Leaky home $220 million lawsuit: James Hardie had no insurance for weathertightness disasters, auditor says

James Hardie knew it had no insurance cover for potentially vast leaky building claims, an auditor told a major lawsuit today.

David Ross today told the High Court at Auckland he observed business realities facing James Hardie which should have alarmed any sensible company director.

The James Hardie group of companies has denied claims from homeowners who blame Harditex monolithic cladding for problems, including damp, mould and rot.

It has argued the leaky home scandal should instead be attributed to factors such as poor workmanship, the use of untreated timber, and industry deregulation.

Ross said James Hardie from 2004 could not get insurance for weathertightness issues, and years later paid a huge dividend to potentially outfox leaky home lawsuits.

“Either the market knew about the problem, or the market was not prepared to touch product liability issues for the building industry,” he said.

“As a director, I know the effect it would have on me to be told ‘You’ve lost all your cover’ when you have a huge market in the ‘States and you know how litigious Americans could be.

“You wouldn’t sleep well at night.”

Ross, who is also a chartered accountant, said the building products firm in New Zealand paid other James Hardie entities a $116 million dividend in 2013.

He said the New Zealand company hadn’t paid dividends for about 12 years and at this point was potentially facing insolvency over weathertightness claims.

Ross said James Hardie entities were frequently restructured and the big dividend involved “complex inter-company accounts all over the place”.

He said the parent company overseas might’ve chosen to strip the New Zealand entity of assets, and take assets potentially outside the jurisdiction of this country’s courts.

But defence counsel Jack Hodder QC said the 2013 dividend was only paid because in previous years, the company would have had to pay far more tax on the dividend.

Hodder said every dividend every company paid could be called a transfer of assets.

Hodder suggested that in 2013 the value of expected leaky homes claims was tiny compared to the $116m dividend, and Ross agreed.

Hodder said Ross only would have mentioned the dividend if he thought it was improper.

“I think it was improper from a director’s perspective, yes,” Ross replied.

Hodder said Bond was trying to suggest James Hardie paid this dividend when it could not meet the claims from homeowners.

“It was strange that a dividend would be declared for the absolute maximum that could be declared at the time,” Ross replied.

Hodder said several of Ross’s claims had no factual basis and the court needed expert evidence, not opinions.

Ross also said James Hardie’ New Zealand corporate appendage seemed to be a puppet of the global parent company.

“It appears there were no actual physical board meetings of the New Zealand entities.”

Ross believed James Hardie bosses abroad held sway over the New Zealand entity.

“They own what’s beneath them. They can do what they like. They can hire and fire all the directors.”

Hodder suggested overseas ownership did not automatically mean the parent company had “absolute control” over New Zealand operations.

He has accused the people suing James Hardie of trying to “ensnare” parent company James Hardie Industries PLC, the group parent, now domiciled in Ireland.

The trial before Justice Christian Whata continues.

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