KAREN LOUISE WHITE AND THE PERSONS LISTED IN SCHEDULE 1 v JAMES HARDIE NEW ZEALAND [2019] NZHC 1543

KAREN LOUISE WHITE AND THE PERSONS LISTED IN SCHEDULE 1 v JAMES HARDIE NEWZEALAND [2019] NZHC 1543 [4 July 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2015-404-2981 (WHITE)[2019] NZHC 1543BETWEEN KAREN LOUISE WHITE AND THEPERSONS LISTED IN SCHEDULE 1PlaintiffsAND JAMES HARDIE NEW ZEALANDFirst DefendantSTUDORP LIMITEDSecond DefendantJAMES HARDIE NZ HOLDINGSThird DefendantRCI HOLDINGS PTY LIMITEDFourth DefendantJAMES HARDIE AUSTRALIA PTYLIMITEDFifth DefendantJAMES HARDIE RESEARCH PTYLIMITEDSixth DefendantJAMES HARDIE INDUSTRIES PLCSeventh DefendantHearing: 27 June 2019Counsel: B Gray QC, A Thorn and V Cole for Plaintiffs in White matterJ K Stewart and S M Sharma for Plaintiffs in Waitakere matterJ McKay and J Kerkin for DefendantsJudgment: 4 July 2019JUDGMENT (NO 4) OF WHATA JCIV-2015-404-3080 (WAITAKERE GROUP LIMITED)BETWEEN WAITAKERE GROUP LIMITED & ORSPlaintiffsAND JAMES HARDIE NEW ZEALANDFirst DefendantSTUDORP LIMITEDSecond DefendantJAMES HARDIE NZ HOLDINGSThird DefendantRCI HOLDINGS PTY LIMITEDFourth DefendantJAMES HARDIE AUSTRALIA PTY LIMITEDFifth DefendantJAMES HARDIE RESEARCH PTY LIMITEDSix DefendantJAMES HARDIE INDUSTRICES PLCSeventh DefendantThis judgment was delivered by me on 4 July 2019 at 10.30 ampursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .[1] In my judgment (No 2) in this proceeding I made orders for discovery by theplaintiffs and by the defendants. Issues relating to the plaintiffs' discovery are notaddressed in this judgment. In relation to the defendants, I made an order as todiscovery in relation to Categories D - customer complaints. I adjourned theapplication in relation to Categories L (records of site visits) and M (advice tocustomers) pending the outcome of the Category D discovery. That process is stillongoing. I also adjourned the application for discovery in relation to Categories J(insurance documents), P (licensing agreements) and U (agency, representation, jointventure or similar arrangements) pending the appeal by the third, fourth and seventhdefendants on the justiciability of the claims in respect of those defendants. Thatappeal has now been decided against them.[2] There has been one further development since my judgment. The plaintiffs inthe Waitakere proceedings are now separately represented and seek modified ordersfor discovery from the plaintiffs in the White proceedings. But the central issuesremain the same for both proceedings for the purpose of discovery. I must determinewhether 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 herefor 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 brandnames "Harditex", "Monotek" or "Titan" (the James Hardie products). Approximately1,246 properties are claimed to be clad with defective James Hardie products and, ofthose properties, 1,236 are residential homes, five are commercial buildings and fiveare retirement villages. The five retirement villages are the plaintiffs in the Waitakereproceedings.[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 willaddress the following issues:(a) Who is responsible for the design/manufacture/sale of the James Hardieproducts 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 statutoryduties in respect of the James Hardie products or James Hardie productinformation.[6] After receiving input from the parties, I also made directions about tailoreddiscovery involving three steps:(a) The parties should attempt to agree on the scope of tailored discoveryfor the stage one trial;(b) Failing that, they were to file interlocutory applications for orders fortailored discovery; and(c) There was to be expert caucusing on the scale of discovery (includingthe number, location, and type of properties which might be subject todiscovery and inspection).[7] The parties reached agreement on the categories of discovery for the plaintiffsand some categories for the defendants (see schedules 2 and 3). Caucusing did not gowell but, since my judgment (No 2), substantial progress has been made in terms ofthe discovery process.The evidence[8] The evidence is summarised in my judgment (No 2). In short, the evidenceshows 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 anappropriate starting point when considering an application for particular discovery,namely:1(a) Are the documents sought relevant, and if so how important will theybe?(b) Are there grounds for belief that the documents sought exist? Thiswill often be a matter of inference. How strong is that evidence?(c) Is discovery proportionate, assessing proportionality in accordancewith Part 1 of the Discovery Checklist in the High Court Rules?(d) Weighing and balancing these matters, in the Court's discretionapplying r 8.19, is an order appropriate?[10] The defendants challenge the proposed discovery of Categories J, U and P ateach step. I turn therefore to address each of them.Relevance[11] The plaintiffs in the White proceedings submit that the documents inCategories J, U and P are relevant in relation to:(a) The state of knowledge and information flow as between the defendantcompanies of:(i) The defects and risk characteristics of the James Hardieproducts; and(ii) The risk that the James Hardie products would or might not beweathertight and would or might cause damage or fail to complywith applicable building standards.(b) The interrelationship and degree of control/division of responsibilitybetween 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 ofthe James Hardie products; and(ii) The writing, authorising and publishing specifications,instructions and other information for the use with the JamesHardie products.[12] The Waitakere plaintiffs no long seek discovery in relation to Category U. Butthey say the balance of the documents sought are relevant to:(a) The nature of the design, development, manufacture and supplyservices 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 defectsand risk characteristics;(d) Whether or not the defendants continued to actively promote andsupply their products to the public despite having knowledge of thedefects and risk characteristics; and(e) Whether or not the defendants knew that plaintiffs would rely upon thedefendants' expertise and James Hardie brand.[13] The defendants submit that:(a) The insurance documents (Category J) are irrelevant as no insuranceissue arises and it is well established that documents relating toprofessional indemnity or public liability issues are normallyirrelevant.22 Body Corporate 187242 v Auckland Council HC Auckland CIV-2005-404-001597, 20 July 2006at [20]; Walker v Forbes [2017] NZHC 2694 at [16]-[18].(b) The defendants' knowledge of relevant matters is covered byCategories 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 weathertightnessissues 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 thiscategory presumably because the agreements are not relevant ornecessary.(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 threecategories are prima facie relevant to the issue of responsibility for the James Hardieproducts. I understand that the third, fourth and seventh defendants presently denyany 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 inrelation to summary judgment:3Each of the holding company defendants sought to bring an early end to theclaims against them, arguing that since they did not manufacture, market orsupply the allegedly defective products, the claimants cannot succeed againstthem.[15] The difficulties faced by the plaintiffs in proving the claims against thesedefendants was also noted by the Supreme Court.4 This highlights the importance ofdiscovery of internal documentation that might shed light on their connection to themanufacture, marketing and/or supply of the allegedly defective products. In my view,the insurance, agency and licencing agreements will likely reveal the defendants who3 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 ofthat association.[16] In this regard, the primary relevance of the insurance documentation is notwhat policies have been issued and/or what claims have been made, or what theirmerits are, but who sought and obtained those policies and for what.[17] This documentation, like the agency and licencing agreements, is thereforedirectly and cogently relevant to the third, fourth and seventh defendants' denial ofresponsibility, their knowledge of likely product defects, and the steps they took, ordid not take, to mitigate the effects of those defects. The usual prohibition againstdiscovery 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 notinvolve a denial of responsibility.5 Unlike in those cases, here we are dealing with anissue 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 documentsand includes, but is not limited to, proposal documents andproposal forms; claims forms, schedules and claims; and any"Group" insurance policies;(ii) includes all intercompany arrangements relating to "intellectualproperty" and the James Hardie for a period of some 34 years;and5 Body Corporate 187242 and Walker v Forbes, above n 2.(iii) The date ranges are excessive, having regard to the allegedconstruction dates.(b) Discovery is already being provided in relation to categories A (ProductDevelopment), B (Testing), C (Promotional Material), D (Complaints)and H (Technical Literature) which should adequately cover the sameground.Assessment[20] For better or worse, the defect claims relate to a lengthy period, affectingseveral hundreds of properties and multiple James Hardie products. Discovery tied tothat period and those products cannot be said to be inherently disproportionate.Moreover, the denial of responsibility by the third, fourth and seventh defendantssquarely brings into frame the full period and scope of the plaintiffs' claims. The onlyway that the plaintiffs can effectively rebut this denial is by having access to theinternal records of those defendants and their related companies which touch andconcern that issue throughout this period.[21] Furthermore, this denial also brings into frame a broader scope of documentsas the plaintiffs may prove responsibility not only by reference to documents whereresponsibility is expressly stated, but also by necessary inference from the inter-company dealings. While this is a potentially significant burden for the affecteddefendants, it naturally correlates to the absolute denials by those defendants of anyresponsibility.[22] The evidential basis for a broad-based discovery about the issue of denial washelpfully summarised by the Court of Appeal when it dealt with the potential liabilityof 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 whollyowned by JHI, even if owned through other wholly-owned subsidiaries. It isalso clear that whilst the James Hardie Group may have diversified during theeighties and nineties, it has always had extensive interest in cement-basedbusinesses and by the late nineties, when JHI took over as parent, it was aGroup with a singular business focus upon fibre cement products. Finally, itis clear that the Group coordinates its business across the very manysubsidiaries.[23] After referring to the annual reports, information relating to head office controlof global activities, and marketing websites, the Court also observed:[89] These three threads of evidence provide an evidential narrative thatJHI had direct involvement in the manufacturing operations in New Zealandthrough, at least, its senior executive team. The existence of a top downmanagement structure and the pooling of technical and resource facilitiessuggests that the JHI executive team had superior knowledge about thetechnical specifications of the products, and some level of control over thelocal operations. This view of the way in which the Group operates iscorroborated by the evidence of Mr O'Hagan. Although somewhat dated (inthe sense he describes events prior to JHI taking over as parent) it is the bestevidence we have as to how operations within New Zealand were managedwithin the Group. Mr O'Hagan describes the New Zealand business asoperating as a branch and taking direction from elsewhere. At the relevanttime, "elsewhere" was Australia where the Group parent company was based.We attach significance to Mr O'Hagan's evidence because it is the onlyevidence which describes in any detail how the New Zealand businessoperated.[24] Finally, the Court also commented on the paucity of evidence which might beexpected, 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 detailas to how the Group coordinates (as it obviously does) and how the NewZealand business operated within that Group. They did not do so. Nor didthey provide evidence from directors, managers or staff of Studorp or JamesHardie New Zealand of how the New Zealand companies are brought withinthe Group strategy, how they access Group resources or how Group guidanceor policy is applied to them. Although these are separate legal entities to theholding companies, they are wholly-owned subsidiaries and could be expectedto cooperate with their parents in the provision of such evidence.[25] I acknowledge that discovery under the other categories is likely to cover someof the documentation sought under Categories J, P and U. A staged approach wouldhave 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. Butthere are two risks with this approach. First, the net is not sufficiently finely-weavedto identify the most relevant documents and, second, the staged approach could simplydelay the inevitable (i.e. on the basis that the discovered documents inevitably lead toa further discovery request).[26] I also acknowledge that privilege may attach to some of the insurancedocumentation. But I do not consider that prospect to be a sufficient reason to declinediscovery in respect of that category of document.[27] Finally, I acknowledge that the date ranges for the documentation soughtappear to exceed the claimed construction dates. Some common sense is needed herein terms of the periods to which discovery must relate. I propose to leave that issue tothe parties to resolve with leave to come back to the Court if further assistance isneeded on that particular aspect.Discretion[28] For my part, given the ongoing denial of responsibility, the requirement for abroadly-based discovery going to the resolution of that issue is necessary andappropriate. In this regard, I adopt the argument for the plaintiffs that documentsrelating 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 soughtby the Waitakere plaintiffs in those proceedings, subject to my observation in relationto date range at [27]. For completeness, if it transpires the Waitakere plaintiffs seekdiscovery co-extensive with the White plaintiffs, I expect this will not require furtherinvolvement of the Court.[30] If costs cannot be agreed, submissions may be filed, no more than three pagesin length.