Taking on the ‘Killer Company’
On the eve of a massive $220m class action in the High Court over the long-running issue of leaky homes, Rob Stock recounts the troubled story of James Hardie.
Hamiltonian David Musgrave is among the roughly 1000 owners of leak-prone homes taking part in a $220 million class-action lawsuit against building materials maker James Hardie.
When the case begins tomorrow in the High Court at Auckland, the homeowners will argue James Hardie’s Harditex cladding system was defective, which the company denies.
They also argue that James Hardie knew, or ought to have known, its system was defective, but kept supplying it.
For Musgrave, owning a home clad with James Hardie’s panels has been life-changing, blighting his retirement.
Musgrave intended to sell the home and move to the Bay of Islands to retire, but nobody will buy it.
‘‘I tried to sell it, and was hoping to move north, but people just take one look at the materials, and they don’t want a bar of it,’’ he says.
‘‘I’m basically stuck in Hamilton. It’s changed the course of my life. It’s like having a brick tied around your neck when you’re trying to swim.’’
In a statement, James Hardie said: ‘‘We are deeply sympathetic to the homeowners and appreciate how difficult this situation must be for those who have been negatively impacted by weathertightness issues’’.
But, it said: ‘‘James Hardie is defending the claim because it firmly believes the allegations made against it lack merit. James Hardie believes it always behaved as a responsible manufacturer. James Hardie does not consider it appropriate to comment in any further detail on the White litigation when it will very shortly be before the court.’’
Musgrave is looking forward to the homeowners getting their day in court, and hopes it reminds everyone else in New Zealand that the legacy of the leaky building scandal remains, and that many leaky, and potentially leaky buildings, are yet to be fixed.
‘‘A lot of New Zealanders think it’s all in the past, and that we have moved on, and that no-one is suffering any more, but that’s not true.’’
It’s been a long wait for the homeowners, who filed their action in 2015.
Some had not lived long enough to get their day in court, and some owners represented by deceased estates, said organising lawyer Adina Thorn.
The compensation the homeowners are seeking dwarfs James Hardie’s sales in New Zealand, which its latest accounts put at US$72 million (about NZ$100m) in the 12 months to the end of March 2020.
The directors who signed off the accounts acknowledged the potential impact on the company of losing the case. It is now headquartered in Dublin, Ireland, despite its shares being listed on the ASX sharemarket.
’’Although it is impossible to predict the outcome of any pending legal proceeding, management believes that such proceedings and actions should not, individually or in the aggregate, have a material adverse effect on the company’s consolidated financial position . . . except as they relate to asbestos and New Zealand product liability claims,’’ they said.
James Hardie spent US$5.2m on legal fees for its weathertightness battles in New
Zealand in the 24 months March 2020, its accounts show.
In its latest accounts, James Hardie said the claims in New Zealand related to homes and non-residential buildings primarily constructed from 1998 to 2004.
‘‘The claims allege generic defects in certain fibre cement products and systems supplied by our New Zealand subsidiaries and breach of duties including the failure to conduct appropriate testing of these products and systems, failure to warn and misleading and deceptive conduct in relation to the marketing and sale of the products and systems,’’ it said.
Tto
he homeowners are not the first to sue James Hardie over leaky buildings in New Zealand, which may have resulted in costs of up to $49 billion for building owners, councils and government.
The Ministry of Education sued James Hardie and Carter Holt Harvey.
The two James Hardie companies involved settled the claim in late 2013. The amount they paid to the ministry was not made public.
At the time, then Associate Education Minister Nikki Kaye celebrated avoiding a court fight.
In 2011, the ministry estimated it had around 2400 school buildings at risk of leaking, or already leaking, and a repairs cost of between $1.3b and $1.5b.
In a 2020 response to an Official Information Act request, the ministry said the public expected it to take action against ‘‘those the ministry believed to be responsible for manufacturing and supplying defective cladding materials that contributed to the weathertightness issues in school buildings nationwide’’.
The ministry said important points of law were established during its legal claim against Carter Holt Harvey.
‘‘In effect new case law was created in that the Supreme Court held that a manufacturer of defective products, such as cladding, is likely to hold a duty of care to end users/customers, such as the ministry, schools, and homeowners.
‘‘The case law created an approach accepted by the courts which means that the ministry’s claim has made it easier for them and other consumers to pursue a claim as evidenced by a number of class actions currently under way against cladding manufacturers in the High Court.’’
That approach included twostage trials, in which the first
‘‘I’m basically stuck in Hamilton. It’s changed the course of my life. It’s like having a brick tied around your neck when you’re trying to swim.’’ David Musgrave
trial examined whether the product was defective, and the second decided on the amount of damages.
Thorn said the homeowners’ action would follow the same twotrial process.
While the Ministry of Education was funded by taxpayers, the homeowners are funded by a litigation lender, and so part of any compensation will go to repay the loan.
The leaky building scandal was not the first nationwide building issue James Hardie has been involved with.
The company was a leading manufacturer of building materials containing asbestos, which were used in homes between 1940 and 1990.
Asbestos was used as it was fire-resistant, and it can be found in many places in many homes including vinyl floor tiles, carpet underlay, cement flooring, flues to fireplaces, pipe insulation, ventilators, walls and ceilings, kitchen splashbacks, backing for electrical meter boards, downpipes, fences, garages and sheds, gutters and roofing tiles.
Inhaling asbestos fibres can lead to a condition called asbestosis, and a cancer called mesothelioma.
In Britain the risks to asbestos workers have been known since the 1920s. But in New Zealand it took until 1968 for the dangers to be widely acknowledged, when the NZ Builders Workers Union published articles on the risk it posed to workers’ health.
The government had first been alerted to the risk in 1944 in a report on ‘‘industrial hygiene’’, which was not widely disseminated.
James Hardie’s New Zealand website proudly boasts that: ‘‘In the mid-1980s, James Hardie pioneered the development of asbestos-free fibre cement technology’’ without mentioning the asbestos products that came before.
In Australia, where people can sue for personal injury, James Hardie has had to set aside around A$1.6 billion (NZ$1.7b) in asbestos-related compensation since 2007.
It was even dubbed the ‘‘Killer
Company’’ in a 2009 expose book by journalist Matt Peacock.
Each year, KPMG in Australia audits James Hardie’s asbestos liabilities, and its latest report said the number of victims coming forward was proving higher than expected.
‘‘There have been 438 mesothelioma claims reported in 2019-20, a 16 per cent increase compared to the 376 mesothelioma claims reported in 2018-19 and 16 per cent above expectations for 2019-20 (378 claims),’’ it said.
In 1991, the New Zealand Asbestos Advisory Committee report acknowledged a ‘‘major epidemic of asbestos-related disease’’ here.
James Hardie’s statutory accounts indicate that its directors are not entirely sure they are free of the threat of having to pay asbestos-related compensation in New Zealand.
‘‘Prior to 1988, a New Zealand subsidiary in the James Hardie Group manufactured products in New Zealand that contained asbestos,’’ the company’s latest statutory accounts say.
‘‘In New Zealand, the majority of asbestos-related disease compensation claims are managed by the state-run Accident Compensation Corporation.’’
But, the directors said: ‘‘We may be subject to potential liability if any of these claims are found not to be covered by the legislation and are later brought against us, and consequently, our financial position, liquidity, results of operations and cash flows could be materially adversely affected.’’
In 2017, James Hardie settled a case with Aucklander Elva Halliday, a widow exposed to asbestos while washing her husband’s contaminated work uniform.
He worked at James Hardie’s Penrose factory from the mid1950s until 1976, often without appropriate safety equipment, and even brought home offcuts to use on his house renovations.
The case was a first for New Zealand, where claimants for asbestos-linked illnesses are generally eligible for compensation only when exposed at work.
Official data shows more than 170 New Zealanders die each year from diseases related to past asbestos exposure.
James Hardie is a global operator with manufacturing sites in many countries.
It generated more than A$2.6b in net sales in the 12 months to the end of March 2020.
The company had manufactured products in New Zealand for over 80 years, but announced the closure of its Auckland factory in Penrose in May last year, when the country was at Covid alert level 3, resulting in the loss of around 120 jobs.
Its Asia Pacific region general manager Conrad Groenewald said it was a ‘‘difficult decision’’.
He said the company’s local manufacturing operation had underperformed over a number of years, struggling with old facilities and equipment fragmented across multiple sites, which would cost too much to upgrade.
The work done at the Auckland factory would be shifted to its Rosehill and Carole Park plants in Australia.
‘‘James Hardie is defending the claim because it firmly believes the allegations made against it lack merit.’’ James Hardie statement