James Hardie makes no provision for leaky school claim

James Hardie Industries has not made a provision for the Ministry of Education's $1.5 billion suit over 800 leaky buildings, saying it hasn't worked out what loss, if any, it may face.

The Australian building materials company and its New Zealand subsidiaries are assessing the ministry's claim with the intention of "vigorously" defending it, but haven't determined what liability they face, according to a note in the company's annual financial statements.

James Hardie says the ministry claims its cladding systems used on school buildings were defective and prone to failure, and is "asserting negligent conduct, negligent misstatement and breach of the New Zealand Consumer Guarantees Act 1993 and Fair Trading Act 1986".

The $1.5 billion price put on 800 buildings across 300 schools is based on visual inspections by two property surveying businesses, in April 2010 and April 2012, the company says.

"This amount was derived by conducting visual surveys to form a high-level review of potential risk of damage due to moisture ingress, but did not employ the use of destructive testing or internal inspections.

"The amount of exposure to potential damage due to weather tightness risk identified in these reports may not represent damage actually incurred nor correspond with the amount of loss ultimately asserted by the Ministry of Education in the claim," it says.

Last month James Hardie and ASX-listed CSR outed themselves as companies whose New Zealand subsidiaries faced a representative claim by the Education Ministry.

James Hardie has been, and continues to be, joined in leaky building claims relating to residential and a small number of non-residential buildings built between 1998 and 2004.

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 the government's assistance 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.

(BusinessDesk)