Federal Court of Australia

The Owners – Strata Plan 87231 v 3A Composites GmbH (No 7) [2024] FCA 788

ORDERS

THE COURT ORDERS THAT:

1.    Within seven days of the date of this judgment, the parties are to provide the Court with either draft consent orders, or competing short minutes of order, which give effect to the judgment.

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

REASONS FOR JUDGMENT

WIGNEY J:

1    This judgment addresses an issue that has arisen in the case management of a representative proceeding commenced by The Owners – Strata Plan No 87231 against 3A Composites GmbH and Halifax Vogel Group Pty Limited. That issue concerns the identification of the common questions - questions of fact and law which are common to the claims of the group members which can be determined at the initial trial which is due to commence on 26 August 2024.

2    Owners and the group members on whose behalf the proceedings were commenced affixed aluminium composite panels which had been manufactured by 3A and distributed in Australia by Halifax as façades on buildings that they owned or in which they had a leasehold interest. Those panels had the trade names Alucobond PE and Alucobond Plus. They will be referred to collectively as Alucobond panels.

3    Owners alleges that Alucobond panels had certain inherent properties which meant that they were not of merchantable quality for the purposes of, or within the meaning of that expression in, s 74D of the Trade Practices Act 1974 (Cth) (TP Act) and were not of acceptable quality for the purposes of, or within the meaning of that expression in, s 54 of the Australian Consumer Law (ACL) being Sch 2 of the Competition and Consumer Act 2010 (Cth). Those properties are alleged to be, in summary: that the flammability of the Alucobond panels meant that when fitted to a building they gave rise to an increased fire risk and increased risk of damage and loss of life; and that by virtue of those risks, there was a risk that regulatory authorities might declare the panels to be unsafe and require them to be removed from buildings and replaced.

4    A more detailed description of the nature of the proceeding and the background facts and circumstances may be found in previous judgments dealing with interlocutory issues: see in particular The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748.

5    The common questions have been the subject of consideration by the Court in the past. As long ago as 30 October 2020, I delivered a judgment in which I held that three questions that Owners contended were common questions could not be answered without reference to the individual circumstances of each group member and therefore were not common questions which could be determined at the initial trial: Owners – Strata Plan No 87231 v 3A Composites GmbH and Anor (No 5) [2020] FCA 1576 (Owners (No 5)). The parties subsequently reached an agreement in respect of the balance of the common questions, and on 16 December 2020 the Court made orders which included an order in respect of the common questions.

6    The case has developed and progressed considerably since the common questions were considered in late 2020. There have been various amendments and other developments in respect of the pleadings and the parties have filed all of the evidence upon which they intend to rely at the initial trial. As a result of those developments, it was considered necessary to revisit the common questions. The parties were accordingly ordered to confer and seek to reach agreement in respect of the revised common questions. The parties in due course conferred and reached agreement in respect of the common questions, save that 3A and Halifax did not agree to the inclusion of three questions. Those disputed questions are in some respects similar to the three questions which were effectively rejected in Owners (No 5). Owners now wishes to agitate, or reagitate, for the inclusion of those three questions.

7    The disputed questions are set out in full later in these reasons. It suffices at this point to note that the effect of them is to ask whether the Alucobond panels were of merchantable quality within the meaning of s 74D(3) of the TP Act and of acceptable quality within the meaning of s 54(2)-(3) of the ACL, subject to certain qualifications. The critical issue is whether those questions, or the answers to them, are common to all group members, or whether the answer to them depends on a consideration of the individual circumstances of the supplies to each group member.

8    Owners contended that, since Owners (No 5), there have been a series of representative actions concerning the supply of allegedly defective goods in which common questions in terms similar to the disputed questions have been determined at the initial trial in circumstances not dissimilar to this matter. It also submitted that, when close consideration is given to the pleadings, it is readily apparent that the individual circumstances of the supply to the group members has, or will have, no bearing on the question whether the Alucobond panels were of merchantable or acceptable quality.

9    3A and Halifax contended, however, that the disputed questions are in substance no different to the questions disallowed in Owners (No 5), that the questions cannot be answered without resort to the individual circumstances of the group members, that the authorities relied on by Owners are distinguishable, and that they would suffer irremediable prejudice if it was determined that the disputed questions could be answered at the initial trial.

10    Before addressing the critical issue, it is necessary to identify the statutory context and to briefly consider the reasoning in Owners (No 5) and the more recent authorities relied on by Owners. It will then be necessary to look more closely at the relevant parts of the pleadings and the issues that arise from them.

THE STATUTORY CONTEXT

11    The relevant statutory provisions are s 74D of the TP Act and s 54 of the ACL. Those provisions essentially address the same evil. The ACL provisions effectively replaced the TP Act provisions. The reason that it is necessary to consider both provisions is that the proceeding concerns the supply of Alucobond panels over a period that covers both the period that the TP Act was in force and the period during which the ACL applies. While the language of the two provisions differs in some respects, it is common ground that the coverage and operation of the provisions is materially the same, at least for present purposes.

12    Section 74D of the TP Act provides as follows:

74D Actions in respect of goods of unmerchantable quality

(1)     Where:

(a)    a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re supply;

(b)    a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer;

(c)    the goods are not of merchantable quality; and

(d)    the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality;

the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

(2)     Subsection (1) does not apply:

(a)     if the goods are not of merchantable quality by reason of:

(i)    an act or default of any person (not being the corporation or a servant or agent of the corporation); or

(ii)    a cause independent of human control;

occurring after the goods have left the control of the corporation;

(b)    as regards defects specifically drawn to the consumer’s attention before the making of the contract for the supply of the goods to the consumer; or

(c)    if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal.

(3)    Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to:

(a)    any description applied to the goods by the corporation;

(b)    the price received by the corporation for the goods (if relevant); and

(c)    all the other relevant circumstances.

13    Section 54 of the ACL provides as follows:

54     Guarantee as to acceptable quality

(1)    If:

(a)    a person supplies, in trade or commerce, goods to a consumer; and

(b)    the supply does not occur by way of sale by auction;

there is a guarantee that the goods are of acceptable quality.

(2)     Goods are of acceptable quality if they are as:

(a)    fit for all the purposes for which goods of that kind are commonly supplied; and

(b)     acceptable in appearance and finish; and

(c)     free from defects; and

(d)     safe; and

(e)     durable;

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3).

(3)     The matters for the purposes of subsection (2) are:

(a)    the nature of the goods; and

(b)     the price of the goods (if relevant); and

(c)     any statements made about the goods on any packaging or label on the goods; and

(d)     any representation made about the goods by the supplier or manufacturer of the goods; and

(e)     any other relevant circumstances relating to the supply of the goods.

(4)     If:

(a)     goods supplied to a consumer are not of acceptable quality; and

(b)     the only reason or reasons why they are not of acceptable quality were specifically drawn to the consumer’s attention before the consumer agreed to the supply;

the goods are taken to be of acceptable quality.

(5)     If:

(a)     goods are displayed for sale or hire; and

(b)     the goods would not be of acceptable quality if they were supplied to a consumer;

the reason or reasons why they are not of acceptable quality are taken, for the purposes of subsection (4), to have been specifically drawn to a consumer’s attention if those reasons were disclosed on a written notice that was displayed with the goods and that was transparent.

(6)     Goods do not fail to be of acceptable quality if:

(a)     the consumer to whom they are supplied causes them to become of unacceptable quality, or fails to take reasonable steps to prevent them from becoming of unacceptable quality; and

(b)     they are damaged by abnormal use.

(7)     Goods do not fail to be of acceptable quality if:

(a)     the consumer acquiring the goods examines them before the consumer agrees to the supply of the goods; and

(b)     the examination ought reasonably to have revealed that the goods were not of acceptable quality.

14    The following relevant points may be noted concerning the proper construction of both s 74D of the TP Act and s 54 of the ACL.

15    First, the assessment of whether goods are of merchantable quality within the meaning of s 74D(3) of the TP Act and of acceptable quality within the meaning of s 54(2) is to be determined objectively, not subjectively. In relation to s 74D(3) of the TP Act, that flows from the fact that the words “as is reasonable to expect” is to be determined from the perspective of “a reasonable consumer placed as the actual consumer … was”: Graham Barclay Oysters Pty Ltd v Ryan [2000] FCA 1099; (2000) 102 FCR 307 at [533]-[534]: Owners (No 5) at [22]-[31]. In relation to s 54(2) of the ACL, the enquiry is to be conducted from the perspective of the “reasonable consumer fully acquainted with the state and condition of the goods”: Toyota Motor Corporation Australia Ltd v Williams [2023] FCAFC 50; (2023) 296 FCR 514 at [42] (Toyota v Williams). Consideration of the matters in s 54(3) of the ACL should also be undertaken from the perspective of the “hypothetical reasonable consumer”: Toyota v Williams at [43].

16    Second, while the assessment is objective from the perspective of the hypothetical reasonable consumer, the assessment involves some consideration of the circumstances of the supply to the actual consumer in question. In the case of s 74D(3) of the TP Act, that is because, as was noted in Graham Barclay at [533]-[534], the hypothetical reasonable consumer must be placed as the actual consumer was. In the case of s 54(2) of the ACL, that is because the assessment in s 54(2) is required to have regard to the “matters” in s 54(3), which include the price of the goods, any representation made about the goods by the supplier or manufacturer of the goods and “any other relevant circumstances relating to the supply of the goods”. Those matters are not generic, but relate to, for instance, the price of the goods supplied to the actual consumer and representations made to the actual consumer: Owners (No 5) at [29]. The hypothetical reasonable consumer effectively stands in the shoes of the actual consumer.

17    Third, while the hypothetical reasonable consumer may stand in the shoes of the actual consumer for the purposes of the statutory assessment, the assessment does not operate by reference to what the actual consumer knew or subjectively believed about the condition of the goods in question. It follows that “any idiosyncratic subjective understanding of the state and condition of the goods in issue or any idiosyncratic attitude to what is or is not acceptable, is irrelevant to the assessment required by s 54(2)” of the ACL: Toyota v Williams at [43]. The same must be the case in respect of s 74D(3) of the TP Act.

18    Fourth, while s 54(3)(e) of the ACL specifies that the assessment must have regard to “any other relevant circumstances relating to the supply of the goods”, it is only circumstances relating to the supply of goods that are “relevant to the question at hand, namely whether a hypothetical reasonable consumer as described in s 54(2) would regard the goods to be of acceptable quality, that are required to be considered”: Toyota v Williams at [44]. It is not the case that anything said, done or known at the time of the supply must be considered: Toyota v Williams at [44]. The same relevance requirement applies to the matters in s 54(3)(a) to (d): Toyota v Williams at [44]. There is no reason to suppose that the statutory test in s 74D of the TP Act should be construed differently.

OWNERS (No 5)

19    In Owners (No 5), I made the following observations concerning orders made in respect of common questions in representative proceedings. As noted in the judgment, such orders are frequently referred to as “Merck orders” because Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2009) 355 ALR 20; [2009] FCAFC 26 was one of the early authorities that considered the nature of common questions.

20    First, Merck orders are essentially a “case management tool” in representative proceedings, the objects of which include: assisting the parties to properly consider and determine other interlocutory or case management steps, such as discovery, as the case progresses; guiding the parties in relation to the scope of evidence to be adduced at the initial trial; and providing an appropriate structure for the conduct of the initial trial and the making of appropriate orders for the purposes of s 33ZB of the Federal Court of Australia Act 1976 (Cth): Owners (No 5) at [8].

21    Second, once made, Merck orders should not be considered to be “set in stone”, particularly if made at a relatively early stage of the proceeding: Owners (No 5) at [9]. Rather, they are interlocutory orders which may be revised and adapted as the case progresses.

22    The proposed common questions which were in issue in Owners (No 5) were:

CQ44.    By reference to the answers to the questions at paragraphs CQ19 and/or CQ20 and CQ42, was Alucobond PE Core Cladding fit for all the purposes for which goods of that kind were commonly bought?

CQ45.    By reference to the answers to the questions at paragraphs CQ26 and CQ43, was Alucobond PE Core Cladding fit for all the purposes for which goods of that kind were commonly bought?

CQ46.    By reference to the answers to the questions at paragraphs CQ44 and/or CQ45, was the Alucobond PE Core Cladding fitted to the Relevant Buildings and/or Relevant Building Parts of merchantable quality and compliant with the Acceptable Quality Guarantee?

23    As can be seen, those questions addressed the “fit for the purpose” element of the definitions of merchantable quality and acceptable quality in s 74D(3) of the TP Act and s 54(2)(a) of the ACL. One of the reasons that I disallowed two of the questions was that they did not address the statutory tests accurately or in their entirety: Owners (No 5) at [19]. As will be seen, that issue has been addressed in the current form of the disputed questions and need not be further considered.

24    Another reason that I disallowed at least one of the questions is that they effectively asked whether 3A and Halifax had contravened s 74D(1) of the TP Act and s 54(1) of the ACL, but did not address whether any of the circumstances in s 74D(2) of the TP Act or s 54(7) of the ACL, as the case may be, existed: Owners (No 5) at [20] As will be seen, that issue has also been addressed to an extent in the current form of the disputed questions.

25    The more fundamental reason for disallowing the proposed common questions, however, was that, having regard to the proper construction of s 74D of the TP Act and s 54 of the ACL, I formed the view that to answer the questions, it would be necessary to have regard to the particular circumstances of the supply to individual group members. I reasoned as follows (at [32]):

… to the extent that questions 44, 45 and 46 purport to address the statutory tests in s 74D of the TPA and s 54 of the ACL, they cannot be common questions. That is because to answer those questions, it is necessary to have regard to the relevant circumstances of the particular supply in question, including matters such as the price, any statements made on the packaging or labels and any other “relevant circumstances relating to the supply”. Those circumstances may not be determinative or even particularly significant having regard to other findings that may be made. But that cannot be determined unless and until those circumstances are considered. More significantly, the circumstances will not necessarily be the same in respect of every supply to every group member.

26    I should emphasise that the arguments that the parties advanced at this earlier stage of the proceeding focused almost exclusively on the proper construction of the statutory provisions in question. Little if any attention was given to the pleadings. Nor, at that point, was there any clear or direct authority in relation to the suitability of common questions of the sort in issue in representative proceedings concerning allegedly defective goods. In any event, as can readily be seen, my reasoning was quite general and did not address the specific factual allegations made by Owners or the issues raised by the pleadings.

TOYOTA v WILLIAMS

27    Since I handed down judgment in Owners (No 5), there have been a number of cases in which the question of acceptable quality within the meaning of s 54 of the ACL as been determined on a common basis: see Ethicon Sarl v Gill [2021] FCAFC 29; (2021) 288 FCR 338; Capic v Ford Motor Company of Australia Pty Ltd [2021] FCA 715; (2021) 154 ACSR 235; Toyota v Williams. Ethicon concerned defective pelvic mesh implants. Capic concerned gear box defects in motor vehicles. An appeal from the first instance decision was allowed, but on grounds which are not presently relevant: see Ford Motor Company of Australia Pty Ltd v Capic [2023] FCAFC 179; (2023) 300 FCR 1. Toyota v Williams concerned a defective diesel exhaust after-treatment system in motor vehicles. The issue concerning the suitability or susceptibility was directly addressed in Toyota v Williams. It is therefore only necessary to address that decision.

28    As has already been adverted to, Toyota v Williams involved a representative proceeding in which the applicant alleged that Toyota manufactured motor vehicles which were supplied in Australia with a “core defect”; that defect being that the diesel exhaust after-treatment (DPF) system was not designed to function effectively during all reasonably expected conditions of normal operation and use in the Australian market. The defect was found to be inherent in the design of the DPF system such that there was an inherent risk of failure at the time of supply, even though the consequences of the defect had not actually manifested in all the vehicles supplied to group members: see Toyota v Williams at [108]-[118].

29    An issue arose at trial as to whether the question of acceptable quality of the motor vehicles was able to be determined on a common basis. The primary judge distinguished Owners (No 5) and found that the question of acceptable quality could be determined on a common basis. His Honour reasoned as follows (Williams v Toyota Motor Corporation Australia Ltd [2022] FCA 344 at [208]-[210]):

There is a superficial attraction to [Toyota’s] submissions that the Court cannot determine the question of acceptable quality on a common basis because the Court is required by s 54 of the ACL to enquire into the individual circumstances of each instance of supply. However, two reasons point against this conclusion.

First, it must be remembered that in assessing whether goods are of acceptable quality for the purposes of s 54(2), the relevant enquiry is objective, to be assessed by reference to the reasonable consumer. The reasonable consumer is taken to be “fully acquainted with the state and condition of the goods (including any hidden defects of the goods)”: s 54(2). Putting to one side s 54(4) (which operates separately from the process for determining whether goods are of acceptable quality as a form of defence (see Capic v Ford Motor Company of Australia Pty Ltd (Revised Common Questions) [2021] FCA 1320 at [10] per Perram J), the statutory test does not operate by reference to what a particular individual consumer knew or subjectively believed about the condition of the goods.

Secondly, I accept that s 54(2) dictates that regard must be had to the matters in s 54(3) in assessing whether goods are of an acceptable quality, and that the significance of each of the matters in s 54(3) will vary on a case by case basis. That is, I accept that through the objective statutory prism, there is some room for subjective contextualisation. But in the circumstances where: (1) it is alleged that the goods are not of acceptable quality by reason of a common characteristic of the goods; and (2) there is no evidence of some material difference between characteristics such as the price of the goods, the packaging or labelling of the goods, representations made about the goods by the manufacturer or supplier of the goods, or the circumstances relating to the supply of the goods, nothing in s 54 prevents the Court from assessing the quality of the goods, having regard to the matters in s 54(3), on a common basis. To the extent it is said it should be inferred there were material differences between these characteristics (for example, between those who purchased a Relevant Vehicle and those who purchased many), that submission should be rejected. TMCA has not led any evidence of (or pleaded) any material difference that is capable of bearing upon the question of whether a reasonable consumer would regard a Relevant Vehicle as being of acceptable quality.

(Emphasis in original)

30    His Honour went on to emphasise (at [211]) that Toyota had not “pleaded or otherwise raised any relevant, material difference between the circumstances of any given instance of supply of a Relevant Vehicle capable of bearing upon the question of whether a reasonable consumer would regard the Relevant Vehicle as acceptable”; nor did the “circumstances suggest there [was] any realistic possibility of such individual factors being material, having regard in particular to the nature of the defects …”.

31    On appeal, the Full Court upheld the primary judge’s finding that the question of acceptable quality could be determined on a common basis. As noted earlier in these reasons in the discussion concerning the relevant statutory provisions and principles, the Full Court emphasised: first, that the assessment of whether goods are of acceptable quality is to be conducted objectively and the inquiry is made with reference to a hypothetical reasonable consumer and “not with reference to the particular individual consumer to whom the goods are supplied in any particular case” (at [42]); second, that any “idiosyncratic subjective understanding of the state and condition of the goods in issue or any idiosyncratic attitude to what is or is not acceptable, is irrelevant to the assessment required by s 54(2)” and “it is equally of no moment whether one or other consumer amongst the group members was aware to one degree or another about the defect in the vehicles” (at [43]); third, that it is only those circumstances relating to the supply of the goods that are “relevant to the question at hand, namely whether a hypothetical reasonable consumer … would regard the goods to be of acceptable quality, that are required to be considered” (at [44]); and fourth, the matters for consideration set out in s 54(3)(a) to (d) are subject to the same relevance requirement (at [44]).

32    Toyota argued on appeal that the primary judge had erred in holding that the onus lay on Toyota to adduce evidence of any relevant circumstances peculiar to group members which supported its contention that acceptable quality could not be determined on a common basis. The Full Court rejected that contention, reasoning as follows:

That takes us to the outstanding matter to consider, which is Toyota’s submission that the primary judge was wrong to have held that the onus lay on Toyota to adduce evidence of any relevant circumstances peculiar to one or other group member in order to establish a foundation for its argument that the question of acceptable quality cannot be decided on a common basis. His Honour identified that Toyota had not pleaded or otherwise raised any relevant, material difference between the circumstances of any given instance of supply of a relevant vehicle capable of bearing upon the question of whether a reasonable consumer would regard the vehicle as acceptable (J[211]). Toyota does not cavil with that characterisation of how the case was run. Clearly enough, the issue of whether the relevant vehicles were of acceptable quality could and should be determined on a common basis was one of the issues squarely identified by the parties as arising for determination at the initial trial, and it was identified by the primary judge as such (J[199]).

As submitted on behalf of the respondents, if Toyota wished to demonstrate through evidence, as opposed to mere speculation, that there was a sound basis in fact for the Court to refrain from determining the issue on a common basis, it could and should have led relevant evidence. As identified by the primary judge (J[193]), that need not have been of the circumstances of every one of the quarter of a million supplies; evidence of materially different relevant circumstances of even one supply may have been sufficient, but not even that was done. In the absence of that, and in light of the compelling generalised evidence in support of a finding that the vehicles were not of acceptable quality (canvassed at J[15], [32]-[86], [173]-[198]), there was no error in the primary judge’s approach to, and conclusion on, the question of commonality.

THE PLEADINGS

33    The reasoning in Toyota v Williams indicates that, in considering whether the question of the acceptable quality of the goods in question can be determined on a common basis in a representative proceeding, it is necessary to closely consider the issues raised by the pleadings. It is not sufficient to speculate that the individual circumstances of the supplies to some group members may be relevant. It is, therefore, necessary to consider the issues raised by the pleadings in this matter. The pleadings are lengthy and complex. What follows purports to be no more than a brief summary or distillation of Owners’ key allegations and the key points raised in 3A and Halifax’s defence that might bear on the issue currently under consideration.

34    The central and critical allegation in Owners’ Second Further Amended Statement of Claim (SFASC) is that, by reason of the fact that the Alucobond panels had two properties – the Material Fire Risk Properties and the Prohibition Risk Properties - the panels were not fit for all of the purposes for which goods of the kind were commonly bought as was reasonable to expect: SFASC [63] (my emphasis). That was said to be the case in respect of all of the buildings, or parts of buildings, that were owned by group members during the specified relevant period. The panels were therefore not of merchantable quality (SFASC [66]) and were subject to the acceptable quality guarantee: SFASC [68].

35    The reasonable expectations of consumers, in that context, were, among other things, that the panels did not have the Material Fire Risk Properties or the Prohibition Risk Properties, that the panels were fit for all of the Purposes and that, when used on any building, or for any of the Purposes, the panels were safe and did not pose a material risk to the health or safety of the occupants of the buildings, or a material risk to the building: SFASC [61]. The Purposes, in that context, included use as part of an external wall, use as an attachment to an external wall or other building element on any high or low rise residential, commercial or public or government building: SFASC [51]; see also the broad definition of “Relevant Uses” is SFASC [7].

36    The Material Fire Risk Properties were, in summary, alleged to be the product of the fact that the core of the panels was, or contained a significant component of, polyethylene and that polyethylene was highly flammable and readily ignited and burnt when exposed to sufficient heating: SFASC [11] and [11A]. The aluminium cover sheets of the panels did not protect the core from ignition: SFASC [12]. The panels were therefore said to be flammable and combustible: SFASC [13].

37    The Material Fire Risk Properties were that, when used as cladding fitted as part of or as an attachment to an external wall or other building element, there was a material risk that the Alucobond panels would, in the event of a fire in or adjacent to the building to which it was affixed: cause or contribute to the spread and severity of the fire; cause or contribute to debris falling from the building; cause or contribute to the fire and smoke from the fire overwhelming or compromising any fire safety, suppression or smoke control systems in the building; cause or contribute to the release of toxic products of combustion; and, as a result, there was an increased risk of loss of life, an increased risk of damage to the building or adjacent building, and an adverse impact on the ability of occupants to evacuate and the ability of firefighting authorities to minimise damage to the building and mitigate against the loss of life: SFASC [14].

38    The Prohibition Risk Properties were a product of the Material Fire Risk Properties. Because the panels had those properties, there was alleged to be a material risk that any Alucobond panel used on any building in Australia could be determined by relevant government authorities to be unsafe or create a risk of death or serious injury regardless of its compliance with the relevant building code, and could be the subject of a legally-binding direction to be removed and replaced at the cost of the owner or leaseholder: SFASC [17].

39    As can readily be seen, the defects or deficiencies that Owners alleged were allegedly inherent in the panels by reason of their highly flammable core were fundamental and were alleged to have rendered the panels profoundly unfit for affixation in just about every respect to just about every type of building.

40    3A’s and Halifax’s Defences (D) to the SFASC are in relevantly similar terms to each other. Like the SFASC, they are complex, though the key issues and contentions that are raised in the defence may be summarised as follows. I will, for the sake of brevity, focus on 3A’s defence.

41    First, 3A denies that the Alucobond panels possess either the Material Fire Risk Properties or the Prohibition Risk Properties: D [14(b)] and [17(b)].

42    Second, 3A asserts that the panels complied with the requirement to be of merchantable quality (D[66(f)]) and complied with the requirement to be of acceptable quality (D[69(b)]).

43    Third, the Defence takes issue with the allegations in the SFASC concerning what purposes it was reasonable to expect the panels were or would be used for: D [51] and [61].

44    Fourth, an important element of 3A’s defence to Owners’ claim that the Alucobond panels were not relevantly fit for purpose concerns the purposes and uses to which such panels were put in Australia. 3A alleges that the panels were used on buildings in accordance with designs, plans and specifications which were prepared, reviewed, approved, certified or used by Qualified Professionals, such as architects, engineers, fire safety engineers and builders in accordance with applicable building codes: D [7(a)]. Likewise, the purpose for which Alucobond panels were bought or supplied was said to be use on buildings in accordance with designs, plans and specifications which were prepared, reviewed, approved, certified or used by such Qualified Professionals: D [51(b)]. That allegation appears to be central to 3A’s claim that the panels complied with the requirement to be of merchantable quality D [66(f)] and complied with the requirement to be of acceptable quality: D [69(b)].

45    Fifth, 3A pleads that if (which it denies) Alucobond panels were required to be, but were not of merchantable quality, one or other of the following three circumstances existed: first, the goods were only of unmerchantable quality by reason of an act or default of a person or persons other than 3A or a cause independent of human control, occurring after the goods had left the control of 3A; second, the reasons why the goods were not of merchantable quality were specifically drawn to any relevant consumer’s attention before the making of the contract for the supply of goods to the consumer; and third, those reasons were revealed, or ought reasonably to have been revealed to any relevant consumers acquiring the goods through their examination of the goods before the making of the contract for the supply of goods to the consumer: D [66(g)]. The point to emphasise is those factual assertions are not relevant to the question whether the goods were or were not of merchantable quality. Rather, they are relevant to whether the defence in s 74D(2) of the TP Act applies.

46    Effectively the same contention is made in respect of the alleged acceptable quality guarantee. 3A pleads that if (which they deny) the acceptable guarantee applied and the panels did not comply with that guarantee, one or other of the following circumstances existed: first, the products only did not apply to the guarantee by reason of an act or default of a person or persons other than 3A or a cause independent of human control, occurring after the goods had left the control of 3A; or second, the reasons why the goods were not of acceptable quality were specifically drawn to any relevant consumer’s attention before the making of the contract for the supply of goods to the consumer; or third, those reasons were revealed or ought reasonably to have been revealed to any relevant consumers acquiring the goods through their examination of the goods before the making of the contract for the supply of goods to the consumer: D [73(e)]. Those factual assertions are again not relevant to the question whether the goods were or were not of acceptable quality. Rather, they are relevant to whether the defences in s 54(4) and (7) and s 271(2) of the ACL apply.

47    It is also worth emphasising that the particulars of 3A’s pleas relating to the defences in s 74D(2) of the TP Act and s 54(4) and (7) and s 271(2) of the ACL do not appear to refer to any circumstances that were particular or unique to any individual group member or group members. Rather, the particulars refer to the more general or generic allegation, referred to earlier, that Alucobond panels were used on buildings in accordance with designs, plans and specifications which were prepared, reviewed, approved, certified or used by Qualified Professionals. That was a relevant circumstance that was said to apply to the supply to all group members.

THE DISPUTED COMMON QUESTIONS

48    The disputed common questions are as follows:

CQ57     Having regard to the answers to the above questions, was Alucobond PE of:

(a)     merchantable quality within the meaning of s 74D(3) of the TPA; and/or

(b)     acceptable quality within the meaning of s 54(2)-(3) of the ACL, subject to the application of s 74D(2) of the TPA or ss 54(4), (7) and/or 271(2) of the ACL in respect of any individual group member’s claim.

CQ58     Having regard to the answers to the above questions, was Alucobond Plus of:

(a)     merchantable quality within the meaning of s 74D(3) of the TPA;

(b)     acceptable quality within the meaning of s 54(2)-(3) of the ACL,

subject to the application of s 74D(2) of the TPA or SS 54(4), (7) AND/OR 271(2) of the ACL in respect of any individual group member’s claims.

CQ59     If the answer to CQ57 or CQ58 is “yes”:

(a)     was any failure of the goods to be of merchantable quality and/or to comply with the acceptable quality guarantee by reason of the act or default of a person or persons other than 3A or HVG or a cause independent of human control within the meaning of s 74D(2)(a) of the TPA or s 271(2) of the ACL?

(b)     would an examination of the goods reasonably have revealed that they were defective or not of acceptable quality within the meaning of ss 74D(2)(c) or 54(7) of the ACL?

49    Obviously, the disputed questions cannot be considered in isolation. Questions 57 and 58 are expressly posed having regard to the answers to earlier questions. The earlier questions, or the answers thereto, that would be particularly pertinent are questions 53 to 56, which relate to the reasonable expectations as to the fitness of the Alucobond panels to be used for any of the pleaded purposes. Those questions are also posed having regard to the answers to previous questions.

50    The important point to note is that it is by no means apparent that the answers to questions 57 and 58, or the answers to any of the earlier questions that might be relevant to questions 57 and 58, are likely to hinge or depend on any facts or circumstances which are particular or unique to any individual group members or categories of group members. Rather, as both the pleadings and the terms of the agreed common questions tend to suggest, the answers to the questions would appear to hinge or depend on facts and circumstances relating the purposes for which Alucobond panels are used and the nature and qualities of the Alucobond panels, in particular whether they have the alleged Material Fire Risk Properties, the alleged Prohibition Risk Properties and the alleged fire and safety risks arising from their combustible core.

51    Two further general points may be made about the disputed questions.

52    First, the drafting infelicities that plagued the previous iteration of the disputed questions and in part led to their rejection in Owners No 5 would appear to have been remedied. 3A did not contend otherwise.

53    Second, disputed questions 57 and 58 effectively carve out, or purport to carve out, issues that may arise having regard to the defences in s 74D(2) of the TP Act (acts or defaults by other persons or causes independent of human control) and s 54(4) (problems drawn to a consumer’s attention), s 54(7) (examination of the goods) and s 271(2) (causes independent of human control) of the ACL. The possibility that questions concerning those issues might require the consideration of the individual circumstances of particular group members was one of the potential problems with the previous iteration of the disputed questions that was considered in Owners No 5. Question 59(a) does, however, pose a question in terms of s 74D(2)(a) of the TP Act and s 271(2) of the ACL and question 59(b) poses a question relevant to s 74D(2)(c) of the TP Act and s 54(7) of the ACL, albeit that the question is posed in objective terms.

54    It should also be noted in passing that common questions 75 and 76, which are agreed, are in the following terms:

CQ75     Are any of the above questions and their answers not common to all group members? If so, which questions and answers?

CQ76     If the answer to question CQ75 is “yes”, are the questions and their answers sufficiently common to some of the group members so as to be the subject of an order under s 33ZB of the Federal Court of Australia Act 1976 (Cth) that binds those group members and the defendant in relation to those answers? If so, which questions and answers and in relation to which group members?

55    Those questions are relevant to the question whether 3A would suffer any prejudice if the Court approves the disputed questions.

WOULD ANSWERS TO THE DISPUTED QUESTIONS DEPEND ON INDIVIDUAL GROUP MEMBER CIRCUMSTANCES?

56    I am not at this point persuaded that the answers to the disputed questions will, or are likely to, depend on any facts and circumstances concerning individual group members, as opposed to facts and circumstances which are relevant and common to the applicant and all group members. In my view there is nothing in the pleadings or the common questions themselves that would suggest otherwise. Nor was I directed to any evidence that had been filed by any of the parties that in my view would indicate that the answers to the disputed questions will or might hinge or depend on facts and circumstances unique to individual group members.

57    Owners’ pleaded case, in simple terms, is that the Alucobond panels were not of merchantable or acceptable quality because they had certain inherent properties which made them fundamentally unfit for all of the purposes for which goods of that kind (panels or cladding) are commonly bought. Owners alleged that the purposes for which goods of that kind were commonly bought were essentially for use as part of an external wall, or part of an external wall in a very broad range of buildings. The inherent properties of the Alucobond panels that made them unfit for those uses – in particular, the Material Fire Risk Properties and the Prohibition Risk Properties – were, on Owners’ case, such that the panels were unfit for all of those purposes, irrespective of what the individual circumstances of particular group members or their buildings might be. Owners also alleged that, for essentially the same reasons, the inherent properties of the panels made them unsafe such that a reasonable consumer who was fully acquainted with the state and condition of the goods would not regard them as acceptable.

58    The alleged properties of the Alucobond panels are, in that sense, essentially akin to what were said to be the “core defects” in Toyota v Williams. As in that case, the properties are alleged to be such that any idiosyncratic circumstances of supply to individual group members are unlikely to be relevant to the assessment required by s 74D(3) of the TP Act and s 54(2) of the ACL. Similarly, the properties are alleged to be such that it is highly unlikely that any examination of the panels was reasonably likely to have revealed that they were not of merchantable or acceptable quality for the purposes of s 74D(2)(c) of the TP Act or s 54(7) of the ACL.

59    3A’s contention that the disputed questions cannot be determined on a common basis essentially hinges on the fact that they had pleaded, in their defence, that the purposes for which Alucobond panels were commonly supplied in Australia were uses of the panels “in accordance with designs, plans and specifications approved, certified or used by” Qualified Professionals, such as architects and engineers. That was said to be not only a relevant circumstance of supply (for the purpose of s 74D(3)(c) of the TP Act and s 54(3)(d) and (e) of the ACL) that bore on the question whether the panels were or were not of merchantable or acceptable quality, but also a circumstance of supply that varied, or was likely to have varied, as between individual group members. In short, 3A seemed to contend that, because its defence included a generic claim that Alucobond panels were to be used in accordance with designs, plans and specifications approved, certified or used by Qualified Professionals, it was therefore necessary to consider the particular designs, plans and specifications of Qualified Professionals in respect of each group member’s building. It submitted, for example, that the nature of the designs, plans and specifications relating to a particular building might suggest that the panels were fit for the particular use in that particular building.

60    The difficulty with 3A’s submissions in that regard is that 3A’s defence based on the involvement of Qualified Professionals is that it is essentially a global or generic defence which on its face appears to apply in respect of the supply of all Alucobond panels. It does not depend on the particular circumstances of actual supplies to individual group members. Nor does it depend on whether the panels were in fact fit for purpose in the case of individual group member buildings having regard to the designs, plans or specifications relating to individual group member buildings. Rather, the defence is in effect that, because all Alucobond panels were supplied for use in accordance with designs, plans and specifications of Qualified Professionals, they were therefore always fit for purpose and always complied with the requirement to be of merchantable and acceptable quality. If 3A’s defence in this respect is made out at the initial trial, it would defeat the claim of all group members because the panels could not be said to be of unmerchantable or unacceptable quality generally. In other words, disputed questions 57 and 58 could be answered “yes” on a common basis favourably to 3A.

61    In support of its submission that the disputed questions could not be answered on a common basis, 3A relied on some passages in an expert report by a fire safety engineer, Mr Rob Davis, which it had filed in its defence. That report dealt at length with the general duties and responsibilities of a fire safety engineer and the general process that a fire safety engineer would engage in to assess whether the use of panels or cladding on a building was suitable or compliant. Mr Davis also specifically addressed the use of Alucobond panels on Owners’ building, though it would appear that no fire engineer was retained in respect of the use of the panels on that building. Mr Davis was also instructed to assume that the building was not compliant. The point that was said to flow from Mr Davis’ report was, in effect, that fire engineers might have been retained by other group members in respect of their specific buildings. That was said to illustrate how the individual circumstances of each group member may differ.

62    I am unable to see how Mr Davis’ report advances 3A’s submission that the disputed questions cannot be answered on a common basis. The fact that fire engineers might have been retained and given advice concerning the use of panels on other group member buildings appears to be not only speculative, but also essentially beside the point having regard to the way 3A has framed its defence. It should also perhaps be noted in this context that, as Owners pointed out, Mr Davis had, following the preparation of his report, participated in a conclave with other like experts, and produced a joint report with those experts. One point of agreement between the experts was that it was not common practice during the relevant period for a fire safety engineer to be asked to assess the proposed use of combustible panels as part of or as an attachment to an external wall or building element. That rather undermined and exposed the speculative nature of 3A’s submission concerning the disputed questions based on Mr Davis’s evidence.

63    3A submitted that the circumstances of this case were not analogous to those considered in Toyota v Williams. That was said to be because the “core defect” in Toyota v Williams was a defect in the DPF system in every vehicle supplied, whereas the allegedly defective properties of the Alucobond panels involve a “risk”. In those circumstances, the alleged defective properties in this case were, in 3A’s submissions, more akin to the alleged defect in Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 284 ALR 1; [2011] FCAFC 128 (Merck v Peterson), a case which concerned medicine which was said to increase the risk of heart attack; or the alleged defect in Graham Barclay, a case which concerned, among other things, the allegation that oysters were unmerchantable because they posed a risk to the health of consumers because the waters in which the oysters were grown had been polluted. The defect in Merck was said to be analogous because the Court reasoned that the medicine in question was prescribed by a medical professional and prescription medicines “are rarely risk free”: Merck v Peterson at [174]. The defect in Graham Barclay was said to be analogous to this case because one of the judges, Lindgren J, reasoned that if a consumer had been warned of the risk of contracting a disease from the oysters, the consumer would be taken to have born that risk.

64    I doubt that it is useful to compare or contrast the facts and circumstances of this case with those considered in Merck v Peterson and Graham Barclay. Each case must be considered having regard to its own facts and circumstances. The fact that both those cases involved goods that were said to be unmerchantable because they posed a risk to the consumer does not necessarily mean that they are analogous to the facts and circumstances of this case. Likewise, while the fact that the medicine in Merck v Peterson was supplied on the advice of a medical professional might have been decisive on the facts of that case, that does not mean that the case is relevantly analogous to this case. As for Graham Barclay, it is difficult to see how the reasoning of Lindgren J could be said to be applicable to the facts and circumstances of this case, particularly given the absence of any clear or explicit pleading by 3A or Halifax that Qualified Professionals advised group members of the inherent risks in the panels and that as a result those group members agreed to assume that risk.

65    In my view, the facts and circumstances of this case are more analogous to those considered in Toyota v Williams, at least in the context of considering whether questions about the merchantability or acceptability of the goods in question are able to be determined on a common basis. The alleged Material Fire Risk Properties and Prohibition Risk Properties could fairly be said to be fundamental or “core defects” which were inherent in the panels, much like the defective DPF system in Toyota v Williams, even though they involved serious risks rather than operative defects. Owners’ case is that those risks were such that the panels could not be said to be fit for all of the alleged purposes in every case, whatever Qualified Professionals may have said about their potential use in certain specific cases, or whatever they may have said about the inherent risks. More significantly, I am unable to see anything in 3A’s defence which hinges on the fact that the properties of Alucobond panels that made them unfit for their purposes gave rise to risks. Nor am I able to see anything in the defence which raises, or is likely to raise, any issue concerning the advice that Qualified Professionals may have been given to individual group members concerning the use of Alucobond panels on their buildings. As discussed earlier, the plea based on the involvement of Qualified Professionals is a global or generic plea, not one that descends into any details relating to the buildings of individual group members.

66    It should perhaps be reiterated at this juncture that the disputed questions effectively carve out from consideration any potential defences under s 74D(2) of the TP Act and s 54(4) and (7) and s 271(2) of the ACL which might depend on the circumstances peculiar to individual group members. That carve out essentially deals with the broad and general factual allegations made in 3A’s defence at D[66(g)] and D[73(e)]. It follows, for example, that any answers to disputed questions 57 and 58 would be subject to any findings that might be made, in the context of cases advanced by an individual group member, concerning the fact that defects were specifically drawn to the group member’s attention by Qualified Professionals before they agreed to the supply: see s 74D(2)(b) of the TP Act and s 54(4) of the ACL. Similarly, the answers would be subject to any finding that the group member examined the panels before acquiring them and that examination ought reasonably to have revealed that the panels were not of merchantable or acceptable quality: s 74D(2)(c) of the TP Act and s 54(7) of the ACL. Disputed question 59(b), however, addresses the objective element of that equation.

67    Halifax broadly relied on and adopted 3A’s submissions. Halifax additionally submitted that the Court should not permit the disputed questions concerning merchantable and acceptable quality to be posed at the initial trial because there was a dispute as to whether the panels had been relevantly supplied by it in the first place. It may perhaps be accepted that, if the common question concerning whether the panels were supplied is determined adversely to Owners, it is unlikely to be necessary to answer the disputed questions. That provides no reason not to pose the disputed questions. If that were the case, the only common questions that the Court should answer at the initial trial would, contrary to the agreed position of the parties, be common questions 34 to 39 and 72, each of which deals with issues in respect of the supply of the goods in question.

68    Both 3A and Halifax also submitted that the Court should not revisit the ruling made in Owners (No 5) and that the circumstances of this case are different to those in Toyota v Williams because in that case the issue concerning the common questions which dealt with merchantable and acceptable quality arose after the initial trial. The parties in Toyota v Williams had also prepared their respective cases on the basis that one of the issues to be determined at the initial trial was whether the issue of acceptable quality could be determined on a common basis. That was not the case here. I doubt that those distinguishing features of Toyota v Williams are of any real significance. I will, however, address them in the context of 3A and Halifax’s contention that they will suffer irremediable prejudice if the disputed questions are accepted at this late stage.

WOULD 3A AND HALIFAX SUFFER ANY PREJUDICE?

69    Both 3A and Halifax submitted that they would suffer irremediable prejudice if the disputed questions were introduced at this stage, particularly given the prior ruling in Owners (No 5). They submitted that they may be taken to have made forensic decisions about the evidence that it would be necessary for them to adduce based on the ruling in Owners (No 5) and that they would now have insufficient time to investigate and gather evidence concerning the circumstances of individual supplies to group members. As already noted, they pointed out that the circumstances of this case were distinguishable from the circumstances in Toyota v Williams, where the parties had prepared for the initial trial on the basis that one of the common questions was whether the issue of acceptable quality could be determined on a common basis.

70    I am not persuaded that 3A and Halifax will suffer any prejudice, let alone any irremediable prejudice, if I permit the disputed questions to be raised at the initial trial. That is so for a number of reasons.

71    First, to the extent that 3A and Halifax contend that they prepared their respective cases on the basis of the ruling in Owners (No 5), it was somewhat imprudent for them to have done so in circumstances where, as discussed at length earlier, it was made plain in that judgment that the common questions were not to be taken to be “set in stone”, but were open to be revised and adapted as the case progressed. The case did progress after the judgment in Owners (No 5) was delivered. The pleadings were finalised, and the parties filed their evidence based on the issues as defined in the pleadings. 3A and Halifax should have appreciated that there was a possibility, if not probability, that the common questions might need to be revisited as the case progressed and the issues were refined and confined.

72    Second, the submission that 3A had made forensic decisions about their evidence in light of Owners (No 5) and that they would now have insufficient time to investigate and gather evidence relevant to the disputed questions was not supported but any, or any cogent evidence. The submission also ignores the fact that, having regard to the way the parties had pleaded their respective cases, it is at best doubtful that evidence concerning the circumstances of individual supplies to group members would be relevant or admissible. As discussed in detail earlier, 3A’s and Halifax’s defences do not plead any material facts relating to the circumstances of the supplies to individual group members.

73    Third, and relatedly, if the disputed questions are allowed at this stage, it does not follow that 3A and Halifax will be precluded from submitting at a later point, including during or at the conclusion of the evidence in the initial trial, that the questions cannot or should not be answered on a common basis, or that the answers should be qualified in certain respects: cf Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority t/as Seqwater (No 5) [2015] NSWSC 1771 at [40]. As noted earlier, common question 75 (which is agreed) is whether any of the common questions and their answers are in fact not common to all group members. It would also be open to 3A and Halifax in that context to seek leave to adduce further evidence that may bear on the question whether the disputed questions can or should be answered. That would not necessarily involve adducing evidence concerning the particular facts and circumstances of the supplies to all group members.

74    I should finally emphasise, in this context, that as Gillard J observed in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] ATR 81-692 at [42], it is “important that the Court conducts group proceeding litigation in a practical manner and ensures that as many questions of law and fact having a degree of commonality are decided”. The fact that it might ultimately be determined that a common question cannot be answered at the initial trial because, contrary to initial impressions, the answer may require the consideration of fact and circumstances peculiar to individual group members, is no reason for not posing it in the first place.

CONCLUSION AND DISPOSITION

75    The list of common questions and questions of commonality to be addressed at the initial trial should include disputed questions 57 to 59. I am not satisfied that the answers to those questions will, or are likely to, depend on facts and circumstances concerning individual group members, as opposed to facts and circumstances which are relevant and common to the applicant and all group members. Nor am I satisfied that 3A and Halifax will suffer any prejudice as a result of the inclusion of those questions amongst the list of common questions. I should reiterate, however, that the list of common questions is subject to review as the case progresses. Moreover, the inclusion of the disputed questions does not necessarily mean that they must or will be answered at the initial trial. Much will depend on how the evidence and issues unfold at the trial.

76    The parties did not advance any submissions in respect of who should bear the cost of resolving this interlocutory dispute. My inclination is that the costs should be costs in the cause, or perhaps the applicant’s costs in the cause.

77    The parties should confer with a view to reaching an agreed position in respect of costs, as well as the orders that should be made to give effect to this judgment. The parties should provide the Court with either consent orders, or competing short minutes of order within seven days of the handing down of this judgment.

Associate:

Dated:    19 July 2024