FEDERAL COURT OF AUSTRALIA

The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 2) [2020] FCA 333

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant be granted leave to file the proposed Further Amended Originating Application and proposed Amended Statement of Claim served on the Respondents on 14 February 2020, on or before 2 March 2020.

2.    The Applicant pay the First Respondent’s costs thrown away by reason of the Further Amended Originating Application and Amended Statement of Claim, such costs to include the costs of the First Respondent’s interlocutory application filed on 25 October 2019 up to 24 February 2020, and such costs to be payable forthwith and to be taxed if not agreed.

3.    The Applicant pay the Second Respondent’s costs thrown away by reason of the Further Amended Originating Application and Amended Statement of Claim, such costs to be payable forthwith and to be taxed if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WIGNEY J:

1    On 14 February 2019, the applicant, The Owners – Strata Plan Number 87231, commenced representative proceedings against 3A Composites GmbH and Halifax Vogel Group Pty Ltd. In simple terms, Owners claimed that it and the group members on whose behalf the proceedings had been commenced had suffered loss and damage because laminated cladding which had been used in the construction of a residential building in which it had an interest was not of acceptable or merchantable quality. The cladding, sold under the “Alucobond” trademark, was manufactured by 3A and imported into Australia by Halifax.

2    Shortly after being served, 3A took issue with the common questions which Owners had identified in its originating application. That issue came to a head when, on 25 October 2019, 3A filed an interlocutory application which sought, amongst other things, an order striking out the paragraph in the originating application which contained the common questions. That application was ultimately not contested. That was because Owners sought and was granted leave to file an amended originating application which contained new common questions. Owners also sought and was granted leave to file an amended statement of claim. Owners conceded that the Court should order it to pay the costs “thrown away” by 3A and Halifax as a result of the amendments to its application and pleadings, however it opposed the making of an order which required it to pay those costs forthwith.

3    On 27 February 2020, I made orders which required Owners to pay the costs thrown away by 3A and Halifax as a result of the amendments forthwith. These are my reasons for making those orders.

owners’ case as originally pleaded

4    The proceedings were commenced on 14 February 2019 by the filing of an originating application and statement of claim.

5    The statement of claim pleaded Owners’ case in relatively short and simple terms. It would be fair to say, however, that the simplicity of the pleading tended to obscure some potential complexities in the pleaded case against 3A and Halifax.

6    The core allegations against 3A and Halifax in the original pleading may be summarised in the following simplified terms.

7    First, 3A and Halifax were alleged to have made three representations concerning Alucobond cladding: first, that it was suitable for use as an attachment or part of an external wall on high or low rise buildings that were intended to be used for residential, commercial or public or government administration purposes; second, that it was compliant with relevant building codes and standards for use in buildings or parts of buildings in Australia; and third, that it had passed fire safety tests required by relevant building codes and standards in Australia.

8    Second, it was alleged that Alucobond cladding, when fitted to a relevant building or building part, was subject to the guarantee that it would be of acceptable quality imposed by s 54 of the Australian Consumer Law (being Schedule 2 to the Competition and Consumer Act 2010 (Cth)). That was said to be because it was relevantly acquired by the owner of the building as a consumer, or by or through a consumer, other than by way of auction. To comply with the acceptable quality guarantee, Alucobond cladding was required to be fit for all the purposes for which goods of that kind were commonly supplied, acceptable in appearance and finish, free from defects, safe, and durable as a reasonable consumer fully acquainted with the state and condition of the goods would regard as acceptable. It was alternatively alleged, on essentially the same basis, that Alucobond cladding was required by s 74D of the Trade Practices Act 1974 (Cth) to be of merchantable quality; fit for the purpose or purposes for which goods of that kind were commonly bought as is reasonable to expect.

9    Third, it was alleged that Alucobond cladding was not of acceptable quality and not of merchantable quality for the purposes of either s 54 of the Consumer Law or s 74D of the Trade Practices Act, as the case may be. That was said to be the case for essentially four reasons: first, that it was combustible due to its “PE Core”; second, that when fitted as part of an external wall, or as an attachment to an external wall, of a building or part of a building, by reason of its PE Core, Alucobond cladding did not “by itself” allow the building or building part to satisfy the applicable fire resistance performance requirements of the Building Code of Australia or the National Construction Code (collectively the Building Codes); third, when fitted on a relevant building or building part, Alucobond cladding will cause or contribute to the rapid spread and severity of a fire; and fourth, Alucobond cladding has been the subject of safety alerts and regulation prohibiting and restricting its use in buildings.

10    Fourth, it was alleged that Owners and each group member suffered loss and damage as a result of the Alucobond cladding not complying with the acceptable quality guarantee or not being of merchantable quality. The applicant was alleged to have suffered loss or damage because it was the owner of the common property of an apartment building upon which Alucobond cladding had been fitted as part of the external walls, or as an attachment to the external walls. The “group members” were defined as persons who either: owned; had previously owned; or held an ownership or leasehold interest in, a building or part of a building in Australia which had been fitted with Alucobond cladding within the 10 years preceding the commencement of the proceeding. The loss or damage suffered by Owners and each group member was said to include the cost of removing or replacing the Alucobond cladding, or the costs of implementing measures to rectify the impacts arising from the alleged defects.

11    This short summary of the core allegations belies some potential complexities which were inherent in Owners’ case as originally pleaded. Those complexities were also not fully exposed in the original pleading. The complexities arose because the allegations that Alucobond cladding was not of acceptable or merchantable quality hinged, at least in part, on the capacity of the cladding to satisfy the applicable fire resistance performance requirements of the Building Codes. Those requirements were at the time (and probably still are) multi-faceted and complex. Their content depended, amongst other things, on the type of building or construction involved, and the manner and circumstances in which the cladding was affixed to the particular building in question. While the pleading contained some details or particulars of the applicable requirements in the case of the building in which Owners had an interest, those details or particulars would not necessarily apply to all of the buildings owned by all of the group members, or the various different ways in which the cladding may have been affixed to those buildings.

12    The potential complexities in Owners’ pleaded case were also, to an extent, somewhat obscured by the common questions that Owners specified in the originating application. There were essentially two sets of common questions. The first related to the claims under the Consumer Law and the second related to the claims under the Trade Practices Act. Both were in fairly short and simple terms.

13    In relation to the Consumer Law claims, the first question was said to be whether the acceptable quality guarantee applied to Alucobond cladding. The second question was whether Alucobond cladding complied with the acceptable quality guarantee, including, relevantly, whether it was “fit for all the purposes for which goods of that kind … [were] commonly supplied” and whether it was “safe” once fitted to relevant buildings. The balance of the questions related to loss and damage. The Trade Practices Act claim questions were in essentially the same terms.

14    The potential difficulty with the common questions as originally framed was that the question of whether Alucobond cladding was fit for purposes implicitly or indirectly raised a series of complex questions concerning the applicable fire resistance performance requirements. The answer to those questions may have depended on the type of building owned by each group member and the manner and circumstances in which Alucobond cladding was affixed to it. As will be seen, it was this potential difficulty that was ultimately the focus of 3A’s interlocutory application to strike out the common questions. And it was that application which, it seems, prompted Owners to not only reframe the proposed common questions, but also to substantially restructure and reframe its pleading.

Course of the proceedings to date

15    At the first case management hearing on 14 March 2019, Owners applied for leave to serve 3A in Germany, it being a German company. That leave was granted: The Owners – Strata Plan No 87231 v 3A Composites GmbH (2019) 369 ALR 315; [2019] FCA 811. An order was also made permitting service pursuant to Art 5 of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965. At the same case management hearing, orders were made which, amongst other things, required Halifax to file a defence. Further procedural orders concerning the progress of the case insofar as it concerned Halifax were made at case management hearings in April and May 2019.

16    3A was served on 5 June 2019. Within three weeks of 3A being served, 3A’s solicitors wrote to Owners’ solicitors concerning the common questions specified in the originating application. It was pointed out in that correspondence that, in the opinion of 3A’s solicitors at least, the common questions were deficient or inadequate. At a case management hearing on 8 July 2019, orders were made to progress the case. Those orders included an order that Owners respond to the issues raised in 3A’s solicitor’s letter concerning the common questions.

17    It is abundantly clear that the response to the letter concerning the common questions did not resolve the issue between the parties concerning the common questions. The issue was raised again at a case management hearing on 27 August 2019. Orders were made which required the parties to confer in the presence of a registrar of the Court with a view to agreeing on some common questions for determination, failing which Owners was then to file an interlocutory application concerning the common questions by 4 October 2019. A hearing date of 6 November 2019 was fixed for the hearing and determination of all outstanding interlocutory issues, including any issue concerning the common questions. That date was subsequently varied to 4 November 2019.

18    It would appear that the parties conferred in the presence of a registrar, but that no agreement concerning the common questions was reached. Despite that, Owners did not file an interlocutory application. That effectively forced 3A to file such an application, which it did on 25 October 2019. At the hearing of the outstanding interlocutory issues on 4-5 November 2019, however, Owners claimed that it was not able to deal with 3A’s application concerning the common questions because it had only been filed shortly before the hearing date. The hearing of that application was accordingly adjourned to 19 December 2019. Importantly, however, counsel for Owners conceded at this relatively early stage that “some reformulation” of the common questions was “likely to be necessary”.

19    In early December 2019, Owners’ solicitors wrote to 3A’s solicitors and advised that in the course of preparing for the hearing of the interlocutory application on 19 December they had formed the view it was necessary to amend the originating application and the statement of claim and that the amendments would impact on the common questions. The necessity for an amendment of the pleading was said to have arisen as a result of something that was said in the then recent judgment of Gill v Ethicon Sàrl (No 5) [2019] FCA 1905. It was proposed, on that basis, that the hearing of the interlocutory application concerning the common questions be adjourned yet again. That course was opposed by 3A. The matter was listed for a case management hearing on 13 December 2019.

20    At the case management hearing on 13 December 2019, counsel for Owners submitted that there was no utility in hearing 3A’s application concerning the common questions because Owners would be “bringing forward replacement ones [common questions]”. It was also indicated that Owners would be seeking leave to file an amended statement of claim. Counsel for Owners did not, however, concede that the existing common questions were deficient in any way. Indeed, he submitted that he had substantial arguments for why they should not be struck out.

21    Ultimately, the 19 December 2019 hearing of the interlocutory application concerning the common questions was vacated and the application was listed for hearing on 27 February 2020. Owners was ordered on 13 December 2019 to serve its proposed amended originating application and amended statement of claim. If 3A opposed the grant of leave to file those documents, the question of leave was to be determined at the hearing on 27 February.

22    It was in that context that Owners served its proposed amended originating application and statement of claim on 3A and Halifax on 14 February 2020.

The amended originating application and statement of claim

23    It would perhaps be an understatement to say that the amendments to the statement of claim are extensive and substantial. Virtually every paragraph of the existing pleading has been the subject of some amendment. The vast majority of the amended pleading is entirely new. The original statement of claim was 19 pages in length (without annexures) and contained 25 paragraphs. The amended statement of claim is 49 pages in length (without annexures) and contains 89 paragraphs. More significantly, the new pleading contains entirely new causes of action and, while the original causes of action are retained, for the most part they are now supported by substantially new or reformulated allegations and particulars.

24    Owners contended that, while the amendments to the statement of claim are extensive and substantial, the “core” of the case nevertheless remained the same. The core of the case was said to be the “risk of fire associated with this product” and the “TPA [Trade Practices Act] merchantable acceptable quality cause of action, which fixes upon the risks that are associated with this product”. Owners sought to characterise the amendments to the existing causes of action as simply “restructur[ing] the existing pleading to more clearly identify the different elements of the cause of action” and suggested that the amendments did not introduce “any significant new factual matters”. As for the new causes of action, Owners contended that they arose substantially from facts “already pleaded”.

25    While at an entirely superficial level it might be said that the core of Owners’ case may remain the same, the suggestion that the new pleading simply provides a clearer explanation of the existing causes of action and does not introduce substantially new factual allegations is nonsense. So too is the claim that the new causes of action arise from facts already pleaded. It would be more accurate to characterise the new pleading as an almost entirely new case.

26    It is, at this point, neither necessary nor desirable to analyse the amended statement of claim in great detail. In short summary, the new pleading maintains the causes of action based on s 54 of the Consumer Law and s 74D of the Trade Practices Act. The claim that Alucobond cladding failed to comply with the acceptable quality guarantee, or was not of merchantable quality, however, is now based on an extensive and complex series of interconnected allegations concerning the properties and associated fire risks that the product gave rise to. Those properties and risks are defined as the “Material Fire Risk Properties”, the “Prohibition Risk Properties”, the “BCA Non-compliance Properties”, the “BCA Non-compliance Risk Properties” and the “BCA-related Prohibition Risk Properties”. Some of the alleged properties or risks apply to all buildings. Others relate only, or primarily, to certain types of buildings as classified in the Building Codes.

27    Each of the defined properties is supported by extensive factual allegations. Some of those allegations can be traced back to the original pleading. Where that it is the case, however, those allegations are significantly expanded on and reframed in the amended pleading. There are also entirely new factual allegations, in particular the allegations that together comprise the “Prohibition Risk Properties” and the “BCA-related Prohibition Risk Properties”.

28    The amended statement of claim also includes entirely new causes of action for breaches of s 53 and s 55 of the Trade Practices Act and s 29 and s 33 of the Consumer Law. Those alleged breaches are based on a series of allegedly false or misleading representations, defined as the “Suitability Representation”, the “Fabrication Representation”, the “Fire Performance Representation” and the “Compliance Representation”. It is also alleged that 3A and Halifax engaged in misleading conduct in failing to give certain warnings concerning Alucobond cladding, defined as the “Suitability Warning”, the “Limitation of Use Warning”, the “Fabrication Warning”, the “Fire Risk Warning”, the “Non-compliance Warning” and the “Non-compliance Limitation Warning”.

29    The factual allegations said to support the various representations and their falsity are, for the most part, entirely new. So too are the factual allegations said to support the allegations of misleading conduct by failing to warn. The alleged breaches of s 53 and s 55 of the Trade Practices Act and s 29 and s 33 of the Consumer Law give rise to an entirely new basis upon which Owners and group members are said to be entitled to statutory compensation.

30    The amendments to the originating application are also substantial. The common questions as originally framed in paragraph two of the application have been completely replaced by an annexure which sets out, over 11 pages, 45 detailed common questions, and a further four “questions of commonality”; being questions applicable to some, but not all, group members.

Relevant principles

31    Rule 40.13 of the Federal Court Rules 2011 (Cth) provides that “[i]f an order for costs is made on an interlocutory application, the party in whose favour the order is made must not tax those costs until the proceeding in which the order is made is finished”. The policy considerations which underpin r 40.13 include the avoidance of multiple costs proceedings and the fact that subsequent events in the litigation may generate costs orders in the opposite direction: see Vasyli v AOL International Pty Ltd [1996] FCA 804; Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136; [2001] FCA 60 at [37].

32    Despite the unqualified terms of r 40.13, it is well-accepted that the Court has a discretion to order that the costs of an interlocutory application be payable forthwith. The power to make such an order is said to spring from either r 1.34, which permits the Court to dispense with compliance with any of the Rules, or r 1.35, which permits the Court to make an order inconsistent with the Rules: Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 5) [2018] FCA 19 at [5].

33    The principles which are said to guide the exercise of this discretion are also fairly well established. It has been said, at a general level, that the discretion “should be exercised in favour of a party who establishes that the demands of justice require that there be a departure from what appears to be the general practice envisaged by the rule”: Thunderdome Racetiming & Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297; [1992] FCA 423 at 312 [51]. Another way of putting this general principle is to say that the party who seeks an order that the costs of an interlocutory application be payable forthwith bears the onus of demonstrating a good reason why the general rule should be departed from.

34    Past cases which have considered the exercise of the discretion to order that costs of an interlocutory application be payable forthwith reveal that a range of factors or considerations have been said to justify a departure from the general rule. Those considerations sometimes relate to the conduct of the unsuccessful party, including whether the unsuccessful party has acted unreasonably in some way. They also sometimes focus on the effect that the interlocutory application has had on the successful party, including whether the successful party has incurred significant costs which, if the rule was not departed from, could not be recovered for some considerable time.

35    What has been said in previous cases should not, however, be seen as laying down immutable or rigid rules in relation to the exercise of the discretion. Each case must be looked at on its own facts. Much will depend on the nature of the proceeding, the nature of the interlocutory application, the status or stage of the proceeding when the interlocutory application is considered and determined, and the circumstances of the parties.

36    That said, there are two particular circumstances which have justified departure from the general rule in the past which appear to be of particular relevance to this case.

37    The first circumstance is where, as a result of a successful strike out application, or an amendment of a pleading as a consequence of such an application, a party faces what is essentially a new case: see for example McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [19], [40]; Vasyli; Batten v CTMS Ltd [1999] FCA 1576 at [63]. While many of the cases that consider this circumstance concern the abandonment of claims, the same considerations would apply where the new pleading raises substantially new factual allegations and causes of action that amount, in essence, to a new case.

38    The second circumstance is where the proceedings are at a relatively early stage, meaning that the successful party will not have the benefit of the award of costs for some considerable time: Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited (No 13) [1995] FCA 1459; Life Airbag Co of Australia Pty Ltd v Life Airbag Co (New Zealand) Ltd [1998] 545.

Reasons for exercising the discretion

39    There are good and compelling reasons for departing from the general rule in this case and ordering Owners to pay the costs of 3A and Halifax forthwith.

40    First, the amendments to the statement of claim and to the common questions in the originating application are so extensive and substantial that it could fairly be said that 3A and Halifax are now facing an entirely new case over a year after the proceeding was commenced. For the reasons already given, Owners’ attempts to characterise the amendments as simply providing a clearer and better particularised version of their existing case, and as not having raised substantially new factual allegations, have no merit. While at a very superficial level the core of Owners’ case may remain the same, the case now put against 3A and Halifax has been completely restructured and reformulated and contains substantially new factual allegations and new causes of action.

41    Second, Owners has failed to provide any, or any reasonable, explanation for its delay in amending its originating application and pleading. While the impetus was said to be the judgment in Gill v Ethicon, nothing said in that judgment seems to support the need for, or provide the basis for, the amendment. Owners did not take the Court to any passage in the extremely lengthy judgment in Gill v Ethicon to support the proposition that it somehow justified or compelled the substantial amendment of the statement of claim.

42    When pressed to explain why the extensive new allegations and the new causes of action were not included in statement of claim as originally filed, counsel for Owners was unable to provide any reasonable explanation. It should also be noted, in this context, that questions were first raised concerning the common questions as originally framed as early as June 2019. Owners resisted the attempts to require it to reframe the common questions until faced with an interlocutory application which brought the issue to a head. Even then, Owners continued to maintain that there was no problem with the common questions as originally framed. If that were so, it is entirely unclear why those common questions were ultimately abandoned in favour of a set of far more detailed questions.

43    The amendment to the originating application and statement of claim has resulted in a considerable delay in the proceeding. It has also undoubtedly resulted in both 3A and Halifax incurring significant and unnecessary costs. Owners’ contention to the contrary may have had some substance if the amendments had been made back in mid-2019, when issues concerning the common questions had first been raised, but it persisted with the existing pleading and common questions for another six months. The reasons for the amendment and the delay in applying for leave to amend have not been properly explained. It would, in all the circumstances, not be unfair to characterise Owners’ conduct in persisting with the existing pleading and existing common questions for almost a year as being unreasonable in all the circumstances.

44    Third, as was ultimately conceded by Owners, these are complex and difficult proceedings. They are at an early stage. Indeed, as a result of the amendments the proceedings are almost back at “square one”. It may be many years before the proceedings are finally heard, let alone determined. It is, in those circumstances, somewhat unreasonable to require 3A and Halifax to wait many years before having the benefit of the costs orders in their favour. It should be emphasised, in this context, that costs orders are compensatory in nature, not punitive. Orders requiring Owners to pay the costs thrown away as a result of the amendments are not intended to punish Owners, but to compensate 3A and Halifax.

45    It may readily be accepted that there may be some difficulties in assessing the quantum of costs thrown away by reason of the amendment. Those difficulties are not, however, insurmountable. More significantly, it is difficult to accept the proposition, advanced by Owners, that the costs thrown away will be more readily quantified at the end of the proceeding. The basis for that proposition appeared to be that the effect of the amendment was to add new claims. But the costs thrown away are not the costs likely to be incurred in the future in meeting those new claims. Rather, they are essentially the costs incurred to date in responding to a pleading and common questions that have now effectively been abandoned in favour of far more complex and detailed pleadings and questions. In any event, these are matters for the taxing officer if the quantum of the costs thrown away cannot be agreed between the parties.

46    It should finally be noted that Halifax did not initially press for an order that its costs thrown away as a result of the amendment of the originating application and statement of claim be payable forthwith. It only changed its position in that regard as 3A’s submissions in support of the proposition that its costs should be paid forthwith progressed. Owners was given a chance to respond to that change in position. Despite the position initially taken by Halifax, the fact remains that it is in exactly the same position as 3A in terms of the new case put against it in the amended statement of claim. If 3A is entitled to have its costs thrown away as a result of the amendment paid forthwith, there is no sound reason why Halifax should not also have its costs thrown away payable forthwith.

47    There is, however, no good reason to require Owners to pay any costs incurred by Halifax in relation to 3A’s interlocutory application concerning the common questions. Halifax was not a party to that interlocutory application and, while it indicated that it supported 3A’s application in that regard, it did not file any written submissions or take any active part in the application. While some of the costs incurred by Halifax in relation to that application may form part of the costs thrown away by reason of the amendment, that is not necessarily the case. That will be a matter for the taxing officer to determine, if not otherwise agreed as between Halifax and Owners.

Associate:

Dated: