By: Misha Henaghan, Anna McElhinney and Phoebe Nikolaou

At a glance

• The possible pool of targets for recovery has increased with the New Zealand Court of Appeal recently holding that New Zealand’s Consumer Guarantees Act 1993 (CGA) applies to overseas manufacturers of goods supplied to consumers in New Zealand and the Fair Trading Act (FTA)¹ can apply to overseas-based trading entities even where they do not have a New Zealand presence.
• This is positive news for insurers in the subrogated recovery space, broadening the possible recovery pool, though practical cost and enforcement barriers may remain.

Background

German-based 3A Composites GmbH (3A) manufactured composite aluminium cladding products which have been the subject of growing recognition of fire risks, particularly following the fire at the Grenfell Tower in London. 3A did not maintain any presence in New Zealand as the cladding panels were distributed locally. The plaintiffs’ claim alleged that the cladding panels are inherently unsuitable for use as cladding due to their combustibility and made a variety of claims against 3A in tort and under the CGA and FTA.

3A filed a protest to the jurisdiction of the New Zealand courts. The High Court set aside the protest to jurisdiction in relation to three tort causes of action: those causes of action can proceed before the High Court. The protest to jurisdiction was however upheld in relation to three other causes of action: one brought under the CGA, and two brought under the FTA.

CGA applies to overseas manufacturers whose products are supplied in New Zealand

The Court of Appeal held the CGA imposes strict liability on suppliers and manufacturers for products supplied in New Zealand. It is the supply within New Zealand that provides the necessary territorial connection. It disagreed with the High Court and said it was inaccurate to term availability of relief against a person outside New Zealand under the CGA as “extraterritorial”.

The High Court had read the inclusion of importer or distributor within the definition of manufacturer in section 2(1) of the CGA as providing a basis for a New Zealand consumer to make a claim against a responsible party in place of an overseas manufacturer. While the Court of Appeal accepted that the definition allows New Zealand consumers the ability to seek less costly and more practical redress against an importer or distributor of goods manufactured outside of New Zealand, it held that the definition does not mean that a foreign manufacturer should be excused from liability – both can be liable.

Notwithstanding the decision regarding the applicability of the CGA to overseas manufacturers, 3A’s protest to jurisdiction for the CGA cause of action was upheld because the cladding panels were not goods ordinarily acquired for personal, domestic or household use for the purposes of the CGA. The cladding panels were not ordinarily sold to individuals or households.

New Zealand trading presence not required for FTA liability

The High Court found that because 3A was not a trading entity in New Zealand and did not carry on the business of selling and supplying its cladding products in New Zealand, FTA claims against it for misleading and deceptive conduct or making misrepresentations could not possibly succeed. However, while section 3(1) extends the FTA’s application to conduct that occurs overseas where a defendant carried on business and supplied products in New Zealand, the Court of Appeal clarified that in this case, the issue was whether 3A had made false and misleading statements within New Zealand, irrespective of where it was incorporated and carried on business.

The protest to jurisdiction was overturned because the Court found that, by a narrow margin, there was a serious issue to be tried as to whether there was reliance on 3A’s claims about the cladding panels leading to loss. It was also relevant that the FTA claims were substantially the same as the claims in negligent misstatement, for which there was jurisdiction. The burden for an overseas defendant responding to litigation in New Zealand would not be significantly increased.

Accordingly, section 3(1) does not operate as a jurisdictional barrier to a claim under the FTA, where there is a serious issue to be tried about whether an overseas manufacturer engaged in conduct that breached the FTA.

Key takeaways for insurers

Consumer protection remedies for New Zealand consumers are available irrespective of the manufacturer’s location. The main point is the location of the supply or the nature of the alleged acts, rather than any focus on the manufacturer’s location. While this must be supported by evidence of ordinary personal or domestic use of the goods supplied in the case of the CGA, or evidence of alternate conduct (such as marketing) within New Zealand in the case of the FTA, importers and distributors will not necessarily be left to carry the burden of the supply of a defective product manufactured by a foreign third party.

However, practical difficulties in pursuing overseas-based manufacturers remain a barrier to recoveries and expense, and difficulty in enforcing New Zealand orders remains a challenge. Insurers will need to assess this on a case-by-case basis in reviewing overseas manufacturers as a possible recovery target.

^[1] For our summary of the High Court’s decision, read our Product Liability Update – Issue 1, December 2022.