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James Hardie sees NZ leaky building, schools legal action costing up to US$47.6 mln

Thursday 14th November 2013

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James Hardie Industries, the Australian building products maker, says it faces potential net costs of up to US$47.6 million with a slew of leaky building cases and the New Zealand Ministry of Education’s class suit hanging over its head.

The Sydney-based company has taken a provision of US$20.4 million over New Zealand leaky buildings constructed between 1998 and 2004 and a provision of US$15.2 million over the Education Ministry’s NZ$1.5 billion class suit against cladding manufacturers, according to its second quarter financial statements. The company’s expense for the claims was US$300,000 and US$4.9 million respectively in the reporting period.

The provisions are net of any recoveries James Hardie may claw back from third parties, and because of those uncertainties, the company says it could face an additional loss of up to US$12 million.

“Despite having resolved a number of legacy product liability claims in New Zealand since 2002, the company’s New Zealand subsidiaries are becoming exposed to increased losses for a greater proportion of these claims due to the insolvency of co-defendants and the expiration of some of the company’s New Zealand subsidiaries rights to third-party recoveries,” it said.

In April, the New Zealand government ministry that oversees education policy and spending lodged a claim in the High Court against cladding manufacturers that supplied materials used in school buildings affected by weather-tightness failure, seeking remediation on 800 buildings across more than 300 schools.

Legal action has been the preferred route for owners of leaky buildings, who have the possibility of getting all of their money back rather than having to wear half the costs if they accept a government assistance package. The Crown took a $126 million provision for its weathertight services costs as at Sept. 30, down from the $567 million it prepared for at the end of the June 2011 year when it first introduced the package.

Leaky buildings were cited as one of the reasons behind Mainzeal Property and Construction falling over earlier this year, and they've been the subject of a raft of civil proceedings, including a Supreme Court judgment last year which opened up the way for commercial property owners to sue councils for weather-tightness failures.

James Hardie has been named in five separate High Court judgments on other leaky building cases this year, excluding the Education Ministry’s suit, involving three Auckland apartment buildings, one apartment property in Mount Maunganui and one residential property in Wellington.

The firm’s James Hardie New Zealand unit had a current provision of $17.4 million and non-current provision of $19.7 million, as at March 31, according to financial statements lodged with the Companies Office, compared to $20.9 million and $10.3 million in the 2012 year.

The James Hardie New Zealand unit paid a dividend of $116 million to its parent in the 2013 year, reducing equity in the company to $23.3 million from $133.6 million at the end of the 2012 financial year.

The company’s other New Zealand subsidiary, Studorp, is engaged in the management of its assets and any product warranty claims or other claims that may arise from its previous business of manufacturing and selling building materials, according to its 2013 financial statements.

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