with homes clad in James Hardie products such as ‘Harditex’ fibre cement cladding sheets have discovered their homes are subject to weathertightness failures and decay damage. They are required to reclad their homes at significant cost, often several hundred thousands of dollars.

Many owners, whose homes were signed off by a council and were still within the 10 year limitation period, took Court action against the council and others involved in the construction to recover compensation. Other owners were left with the option of a claim against James Hardie as manufacturer of the cladding systems.

Two groups of claimants formed to bring claims against James Hardie, a group of 144 homeowners in Wellington and a larger group in Auckland comprising the owners of 1,236 residential homes, 5 commercial buildings and 5 retirement villages.

In August 2020 the stage 1 trial of the Wellington claim commenced in the High Court. The stage 1 trial will determine whether James Hardie owed a duty of care to the owners, if so whether that duty was breached and whether James Hardie made misleading statements in its technical literature.

Grimshaw & Co Partner Gareth Lewis advises: “In view of recent developments in tort law there are good arguments to say James Hardie owed a duty of care to the homeowners.” If James Hardie is found liable there will need to be a stage 2 trial in which the Court determines whether any shortcomings in the cladding systems contributed to the water ingress and damage on the facts of each case and, if so, to what extent. According to Mr Lewis “this second stage could be a drawn-out process as experts often find multiple causes of moisture entry and damage in leaky homes and these would need to be taken into account in determining whether James Hardie caused loss.”

The High Court decision on the Wellington claim is likely to be issued in early to mid-2021.

The larger Auckland based claim is brought against more companies in the James Hardie group and is due to proceed to a stage 1 trial in May 2021, on similar terms to the Wellington claim.

Grimshaw & Co are experts on building defect claims, construction disputes and Construction Contracts Act adjudications. Call us on 09 377 3300 for specialist assistance.

Covid-19: Suspension of Construction Contracts

The Covid 19 lockdown resulted in many contractors and property owners examining the provisions of their construction contracts in order to check the circumstances in which the contract may be suspended and the implications of a suspension for both parties.

The most common form of contract used for large construction projects in New Zealand is NZS 3910:2013. Clause 6.7.1 of the General Conditions states:

“If the suspension of the whole or a part of the Contract Works becomes necessary, the Engineer shall instruct the Contractor in writing to suspend the progress of the whole or any part of the Contract Works for such time as the Engineer may think fit, and the Contractor shall comply with the instruction”.

When the Alert Level 4 took effect many contractors asked the Engineer to the contract to suspend the contract works under clause 6.7.1 on the basis laws passed by the Government prevented the contractor from continuing work. These laws included amendments to the Health Act to give the Government powers to stop the spread of infectious diseases, an Epidemic Notice under the Epidemic Preparedness Act 2006 and a Health Order issued under the Health Act. These measures required that all premises close (excluding houses and essential businesses amongst other things) and prevented people from congregating in outdoor places.

The list of “essential businesses” included “Tradespeople” but only in respect of “maintenance if it is to maintain the necessities of life or critical to safety. This includes electricians, plumbers and builders.” Most building projects contracts did not fall into that category and could not continue.

Clause 6.7.3 of NZS 3910:2013 states unless the suspension is due to default on the part of the Contractor, the suspension is to be treated as a Variation. Clause 5.11.10 also states that a Variation arises when the Government passes laws that increases the cost of performing the contract to the contractor. The Variation is to be valued in accordance with clause 9.3 and the Engineer is to grant an extension of time to the contractor for the net effect of the Variation under Clause 10.3.1.

Under clause 9.3 the contractor is to notify the Engineer of any Variation claim within 1 month of the Engineer issuing the suspension notice (9.3.2). A Variation claim arising from the lockdown would likely include time related costs including off-site and on-site overheads and profit for the period of the suspension. Where the contract includes a schedule of prices with applicable rates, including working day rates, these would apply. Otherwise, the formulas set out in clause 9.3 for determining time-related costs are used.

The assessment of the contractor’s time related costs during the Alert Level 4 period is likely to be an area of dispute between contractors and owners. The extent to which problems may arise will depend on whether the relevant rates are clearly stated in the Special Conditions of Contract and the ability of the parties to work together to resolve any differences. Covid 19 is an extraordinary event and it will require collaborative approach from contractors and owners in order to resolve the issues arising from the lockdown. If this is not possible, the adjudication process in the Construction Contracts Act is available for the parties to resolve their differences.

Grimshaw & Co regularly acts for contractors, property owners and bodies corporate in construction contract disputes and adjudication claims under the Construction Contracts Act. Call us on 09 377 3300 for practical expert advice on how to manage your dispute.