Defective Product: Holding Company’s duty to warn consumers
/White v James Hardie [2017] NZHC 2112
The Plaintiffs
370 plaintiffs are alleging that products and exterior cladding systems manufactured and supplied by the James Hardie group were defective, not weathertight, and failed to comply with prevailing building standards. The plaintiffs, who include homeowners, body corporates and retirement village owners, claim that the products allowed moisture ingress, causing them significant damage and loss.
Several causes of action have been put forward by the plaintiffs based on tort, the Consumer Guarantees Act 1993 and Fair Trading Act 1986.
The Defendants
The defendants are seven companies within the James Hardie group. This judgment largely concerns two of the seven defendants: James Hardie NZ Holdings (‘JHNZH’) and RCI Holdings Pty Limited (‘RCIH’). Both are holding companies only.
Application for Summary Judgment
JHNZH and RCIH applied for summary judgment on the grounds that the plaintiffs’ causes of action against them were bound to fail. The Court considered that this was the case with several of the causes of action because, as holding companies only, they were not involved in the manufacturing, supply or promotion of the products. The one exception to this was the claim that JHNZH and RCIH had breached their ‘duty to warn or inform or withdraw products’.
The plaintiffs alleged that the holding companies knew, or ought to have known, from the early 1990s onwards that the products would be deficient and that on learning of these matters they owed and breached a duty to warn, inform and/or to take reasonable steps to withdraw the products. To be successful, the plaintiffs will ultimately need to prove:
Knowledge – that JHNZH and RCIH had knowledge of the deficiencies in the products and/or the possible consequences of installation; and
Duty to warn – that JHNZH and RCIH owed a duty of care to warn or inform the plaintiffs of the deficiencies in the products and take steps to recall them.
However, for the purpose of responding to the application for summary judgment, the plaintiffs only needed to show they had an arguable case.
Knowledge
The plaintiffs firstly submitted that there was no evidence of any director of JHNZH or RCIH denying knowledge. Secondly, they submitted that they would be able to establish knowledge by attribution. They had evidence showing that problems with the products were being reported to the subsidiary manufacturing companies James Hardie New Zealand (‘JHNZ’) and Studorp from the mid-1990’s onwards. The evidence included records of complaints and concerns raised, affidavits from experts in the building industry, and audited financial statements showing that they had been making provision for “potential liabilities arising as a result of claims made, or to be made”.
The plaintiffs argued that because the manufacturing companies had directors in common with JHNZH and RCIH, knowledge of the deficiencies should be attributed to JHNZH and RCIH. The Court didn’t determine the issue of knowledge on the application, but for purposes of dealing with the summary judgment it assumed that the plaintiffs would be able to prove knowledge.
Duty to Warn
The Court emphasised that JHNZH’s and RCIH’s capacity to control the two subsidiaries by their shareholdings was not enough by itself to establish a duty to warn, inform or recall the products.
One of the cases considered by the Court was Chandler[1], in which it was held that a parent company owed a duty of care to the employee of a subsidiary company harmed by asbestos. The court in Chandler set out circumstances in which a parent company might owe such a duty, including that the business of the parent and subsidiary are the same in a relevant aspect, and the parent company has, or ought to have, superior knowledge on a relevant aspect.
The Court observed that if the Chandler approach was adopted in this case, the plaintiffs would be very unlikely to succeed. However, the Court said it was not determinative that this approach would be followed. What’s more, all of the authorities had emphasised the need to have all the facts before any determination is reached, and in this case some of the material facts were still in dispute.
The application for summary judgment was set aside on the basis that the plaintiffs had a good arguable case and serious issue to be tried. JHNZH and RICIH were ordered to pay the plaintiffs’ costs.
[1] Chandler v Cape plc [2012] EWCA Civ 525, [2012] 1 WLR 3111.
Comment
Philippa Fee, Partner at Fee Langstone says that this case should cause a ‘shiver’ around the table of many boards of directors in New Zealand. It affirmed that a holding company may not be able to hide behind the corporate veil when the board has actual knowledge of problems with products distributed by a subsidiary in the market place.
