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A court has ruled that US shareholders in the Grenfell Tower cladding firm Arconic, can proceed with a lawsuit against the company after witnesses said managers knew the cladding performed badly in fire safety tests, yet continued to be used on high-rise buildings. A group of US investors says they incurred financial losses when Arconic’s Reynobond PE cladding was implicated in the Grenfell fire in 2017.
Their claim hinges on whether the company knew the cladding could be dangerous and should have warned investors of the risk involved in selling it. A US judge ruled that the claim can proceed after the shareholders put forward testimony from two anonymous former Arconic employees, who say managers at its French subsidiary knew of the risks.
The plaintiffs also point to an expert report, submitted to the Grenfell Tower inquiry in the UK, which found that the safety rating of the cladding had been downgraded. One confidential witness said Claude Wehrle and Claude Schmidt, senior members of staff where Arconic’s cladding was manufactured, were aware of the cladding’s poor performance in safety tests. A second witness said Schmidt “knew that the downgraded Reynobond PE panels were regularly being sold for use in high-rises”. Wehrle has refused to give evidence to the Grenfell inquiry. Schmidt said he was “practically sure” he had raised concerns with the US parent company.
During the legal battle with shareholders, Arconic has said it could not have known what the two men allegedly knew, arguing that they worked at a foreign subsidiary and did not hold senior positions in the company.
According to the ruling, Arconic also argues that the men did not know the use of Reynobond PE was inappropriate because that depended on the overall cladding system, not just aluminium panels.
The court found that this argument failed, finding that the claim “supports a strong inference that an Arconic manager not only knew that Arconic was regularly selling Reynobond PE for use in high-rises, but also that he knew, or at least recklessly disregarded, that this ‘common practice’ was improper”.
The plaintiffs are making a financial claim against Arconic for their losses, although the value of the claim is yet to be determined. While the judge dismissed several of the claims, including those made against individual senior managers at the company, it allowed two to proceed.
The claims that will go ahead are under sections 10(b) and 11 of the US Securities Act, which covers misleading information given to shareholders and companies’ liability for them.
A spokesperson for Arconic stated that the two claims are “meritless” and that they “intend to prevail in court”.
02 August 2021
30 July 2021