James Hardie: The leaks, the asbestos, the court action

Saturday, 15 May 2021

David Musgrave and around 1000 other homeowners are suing James Hardie at the Auckland High Court for $220m. It's one of the largest class action trials in NZ history.

Hamilton man 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 on Monday at the High Court in Auckland, the homeowners will argue James Hardie’s Harditex cladding system was defective, which James Hardie 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.

* Leaky house owners sue James Hardie because no other 'deep pockets': defence

David Musgrave and about 1000 other homeowners are suing James Hardie at the High Court in Auckland for $220 million. It's one of the largest class action trials in New Zealand's history.

* James Hardie 'knew cladding not working', High Court told

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.”

Long wait for trial

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, were 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. The case will bring that to them.”

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, with 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 $NZ100m) in the 12 months to the end of March 2020.

The directors who signed off the accounts acknowledged the potential impact of losing the case on the global company, which 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 weather tightness battles in New Zealand in the 24 months to 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 fiber 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.

Ministry of Education vs James Hardie

Many homes covered in ‘monolithic’ cladding were built on untreated wood framing. When cladding failed to keep put moisture, the wood beneath in many homes became moist, and rotted.

The homeowners are not the first to sue James Hardie over leaky buildings in New Zealand, which may have caused as much as $49 billion of costs to building owners, councils and government.

The Ministry of Education sued James Hardie together with 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.

“This agreement strengthens the Government's ability to significantly address weather-tightness issues in our schools and support future investments in school property, without the need for lengthy court action,” Kaye said.

In 2011, the Ministry estimated it had around 2400 school buildings at risk of leaking, or already leaking, with a cost to fix 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 weather tightness issues in school buildings nationwide”.

Duty of care owed

The ministry said important points of law was 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 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 underway against cladding manufacturers in the High Court.”

Some of the 210 striking asbestos workers employed by James Hardie who picketed the firm's factory in O'Rorke Rd, Penrose, Auckland in 1968. The men were members of the Auckland Asbestos Workers' Union. They agreed to stay out until they had increased pay assurances.

That approach included two-stage trials, in which the first 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 two-trial 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.

Asbestos’ toxic legacy

The leaky building scandal was not the first nationwide building issue James Hardie has been involved with.

James Hardie was a leading manufacturer of building materials containing asbestos, which were used in homes between 1940 and 1990.

Asbestos was used as it resisted fire, 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.

The risks to asbestos workers were known since the 1920s in Britain with the first medical article on the hazards of asbestos dust published in 1924 in the British Medical Journal.

In New Zealand it took until 1968 for the dangers to be widely acknowledged, when the NZ Builders Worker's Union published articles on the risk it posed to workers’ health.

Many New Zealand homes and commercial buildings contain asbestos. In most cases that is not dangerous to human health, unless particles become detached in a fire, or through reckless DIY or professional building work.

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.

James Hardie asbestos costs … in Australia

In Australia, where people can sue for personal injury, James Hardie has had to set aside around A$1.6b in asbestos-related compensation since 2007.

It was even dubbed “Killer Company” in the 2009 expose book by journalist Matt Peacock.

84-year-old Elva Halliday took legal action against construction supplier James Hardie claiming it failed to protect her family from asbestos exposure.

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.

Patrick Halliday died of lung cancer in 1992, having never smoked a day in his life.

“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,” James Hardie’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 Auckland woman 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 mid-1950s until 1976, during which time he regularly worked with asbestos without appropriate safety equipment, even bringing 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.

Auckland Factory closed during Covid-19 pandemic

James Hardie is a global operator with manufacturing sites in many countries.

It generated more than A$2.6 billion 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 on 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” to make.

He said the company's local manufacturing operation has 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.

The Penrose factory opened in 1937.