Litigation against Overseas Manufacturer for Cladding Product and its Distributors

This month, we report on the Court of Appeal decision, Body Corporate Number DPS 91535 v 3A Composites (“3AC”) & Ors. This case concerned “Alucobond”, an aluminum composite panel (“ACP”) cladding product used on buildings in New Zealand (“NZ”). Alucobond is manufactured by a German corporation, 3AC, who filed a protest to jurisdiction in the High Court against the six causes of action brought against it. After 3AC succeeded in its protest to jurisdiction on the Consumer Guarantees Act and Fair Trading Act causes of action, the Appellants sought to appeal the High Court decision.

Facts

  • Two Alucobond products formed the subject of this proceeding.

  • Body Corporate 91535 (“the First Appellant”) stated Alucobond was supplied to it and affixed to the exterior of the apartment block being Cutterscove Building in Mount Maunganui. The Contractor was supplied with Alucobond by Skellerup Industries Limited (“the Third Respondent”).

  • Several properties owned by Argosy Property No. 1 Limited (“the Second Appellant”) utilised Alucobond.  

Causes of Action

The three causes of action that were subject to this appeal were the:

  • Breach of the guarantee of acceptable quality in section 6 of the Consumer Guarantees Act 1993 (“CGA”).

  • Breach of section 9 of the Fair Trading Act 1986 (“FTA”) in respect of misleading or deceptive conduct.

  • Breach of section 13 of the FTA in respect of false or misleading representation.

The Appellants pleaded there is a material risk the Alucobond products will cause or contribute to the rapid spread and severity of a fire. The Appellants regarded it as unsuitable for exterior cladding because of its combustibility, and that it did not comply with the Building Code, particularly clause C in respect of fire protection.

Protest of Jurisdiction

3AC filed a protest to jurisdiction. One factor in determining a protest to jurisdiction is to assess whether there is a serious question to be tried.

Analysis and Outcome 

CGA

Section 6 of the CGA states that “where goods are supplied to a consumer there is a guarantee that the goods are of acceptable quality”.

To identify whether there was a serious issue to be tried in relation to the CGA claim in respect of 3AC’s liability, the Court considered:

  • Whether Alucobond came within the scope of the defined term “goods”;

  • Whether Alucobond was supplied to the Appellants as “consumers”; and

  • The circumstances in which the CGA applied to a manufacturer without a presence in NZ.

The Court accepted that the CGA applies to overseas manufacturers of goods supplied in NZ. The definition of “manufacturer” includes overseas manufacturers that deal in the business “of assembling, producing or processing goods”. Further, the Court stated that “supply to a consumer in NZ is the central focus”. In other words, the relevant conduct establishes the territorial connection. The Act then provides consequences for those goods being defective or unsafe. The Court argued this is consistent with private international law and the approach of the Australian courts with corresponding legislation.

Despite this, the Court’s analysis of the other two questions led it to conclude that the Appellants’ claim did not raise any serious issue to be tried such that the appeal failed on this cause of action. On the “goods” issue, the Court was reliant on “goods” being defined to exclude whole, or part of a whole building attached to land. Important to that discussion was whether the “goods” in question retain a separate identity. It determined that exterior cladding incorporated into a building did not retain a separate identity. On the consumer issue, the Court concluded it was not seriously arguable that Alucobond was a product that would be “ordinarily acquired for personal, domestic, or household use or consumption”. It considered that building professionals would acquire Alucobond to incorporate into buildings.

FTA

The Court considered the FTA extends to conduct that took place overseas where the Defendant carries on business in NZ and the conduct relates to the supply of products in NZ. When assessing each Appellant’s claim against 3AC for compensation, the Appellants were unable to establish in their evidence that they relied on 3AC’s conduct and that the reliance caused them to suffer loss. However, the Court found it arguable that conduct in NZ by or on behalf of 3AC created a general misleading impression regarding the suitability of the Alucobond products for certain uses, and its regulatory compliance. This impression on the market influenced designers and others in the industry to recommend Alucobond cladding for the Appellants’ buildings. Therefore, the Appellants succeeded in this cause of action. 

It will be interesting to see whether this proceeding leads to 3AC appealing. If 3AC choose to appeal and are granted leave by the Supreme Court, the Appellants may cross-appeal on the adverse CGA finding.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. or Building Today to anyone who relies on the information in this article.