Federal Court of Australia The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 5) [2020] FCA 1576 File number: NSD 215 of 2019 Judgment of: WIGNEY J Date of judgment: 30 October 2020 Catchwords: CONSUMER LAW – representative proceedings pursuant to Pt IVA Federal Court of Australia Act 1976 (Cth) – whether Merck orders concerning initial trial should be made – whether questions require adjudication of individual claims PRACTICE AND PROCEDURE – representative proceedings pursuant to Pt IVA Federal Court of Australia Act 1976 (Cth) – whether Merck orders concerning initial trial should be made – whether questions require adjudication of individual claims Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 Australian Consumer Law ss 54, 54(1), 54(2)(a), 54(3)(b), 54(3)(c), 54(3)(e), 54(7), 271 Federal Court of Australia Act 1976 (Cth) ss 33H(1)(c), 33ZB Trade Practices Act 1974 (Cth) ss 74D, 74D(1), 74D(2), 74D(3), 74D(3)(c) Cases cited: Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307 Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; 377 ALR 234 Medtel Pty Ltd v Courtney (2003) 130 FCR 182 Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26; 355 ALR 20 The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 33 Date of hearing: 17 July 2020 Counsel for the Applicant: Mr W A D Edwards with Mr J K S Entwisle Solicitor for the Applicant: William Roberts Lawyers Counsel for the First Respondent: Mr M J Darke SC with Ms A E Smith Solicitor for the First Respondent: King & Wood Mallesons Counsel for the Second Respondent: Mr N J Owens SC with Ms N Simpson Solicitor for the Second Respondent: Sparke Helmore Lawyers ORDERS NSD 215 of 2019 BETWEEN: THE OWNERS – STRATA PLAN NO 87231 Applicant AND: 3A COMPOSITES GMBH First Respondent HALIFAX VOGEL GROUP PTY LIMITED ACN 104 808 853 Second Respondent order made by: WIGNEY J DATE OF ORDER: 30 october 2020 THE COURT ORDERS THAT: 1. Within two weeks of the date of this order, the parties should provide the Court with draft orders reflecting the findings made in this 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 the representative proceeding commenced by The Owners – Strata Plan No 87231 against 3A Composites GmbH and Halifax Vogel Group Pty Limited. A description of the nature of the proceeding and the background facts and circumstances may be found in previous judgments dealing with interlocutory issues in the matter: see The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748. It suffices for present purposes to note that Owners alleges, amongst other things, that certain aluminium composite panels manufactured by 3A and distributed in Australia by Halifax 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) (TPA) 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). 2 In October 2019, 3A filed an interlocutory application which sought, amongst other things, an order striking out Owners' amended originating application. The main basis of that application was said to be that the amended originating application did not appropriately specify any questions of law or fact that could properly be considered to be common to the claims of the group members for the purposes of s 33H(1)(c) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). 3 Much water has passed under the bridge since the filing of that interlocutory application. Most significantly, Owners subsequently applied for and was granted leave to file a further amended originating application and an amended statement of claim. The further amended originating application annexes a schedule which contains a detailed list of the questions of law or fact said to be common between the claims made by Owners and the group members. Needless to say, those common questions differ substantially from those that were included in the initial originating application. Despite that, the October 2019 interlocutory application has remained on foot and was adjourned by consent on a number of occasions. The current case management controversy arose in that context. 4 The parties are now in agreement that the Court should make an order identifying the matters to be determined at the initial trial, including the questions of law or fact common to the claims of the group members – the "common questions". Once such an order is made, the parties agree that the October 2019 interlocutory application should be dismissed. 5 Perhaps more significantly, the parties have now largely reached agreement in respect of the common questions. The only issue between them is whether three particular questions proposed by Owners should be included in the order. 3A contended that the three disputed questions were not common questions because the answer to them will depend on matters that were "group member specific". Owners maintained that the three questions were common questions because they could be answered without reference to the group members' individual circumstances. 6 Before addressing the question whether the three disputed questions should be included in the relevant order, it is useful to say something about the nature of the order that the Court is being asked to make. "Merck orders" 7 Since the decision of the Full Court in Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26; 355 ALR 20, it has been generally accepted that at some stage before the initial trial in a representative proceeding it is desirable to identify the common issues that will be determined at the trial. That has given rise to the practice of the Court making interlocutory orders, commonly referred to as "Merck orders", which include a list of questions of fact or law that are considered to be common as between the group members and do not depend on any facts and circumstances that are specific or individual to any particular group member or group members. That is the nature of the order that the Court is presently being asked to make by the parties. 8 It is important to emphasise that Merck orders are simply a case management tool, albeit a potentially important one, in representative proceedings. The early identification of the common questions by the making of such orders will assist the parties and the Court to consider and determine properly other interlocutory or case management steps as the case progresses, such as the scope of any orders for discovery. It will also guide the parties in relation to the scope of the evidence to be gathered, filed and in due course adduced at the initial trial. Most importantly, it will provide an appropriate structure for the conduct of the initial trial and the making of appropriate orders for the purposes of s 33ZB of the FCA Act. 9 If a Merck order is made at a relatively early stage of the proceeding, however, it should not be considered to be "set in stone": Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; 377 ALR 234 at [377]. It is an interlocutory order which may be revised and adapted as the case progresses. Revisions may occur even during the trial itself and up to the point of judgment, subject of course to questions of fairness and prejudice. 10 This is a particularly important point to recognise and emphasise in the context of the present controversy. That is not only because the orders that the Court is being asked to make are being made at a relatively early stage of the proceeding, but also because the parties both tended to approach the controversy as if the orders, once made, were essentially set in stone. Owners went so far as to submit that, to the extent that the question whether the disputed questions should be included in the order turned on the construction of s 74D of the TPA and s 54 of the ACL, I should not determine that question at this stage because it would effectively amount to the grant of declaratory relief and that there was a risk that I would then be "functus" on the question. For its part, while 3A acknowledged that the orders were interlocutory in nature and could be revised and varied if necessary, it nevertheless submitted that if the disputed questions were not included in the orders made at this stage, there was unlikely to be any good reason to vary the orders in the future to include them. It also submitted that it might suffer prejudice if the disputed questions are later included amongst the list of common questions. 11 In light of the parties' submissions concerning the proposed orders, it should be made abundantly clear that the nature and scope of the common questions will be subject to revision and reconsideration, if necessary, as the matter progresses. To the extent that the inclusion or non-inclusion of the disputed questions turns on the construction of s 74D of the TPA and s 54 of the ACL, it may be accepted that the final determination of the proper construction of those provisions for the purposes of determining the common questions should be made at or after the submissions made at trial. It does not follow, however, that the issue should be deferred completely until the trial. It should be grappled with now so there is some degree of certainty concerning the common questions as the matter progresses, even if the findings made in that regard may be revisited in the future if the need arises or circumstances change. The disputed questions 12 The disputed questions are questions 44, 45 and 46 which appear under the subheading "Goods not of merchantable quality, non-compliant with Acceptable Quality Guarantee". They are in the following terms: 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? 13 As can be seen, the questions posed in questions 44 and 45 are to be answered by reference to the answers to other questions, questions 19, 20, 26, 42 and 43. It is unnecessary to refer to those questions in detail. It suffices to say that they pose various factual questions in relation to the properties or qualities of the relevant goods, including whether by reason of those properties the goods posed certain risks, or were not fit for certain purposes or were compliant or not with certain relevant codes. 14 It is common ground that the disputed questions address, or purport to address, the statutory tests in s 74D of the TPA and s 54 of the ACL. 15 Section 74D of the TPA 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. 16 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. 17 When consideration is given to the terms of both s 74D of the TPA and s 54 of the ACL, three things can be noted concerning the disputed questions. 18 First, questions 44 and 45 utilise the language found in s 74D of the TPA, rather than the language used in s 54 of the ACL. The parties nevertheless proceeded on the basis that there are no material differences between the language employed in the two sections. 19 Second, and more significantly, it can be seen that, while questions 44 and 45 purport to address the question whether the relevant goods were "fit for the purpose or purposes for which goods of that kind are commonly bought" (s 74D(3) of the TPA) or "fit for all the purposes for which goods of that kind are commonly supplied" (s 54(2)(a) of the ACL), in fact they do not address those statutory questions in their entirety. In particular, the questions do not include, in the case of s 74D(3), the words "as is reasonable to expect having regard to" or any of the words in paragraphs (a), (b) and (c). In the case of s 54(2), the questions do not include the words "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)" or any of the words in subsection (3). 20 Third, the effect of question 46 is to ask whether, having regard to the answers to questions 44 and 45, the relevant goods comply with the requirement of "merchantable quality" in s 74D of the TPA and comply with the "acceptable quality" guarantee in s 54 of the ACL. In effect, the question asks whether, having regard to the answers to questions 44 and 45, there has been a contravention of s 74D(1) of the TPA giving rise to a liability to compensate the consumer and a contravention of the acceptable quality guarantee in s 54(1), which gives rise to liability under s 271 of the ACL. It may be noted, however, that the question does not address whether any of the circumstances in s 74D(2) exist, in which case s 74D(1) would not apply. Similarly, it does not address whether any of the circumstances in s 54(7) of the ACL exist, in which case the goods would not fail to be of acceptable quality and therefore would not give rise to a contravention of the acceptable quality guarantee. 21 Putting those apparent drafting difficulties to one side for the moment, the critical question is whether the statutory questions purportedly posed by the disputed questions can be answered by reference to facts and circumstances which are common to all group members, or whether they can only be answered by having regard to the individual circumstances of the group members, or the specific circumstances in which the goods were supplied to each group member. The parties' submissions 22 3A submitted that, having regard to the terms of both s 74D of the TPA and s 54 of the ACL, the question whether certain goods are "fit for all the purposes for which goods of that kind were commonly bought" will or may require some consideration to be given to the specific circumstances of each supply in question. That is because the matters to which regard must be had in considering that question include "all the other relevant circumstances", in the case of s 74D, and "any other relevant circumstances relating to the supply of the goods", in the case of s 54: see s 74D(3)(c) of the TPA and s 54(3)(e) of the ACL respectively. In the case of s 54(3)(e) of the ACL, it was submitted that the reference to "the supply of the goods" must be a reference to the specific supply in question. 23 3A accepted that the test for whether the goods are fit for all purposes is an objective test, but submitted that the objective test is to be determined by reference to the circumstances of the individual consumer and the circumstances of the particular supply in question. That construction of s 74D of the TPA and s 54 of the ACL was supported, so it was submitted, by what was said about the objective test in s 74D of the TPA in Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307 at [533]-[534] and Medtel Pty Ltd v Courtney (2003) 130 FCR 182 at [64]. 24 3A submitted that because the objective test in relation to whether goods are "fit for all the purposes for which goods of that kind are commonly supplied" must be addressed and determined by reference to the circumstances of the individual consumer, questions 44, 45 and 46 cannot be answered other than by reference to the particular or specific circumstances of each group member. They are therefore not common questions. 25 Owners submitted that the construction of s 74D of the TPA and s 54 of the ACL which was advanced by 3A was not supported by anything said in Graham Barclay Oysters and Medtel. It also appeared to contend that the relevant passage in Graham Barclay Oysters that was relied on by 3A, which was a passage in the judgment of Lindgren J, was not the subject of agreement by the other judges and was not endorsed or followed in Medtel. Owners also submitted that, even if the issue concerning the proper construction of the relevant statutory provisions was resolved against it, the disputed questions should in any event be included in the common questions. That was said to be because the factual answers to questions 19, 20, 26, 42 and 43 might be such that Owners might in any event be able to prove that there could be no other relevant circumstances specific to any of the group members which could otherwise influence or alter the answers to questions 44 and 45. Consideration and determination 26 I am not persuaded at this stage that the disputed questions are, or are likely to be, common questions that can be determined at the initial trial. That is so for at least two reasons. 27 First, while the questions purport to pose the statutory tests or questions in s 74D of the TPA and s 54 of the ACL, they are incomplete and in fact address only some of the relevant circumstances or considerations referred to in those sections. As discussed earlier, in the case of the statutory test in s 74D of the TPA, questions 44 and 45 do not address the considerations in s 74D(3) which may bear on the question whether the relevant goods are fit for the purpose or purposes for which goods of that kind are commonly bought. Question 46 also does not address any of the circumstances in s 74D(2) which, if they apply, would mean that there is no contravention of s 74D(1) even if the goods are not of merchantable quality. In the case of s 54 of the ACL, questions 44 and 45 do not address any of the "matters" in s 54(3) which may bear on the question whether the goods are of acceptable quality. Question 46 also does not address the circumstances in s 54(7) which, if they exist, would mean that the goods in any event do not fail to be of acceptable quality. 28 Second, and more fundamentally, the problems or deficiencies with the disputed questions are not mere matters of drafting. Indeed, the drafting deficiencies simply reveal what is the more fundamental difficulty – namely, that the statutory tests in both s 74D of the TPA and s 54 of the ACL are both objective, but that that objective test must be posed and answered having regard to the circumstances of the particular consumer and the particular supply in question. In the case of s 54 of the ACL, for example, the question of whether goods are of acceptable quality is answered by reference to the perspective of the "reasonable consumer" but having regard to the relevant circumstances of the particular supply in question. 29 This construction of s 74D of the TPA and s 54 of the ACL is supported by the text and context of the relevant provisions. That is perhaps clearest in the case of s 54 of the ACL. The list of "matters" in s 54(3) are not generic, as was submitted by Owners, but relate to the goods the subject of the specific supply in question. For example, the price of the goods (s 54(3)(b)) is the price of the goods actually supplied and the statements made on the packaging and labels (s 54(3)(c)) are the statements made on the packaging and labelling in the case of the specific supply. In this case, it could not necessarily be concluded that all of the group members purchased the relevant goods for the same price, or in the same packaging. It is equally clear that the "circumstances relating to the supply of the goods" referred to in s 54(3)(e) of the ACL must be a reference to the specific supply in question. 30 This construction of the provisions is also supported by such consideration as has been given to the issue in the authorities. In Graham Barclay Oysters, Lindgren J (with whom Lee J relevantly agreed) said as follows concerning the objective test in s 74D of the TPA (at [533]-[534]): The words ''as it is reasonable to expect'' suggests a question as to the identity of the person or persons, the reasonableness of whose expectation is in question and is to be determined by the court. Possible contenders are: (1) the consumer or other person who suffers loss or damage; (2) a reasonable consumer placed as that actual consumer or other person was; (3) a reasonable bystander (in effect, the court). In my opinion consistently with both the objective nature of the standard aimed for and the consumer protection purpose of the provision, it is the second or third category of person whose reasonable expectation is called into service by the statute, and in my opinion a reasonable bystander would seek to put himself or herself in the position of a reasonable consumer placed as the actual consumer or other person was. Accordingly, it is right to inquire into the reasonable expectations of a category (2) person. 31 In other words, the reasonable consumer effectively stands in the shoes of the actual consumer. There is no reason to think that s 54 of the ACL should be construed differently. Indeed, as already noted, the language of s 54 points even more strongly to this being the correct construction. I am not persuaded that there is any basis for concluding that Lindgren J's conclusion was wrong. In any event, Lee J agreed with Lindgren J and accordingly I am effectively bound to follow that conclusion. It should also be noted that Moore J in Medtel (at [42]-[43]) effectively approved Lindgren J's formulation of the test and nothing said by Branson J (with whom Jacobsen J agreed) suggested any disagreement with that formulation. 32 It follows that, 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. Orders 33 The parties should provide the Court with draft orders reflecting the findings made in this judgment. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wigney. Associate: Dated: 30 October 2020