Court of Appeal rules that leaky building claims against James Hardie can proceed

The Court of Appeal has released its long-awaited decision, confirming that claims brought against four operating companies and three holding companies in the James Hardie group may proceed.

Background to the claim

The claimants are past or present owners of homes, commercial buildings and retirement villages which have all been clad with exterior cladding products manufactured and supplied by James Hardie. The claimants allege that the James Hardie products were defective, not watertight, and failed to comply with the prevailing building standards.

Proceedings have been brought against a range of companies, including the ultimate parent company, James Hardie Industries Plc (JHI). The holding company defendants, including JHI, challenged the claim on the basis that "since they did not manufacture, market or supply the allegedly defective products, the claimants cannot succeed against them."

Negligence

First, the Court of Appeal considered whether a holding company can owe a duty of care to those who have used a product manufactured by the holding company's subsidiaries. The Court noted that:

"The application of principles emerging from three separate lines of authority are at issue on this appeal. The first is to do with the principle of separate legal personality for corporate entities; the second, the circumstances in which a duty of care will be imposed; and the third, linking the first two together, is a line of authority as to the circumstances in which a parent company may owe a duty of care to those affected by the actions and omissions of its subsidiary."

The Court of Appeal confirmed that generally a parent company would not be liable for its subsidiaries. The Court remarked that "the principle that a company must be treated like any other independent person with rights and liabilities appropriate to itself extends to groups of companies", and that "something more than ownership, and the ability to control which comes with that, is needed to justify the imposition of a duty of care in the circumstances of this case".

If the requisite extent of control can be shown, the next step is to determine whether the holding companies can owe a duty of care. To impose a novel duty of care, the Court of Appeal followed the Supreme Court's decision in North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341, requiring the party alleging the duty of care to show:

the loss was a reasonably foreseeable consequence of the...