German manufacturer of aluminium cladding alleged to be high fire risk fended off litigation funders saying there was no ‘commonality of interest’ to support a class action; experts are divided on whether 3A Composites’ product is a fire risk.
Risk of fire spreading through aluminium cladding in high rise buildings came to public attention after the 2014 Lacrosse Tower fire in Melbourne and the 2017 Grenfell Tower fire in London. In New Zealand, a three story Mount Maunganui resort apartment was reclad with 3A Composites product in 2008 at a cost of nine million dollars. Now joined by Argosy Property, they both are suing for damages claiming the product is not fit for purpose. Argosy made use of the product for commercial buildings in Auckland suburbs of Albany and Mangere.
The High Court was told both the resort and Argosy have entered into litigation funding agreements with investors providing cash to fund legal expenses in return for a share in any recovery. Terms of the agreements were not disclosed. They applied for court approval to label their court proceedings as a representative action; colloquially known as a class action. This would have owners of other properties with the same aluminium cladding tied into the litigation. Class actions require a ‘commonality of interest’ such that a decision from a single court case can be applied across a multiple of disputes; saving time and costs.
The litigation funders argue 3A Composites’ product is inherently incapable of meeting building code requirements. This is disputed.
Justice Jagose ruled there is no commonality between affected building owners. Fire risk code compliance for cladding differs from building to building depending on when it was built, where it was built, how high it was built and the building’s use. Any argument that the product is inherently in breach of the Code is a ‘potentially contrived allegation’ designed to get around issues of commonality, Justice Jagose said. The application for class action status had the appearance of being primarily for the benefit of litigation funders, he said.
Drawing more property owners into the current litigation would potentially increase the payout for litigation funders; the bigger the pot the bigger the litigation funders’ return as a share of that pot. The court was told there are at least thirty buildings across New Zealand supplied with the disputed product. Terms of the class action application would have seen these property owners automatically included as part of the class action, unless they formally opted out, leaving the litigation funder controlling terms of any potential out of court settlement and the size of their pay out.
Body Corporate 91535 & Argosy Property v. 3A Composites GmbH – High Court (14.09.22)
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