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.

Hot tips for body corporate remediation projects

A major repair or renovation to an apartment building is a significant undertaking which requires careful planning, clear lines of communication and specialist expert advice.

There is a lot at stake for the owners. A well-managed remediation project will take less time, enhance the reputation of the building and add value to the apartments. A poorly managed project can lead to incomplete repairs and years of delay and frustration.

Here are 10 hot tips for bodies corporate undergoing remediation or renovation projects:

• Take independent building advice. The body corporate should take advice on building defects and remediation options from independent building professionals. Avoid taking informal advice from others such as the developer or members of the body corporate.

• Beware of targeted repairs. There can be a temptation to undertake ‘targeted’ or ‘patch’ repairs which are cheaper but essentially cover over problems and do not address the underlying issues. These repairs often fail and result in the need for further repairs in the future. Seek confirmation the proposed repairs will be durable in the long term.

• Obtain advice on claim options. Consult legal advisors who specialise in building defect claims to identify whether you have a claim against those involved in the construction or certification of the complex for the cost of repair works. All claims are subject to strict limitation periods, so legal advice should be sought as soon as possible.

• Get the owners on board. Any remediation project needs the support of the owners. This means satisfying the owners the work is necessary and there is a commercial benefit in undertaking the work. Provide a valuation report which sets out the potential capital gain and a business plan with details of the estimated cost and timing of the repair project.

• Apply for a section 74 scheme. Engage lawyers to apply to the High Court for a repair scheme under section 74 of the Unit Titles Act. This will clarify the basis upon which owners are to be levied for the work and authorise the body corporate to undertake work to both unit and common property, amongst other things. The scheme provides an assurance the project will proceed in an organised and professional manner.

• Engage a body corporate manager with experience in remediation projects. Body corporate managers who have managed other remedial projects are familiar with the issues that are likely to arise, know the best experts, will have systems that can be used to manage the project and can provide useful advice to owners throughout the project.

• Put in place clear lines of responsibility. The contractual arrangements between the body corporate, the building professionals and the head contractor are important. Seek legal advice in relation to the contracts. Ensure there is a clear understanding as to the responsibilities of each building professional and who ultimately oversees the work.

• Appoint an owners representative. An owners representative fulfils an important role in liaising between the building professionals and the owners. He or she provides important information to the owners, such as when they need to vacate their apartments, and can assist with other matters such as finance and alternative accommodation options.

• Provide regular updates. The body corporate should provide regular updates to the owners so they have a clear understanding of how the project is progressing and have up to date estimates of the costs and timing of the work. Reports from the building experts should be provided to explain any significant changes in the scope of the work.

• Resolve disputes quickly. If disputes between the body corporate, building professionals and/or the head contractor develop it can result in significant delays to the project or at the conclusion of the project the body corporate may have difficulties obtaining the producer statements it needs from contractors. Address any disputes which arise as soon as possible, and where necessary invoke the dispute resolution process in the contract.

Grimshaw & Co regularly acts for bodies corporate undergoing remedial work projects. We are experts in building defect claims, construction contract disputes, section 74 schemes and the Unit Titles Act 2010. Call us on 09 377 3300 for practical expert advice.

Warning signs emerge regarding viability of building guarantee schemes

MBIE’s Building System Legislative Reform Package includes a proposal to require compulsory guarantee and insurance products (GIPs) for residential new builds and significant alterations. In August 2019 MBIE published a summary of the public submissions on its Reform Package. 76% of submitters supported the proposal to require GIPs, although some submitters expressed doubts that the insurance market would be prepared to support the proposal and others suggested Government involvement by way of a backstop cover.

The reservations expressed by some of the submitters has been borne out in recent news reports in New Zealand and Australia which cast doubt as to whether building guarantee schemes of this type are financially viable.

The Sydney Morning Herald recently reported that the New South Wales Government paid out more than $200 million in one year to prop up a home warranty scheme with further increases expected. The scheme enables owners of homes and apartment buildings of 3 levels or less to make an insurance claim in respect of defects if the builder becomes insolvent, dies, disappears to has their license suspended. The premiums are paid by builders but over time these have been insufficient to meet claims. In 2010 the NSW stepped in to cover unfunded claims and it has since amassed more than $639 million liabilities. There is no warranty scheme for apartment buildings above 3 levels as both private insurers and the government pulled out due to the risk in 2003.

More recently the Stuff website reported two private guarantees offered by New Zealand building companies, the Stamford Insurance 10-year new build guarantee and the New Zealand Certified Builders’ Halo 10-year guarantee, have lost their underwriter and cover will end when the policies expire in December 2019 and January 2020. This has led to some calls for a mandatory nationwide warranty of the type being investigated by MBIE.

In view of New Zealand’s record of poor building work over the last 30 years the prospects of private insurers providing long term cover, whether for private guarantee schemes or industry wide compulsory guarantees, appears to be slim. That leaves the Government as the only funding option, but there is unlikely to be much appetite for taxpayers to foot the bill for the indeterminate liability it would face. If and when the reputation of the New Zealand’s building industry improves insurance cover may become available but that is unlikely to be for some time.

In the meantime, a more productive focus for regulatory reform is likely to be the strengthening of the processes within building consent authorities to ensure everything possible is being done to avoid defective building work in the first place.

Grimshaw & Co are experts in all aspects of building defect law. Email Gareth Lewis on gareth.lewis@grimshaw.co.nz for assistance.