James Hardie dragged back into leaky schools saga

James Hardie Industries, the global building materials supplier, has been dragged back into the New Zealand government's class action over leaky school buildings with a cross-claim filed against the company by another defendant.

The New Zealand holding company, James Hardie NZ Holdings, was named as a defendant in April last year when the Ministry of Education first filed the suit, later cutting a deal with the government department in a confidential settlement.

However, it has now been pulled back into the action, with another defendant filing a cross-claim against the building materials maker, according to financial statements lodged with the Companies Office.

"The company is not yet able to determine the amount or range of loss, if any, that the company's may become liable for in future periods," the James Hardie NZ accounts say. "Accordingly, the company has not recorded a provision for the New Zealand Ministry of Education Claim as of 31 March 2014."

The defendant isn't named in the accounts, and the Australian company declined to comment on the matter.

The ministry, which oversees education policy and annual spending of more than $13 billion, filed the proceedings as it embarked on a remediation programme on 800 buildings in more than 300 schools, with an estimated cost of some $1.5 billion.

The education ministry is still pursuing legal action against Carter Holt Harvey after the New Zealand-owned building products maker failed in a bid to have the case quashed.

James Hardie has been involved in a number of leaky building cases in New Zealand, and as Sept. 30 last year, the group took a provision of US$20.4 million, net of any third-party recoveries, over the liability claims, including the ministry's suit. Given the uncertainties at the time, it said that cost could rise by a further US$12 million.

Since then, the company reached a settlement with the education ministry, and as at June 30, anticipates a provision of a net US$10.3 million will cover weather-tightness claims, according to its group first-quarter statements.

At the time of the settlement, James Hardie and the New Zealand ministry said the deal would support the remediation of weather-tightness issues in existing school property and support future developments across the country.

The New Zealand unit's 2014 accounts show a current provision of $10.2 million and a non-current provision of $5.6 million, compared to $17.4 million and $19.7 million a year earlier.

It's unclear whether the settlement with the ministry is included in those provisions, and the company declined to comment, citing the confidential nature of the deal.

The New Zealand provision "covers the expected costs of investigating, defending and otherwise resolving" product liability claims, and matters relating to the current provision may settle or go to trial before April 1, 2015, the statements said.

ASX-listed CSR [ASX: CSR] also reached a similar settlement with the ministry at the start of this year, which it recognised as a proportion of a $9.5 million provision in the New Zealand unit's 2013 accounts filed with the Companies Office in August.

New Zealand government budget documents show the education ministry spent an additional $10 million on legal action over the defective buildings in the 2013/14 financial year, which was covered by the surplus from Christchurch insurance settlement funding. A further $10.4 million was set aside for legal costs and building testing in the May budget for the next two years.

The ministry said there were 742 buildings in the remediation programme and a further 1,346 were identified as a high or medium high priority for more testing, according to the 2013 Briefing to Incoming Minister, when Nikki Kaye was appointed associate education minister, a role she's retained since the Sept. 20 election.

The cost of leaky school buildings was first recognised in the education ministry's books in 2010, when it took a $930.4 million impairment charge on the $8.12 billion carrying value of its school buildings portfolio, made up of 16,981 buildings across 2,143 schools. As at June 30, 2013 the ministry had a weather-tightness provision of $935 million, and valued the buildings at $7.9 billion.

The ministry flagged more than $2 billion of capital spending on school buildings between the 2013/14 and 2016/17 financial years, according to its 2013/14 statement of intent, which includes both earthquake strengthening and fixing leaky buildings, as well as upgrading school infrastructure as part of its plan to link the nation's education network with ultra-fast broadband.

"The scale of this problem is such that the process to address these deficiencies across the network will be a central component of capital work for the next decade and possibly longer," the ministry said. "Our knowledge of the full extent of latent deficiencies is being progressively refined as programmes of inspections continue across the network."

The education ministry's 2014 statement of intent doesn't mention weather-tightness issues.


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