KAREN LOUISE WHITE AND THE PERSONS LISTED IN SCHEDULE 1 v JAMES HARDIE NEW

ZEALAND [2019] NZHC 1543 [4 July 2019]

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

CIV-2015-404-2981 (WHITE)

[2019] NZHC 1543

BETWEEN

KAREN LOUISE WHITE AND THE

PERSONS LISTED IN SCHEDULE 1

Plaintiffs

AND

JAMES HARDIE NEW ZEALAND

First Defendant

STUDORP LIMITED

Second Defendant

JAMES HARDIE NZ HOLDINGS

Third Defendant

RCI HOLDINGS PTY LIMITED

Fourth Defendant

JAMES HARDIE AUSTRALIA PTY

LIMITED

Fifth Defendant

JAMES HARDIE RESEARCH PTY

LIMITED

Sixth Defendant

JAMES HARDIE INDUSTRIES PLC

Seventh Defendant

Hearing:

27 June 2019

Counsel:

B Gray QC, A Thorn and V Cole for Plaintiffs in White matter

J K Stewart and S M Sharma for Plaintiffs in Waitakere matter

J McKay and J Kerkin for Defendants

Judgment:

4 July 2019

JUDGMENT (NO 4) OF WHATA J

CIV-2015-404-3080 (WAITAKERE GROUP LIMITED)

BETWEEN WAITAKERE GROUP LIMITED & ORS

Plaintiffs

AND JAMES HARDIE NEW ZEALAND

First Defendant

STUDORP LIMITED

Second Defendant

JAMES HARDIE NZ HOLDINGS

Third Defendant

RCI HOLDINGS PTY LIMITED

Fourth Defendant

JAMES HARDIE AUSTRALIA PTY LIMITED

Fifth Defendant

JAMES HARDIE RESEARCH PTY LIMITED

Six Defendant

JAMES HARDIE INDUSTRICES PLC

Seventh Defendant

This judgment was delivered by me on 4 July 2019 at 10.30 am

pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

[1] In my judgment (No 2) in this proceeding I made orders for discovery by the

plaintiffs and by the defendants. Issues relating to the plaintiffs’ discovery are not

addressed in this judgment. In relation to the defendants, I made an order as to

discovery in relation to Categories D - customer complaints. I adjourned the

application in relation to Categories L (records of site visits) and M (advice to

customers) pending the outcome of the Category D discovery. That process is still

ongoing. I also adjourned the application for discovery in relation to Categories J

(insurance documents), P (licensing agreements) and U (agency, representation, joint

venture or similar arrangements) pending the appeal by the third, fourth and seventh

defendants on the justiciability of the claims in respect of those defendants. That

appeal has now been decided against them.

[2] There has been one further development since my judgment. The plaintiffs in

the Waitakere proceedings are now separately represented and seek modified orders

for discovery from the plaintiffs in the White proceedings. But the central issues

remain the same for both proceedings for the purpose of discovery. I must determine

whether Categories J, U and P should be discovered and, if so, to what extent.

Context

[3] The background is set out in my judgment (No 2). I largely reproduce it here

for ease of reference.

[4] The central claim in the proceedings is that the defendants manufactured,

supplied and/or promoted defective exterior cladding products sold under the brand

names “Harditex”, “Monotek” or “Titan” (the James Hardie products). Approximately

1,246 properties are claimed to be clad with defective James Hardie products and, of

those properties, 1,236 are residential homes, five are commercial buildings and five

are retirement villages. The five retirement villages are the plaintiffs in the Waitakere

proceedings.

[5] In my judgement of 3 July 2018, I directed that there should be a staged trial,

with stage one directed to the issues set out in schedule 1. In summary, stage one will

address the following issues:

(a) Who is responsible for the design/manufacture/sale of the James Hardie

products and related product information;

(b) Whether the James Hardie products are defective;

(c) Whether the defendants knew/ought to have known about any defects;

and

(d) Whether the defendants breached any common law and/or statutory

duties in respect of the James Hardie products or James Hardie product

information.

[6] After receiving input from the parties, I also made directions about tailored

discovery involving three steps:

(a) The parties should attempt to agree on the scope of tailored discovery

for the stage one trial;

(b) Failing that, they were to file interlocutory applications for orders for

tailored discovery; and

(c) There was to be expert caucusing on the scale of discovery (including

the number, location, and type of properties which might be subject to

discovery and inspection).

[7] The parties reached agreement on the categories of discovery for the plaintiffs

and some categories for the defendants (see schedules 2 and 3). Caucusing did not go

well but, since my judgment (No 2), substantial progress has been made in terms of

the discovery process.

The evidence

[8] The evidence is summarised in my judgment (No 2). In short, the evidence

shows that discovery of the kind sought is not unprecedented but will, nevertheless,

be very demanding.

Threshold tests

[9] It is common ground that the four-stage process identified in Assa Abloy is an

appropriate starting point when considering an application for particular discovery,

namely:1

(a) Are the documents sought relevant, and if so how important will they

be?

(b) Are there grounds for belief that the documents sought exist? This

will often be a matter of inference. How strong is that evidence?

(c) Is discovery proportionate, assessing proportionality in accordance

with Part 1 of the Discovery Checklist in the High Court Rules?

(d) Weighing and balancing these matters, in the Court's discretion

applying r 8.19, is an order appropriate?

[10] The defendants challenge the proposed discovery of Categories J, U and P at

each step. I turn therefore to address each of them.

Relevance

[11] The plaintiffs in the White proceedings submit that the documents in

Categories J, U and P are relevant in relation to:

(a) The state of knowledge and information flow as between the defendant

companies of:

(i) The defects and risk characteristics of the James Hardie

products; and

(ii) The risk that the James Hardie products would or might not be

weathertight and would or might cause damage or fail to comply

with applicable building standards.

(b) The interrelationship and degree of control/division of responsibility

between each of the defendant companies for:

1 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14].

(i) The design, development, manufacture, promotion and sale of

the James Hardie products; and

(ii) The writing, authorising and publishing specifications,

instructions and other information for the use with the James

Hardie products.

[12] The Waitakere plaintiffs no long seek discovery in relation to Category U. But

they say the balance of the documents sought are relevant to:

(a) The nature of the design, development, manufacture and supply

services carried out by the defendants;

(b) How the services were promoted to the public;

(c) Whether or not the defendants had knowledge of the facts as to defects

and risk characteristics;

(d) Whether or not the defendants continued to actively promote and

supply their products to the public despite having knowledge of the

defects and risk characteristics; and

(e) Whether or not the defendants knew that plaintiffs would rely upon the

defendants’ expertise and James Hardie brand.

[13] The defendants submit that:

(a) The insurance documents (Category J) are irrelevant as no insurance

issue arises and it is well established that documents relating to

professional indemnity or public liability issues are normally

irrelevant.2

2 Body Corporate 187242 v Auckland Council HC Auckland CIV-2005-404-001597, 20 July 2006

at [20]; Walker v Forbes [2017] NZHC 2694 at [16]-[18].

(b) The defendants’ knowledge of relevant matters is covered by

Categories D and I (documents identifying risk).

(c) The insurance documents are likely to be privileged.

(d) It does not appear any claims arising in New Zealand weathertightness

issues have ever been recorded.

(e) It is not clear what the agency or similar agreements (Category U)

might be relevant to and the Waitakere plaintiffs have abandoned this

category presumably because the agreements are not relevant or

necessary.

(f) It is not clear why branding arrangements (Category P) are relevant.

Assessment

[14] I prefer the plaintiffs’ submissions on the issue of relevance. All three

categories are prima facie relevant to the issue of responsibility for the James Hardie

products. I understand that the third, fourth and seventh defendants presently deny

any responsibility for those products and therefore any liability for any proven defects.

I base this on the following passage from the Court of Appeal’s 2018 decision in

relation to summary judgment:3

Each of the holding company defendants sought to bring an early end to the

claims against them, arguing that since they did not manufacture, market or

supply the allegedly defective products, the claimants cannot succeed against

them.

[15] The difficulties faced by the plaintiffs in proving the claims against these

defendants was also noted by the Supreme Court.4 This highlights the importance of

discovery of internal documentation that might shed light on their connection to the

manufacture, marketing and/or supply of the allegedly defective products. In my view,

the insurance, agency and licencing agreements will likely reveal the defendants who

3 James Hardie Industries Plc v White [2018] NZCA 580 at [6]. 4 James Hardie Industries Plc v White [2019] NZSC 39 at [9].

were associated with the James Hardie products and the nature, scale and degree of

that association.

[16] In this regard, the primary relevance of the insurance documentation is not

what policies have been issued and/or what claims have been made, or what their

merits are, but who sought and obtained those policies and for what.

[17] This documentation, like the agency and licencing agreements, is therefore

directly and cogently relevant to the third, fourth and seventh defendants’ denial of

responsibility, their knowledge of likely product defects, and the steps they took, or

did not take, to mitigate the effects of those defects. The usual prohibition against

discovery of those types of documents on irrelevancy grounds does not apply.

[18] I further note that the case law the defendants rely upon on this point did not

involve a denial of responsibility.5 Unlike in those cases, here we are dealing with an

issue as to who might be responsible if the defects are proved.

Proportionality

[19] The defendants raise two primary contentions in relation to proportionality:

(a) The scope of each category is too broadly framed:

(i) spanning some 29 years in relation to the insurance documents

and includes, but is not limited to, proposal documents and

proposal forms; claims forms, schedules and claims; and any

“Group” insurance policies;

(ii) includes all intercompany arrangements relating to “intellectual

property” and the James Hardie for a period of some 34 years;

and

5 Body Corporate 187242 and Walker v Forbes, above n 2.

(iii) The date ranges are excessive, having regard to the alleged

construction dates.

(b) Discovery is already being provided in relation to categories A (Product

Development), B (Testing), C (Promotional Material), D (Complaints)

and H (Technical Literature) which should adequately cover the same

ground.

Assessment

[20] For better or worse, the defect claims relate to a lengthy period, affecting

several hundreds of properties and multiple James Hardie products. Discovery tied to

that period and those products cannot be said to be inherently disproportionate.

Moreover, the denial of responsibility by the third, fourth and seventh defendants

squarely brings into frame the full period and scope of the plaintiffs’ claims. The only

way that the plaintiffs can effectively rebut this denial is by having access to the

internal records of those defendants and their related companies which touch and

concern that issue throughout this period.

[21] Furthermore, this denial also brings into frame a broader scope of documents

as the plaintiffs may prove responsibility not only by reference to documents where

responsibility is expressly stated, but also by necessary inference from the inter-

company dealings. While this is a potentially significant burden for the affected

defendants, it naturally correlates to the absolute denials by those defendants of any

responsibility.

[22] The evidential basis for a broad-based discovery about the issue of denial was

helpfully summarised by the Court of Appeal when it dealt with the potential liability

of the parent entity. It said:

[84] Some things emerge clearly from the affidavits and the documents,

and are not really at issue. All of the other defendant companies are wholly

owned by JHI, even if owned through other wholly-owned subsidiaries. It is

also clear that whilst the James Hardie Group may have diversified during the

eighties and nineties, it has always had extensive interest in cement-based

businesses and by the late nineties, when JHI took over as parent, it was a

Group with a singular business focus upon fibre cement products. Finally, it

is clear that the Group coordinates its business across the very many

subsidiaries.

[23] After referring to the annual reports, information relating to head office control

of global activities, and marketing websites, the Court also observed:

[89] These three threads of evidence provide an evidential narrative that

JHI had direct involvement in the manufacturing operations in New Zealand

through, at least, its senior executive team. The existence of a top down

management structure and the pooling of technical and resource facilities

suggests that the JHI executive team had superior knowledge about the

technical specifications of the products, and some level of control over the

local operations. This view of the way in which the Group operates is

corroborated by the evidence of Mr O’Hagan. Although somewhat dated (in

the sense he describes events prior to JHI taking over as parent) it is the best

evidence we have as to how operations within New Zealand were managed

within the Group. Mr O’Hagan describes the New Zealand business as

operating as a branch and taking direction from elsewhere. At the relevant

time, “elsewhere” was Australia where the Group parent company was based.

We attach significance to Mr O’Hagan’s evidence because it is the only

evidence which describes in any detail how the New Zealand business

operated.

[24] Finally, the Court also commented on the paucity of evidence which might be

expected, which in turn bears on the required scope for discovery:

[90] The totality of this evidence admittedly only creates a sketchy picture.

But it was the holding companies that were in a position to provide the detail

as to how the Group coordinates (as it obviously does) and how the New

Zealand business operated within that Group. They did not do so. Nor did

they provide evidence from directors, managers or staff of Studorp or James

Hardie New Zealand of how the New Zealand companies are brought within

the Group strategy, how they access Group resources or how Group guidance

or policy is applied to them. Although these are separate legal entities to the

holding companies, they are wholly-owned subsidiaries and could be expected

to cooperate with their parents in the provision of such evidence.

[25] I acknowledge that discovery under the other categories is likely to cover some

of the documentation sought under Categories J, P and U. A staged approach would

have the advantage of enabling documents in both categories being discovered first,

which could then lead to a more targeted approach if that was thought necessary. But

there are two risks with this approach. First, the net is not sufficiently finely-weaved

to identify the most relevant documents and, second, the staged approach could simply

delay the inevitable (i.e. on the basis that the discovered documents inevitably lead to

a further discovery request).

[26] I also acknowledge that privilege may attach to some of the insurance

documentation. But I do not consider that prospect to be a sufficient reason to decline

discovery in respect of that category of document.

[27] Finally, I acknowledge that the date ranges for the documentation sought

appear to exceed the claimed construction dates. Some common sense is needed here

in terms of the periods to which discovery must relate. I propose to leave that issue to

the parties to resolve with leave to come back to the Court if further assistance is

needed on that particular aspect.

Discretion

[28] For my part, given the ongoing denial of responsibility, the requirement for a

broadly-based discovery going to the resolution of that issue is necessary and

appropriate. In this regard, I adopt the argument for the plaintiffs that documents

relating to internal arrangements are likely to be the most probative on this key issue.

These documents may not be caught by the existing categories.

[29] I therefore make the orders sought by the White plaintiffs and the orders sought

by the Waitakere plaintiffs in those proceedings, subject to my observation in relation

to date range at [27]. For completeness, if it transpires the Waitakere plaintiffs seek

discovery co-extensive with the White plaintiffs, I expect this will not require further

involvement of the Court.

[30] If costs cannot be agreed, submissions may be filed, no more than three pages

in length.