Lacrosse Apartments VCAT Decision – Combustible Cladding and Important Liability Issues for Building Consultants

On 28 February 2019 His Honour Judge Woodward delivered his judgement which is the first major decision in Australia regarding the liability of building industry entities involved in the design and construction of a building with combustible cladding.

The subject of the judgement was a fire which took place in November 2014 at the Lacrosse Apartments in Melbourne and extensively damaged the building.

The judgement runs to almost 230 pages and the proceedings had 211 applicants (including 208 individual apartment owners)(the Owners) and 8 respondents (being the builder, the building surveyor and his employer, the architects, the fire engineer, the superintendent under the building contract, the occupier of the unit in which the fire began and the resident who lit the cigarette which caused the fire (Mr Gubitta). Ultimately, the superintendent settled prior to the hearing, and neither the occupier of the unit or Mr Gubitta took part in the proceedings).

The Owners claim was against the builder for breach of statutory warranties under the Domestic Building Contracts Act 1995 (Vic) (DBCA) (such warranties are substantially replicated in other states and territories across Australia including in New South Wales and the ACT). The builder then joined the building consultants – being the architect, fire engineer and building surveyor – as respondents claiming that they were responsible for the specification of the highly combustible cladding and responsible for complying with the building regulations.

The Owners claimed that their loss was caused by the builders’ breaches of warranties under the DBCA because the combustible cladding used on the building was not fire-resistant and did not meet the performance requirements of the Building Code of Australia (BCA). The builder in turn argued the building consultants were liable pursuant to the terms and conditions of the contracts that were novated to them from the developer.

The builder argued that the building consultants should have alerted it to the presence of combustible cladding and prevented the use of the non-compliant combustible cladding.

None of the respondents had a direct contractual relationship with the Owners.

In the matter, the builder did not cavil with Owners’ claim for damages for the DBCA breaches under the principles for damages at common law for breach of contract. Indeed His Honour found that this was unsurprising as the Owners had an “unarguable” entitlement to the damages claimed.

The Tribunal accepted the Owner’s submission that the DBCA warranties were not qualified or limited to an obligation to use reasonable care and skill.

The Tribunal held that the consulting contracts were “pivotal in ascribing liability” in this case. It was held that the contracts were commercial arrangements between parties who were “without exception, sophisticated professionals with considerable experience in the building industry” .In considering whether the builder took reasonable care in selecting the combustible cladding, the Tribunal found that the level of qualifications and nature of responsibilities held by the building consultants led to a reasonable expectation that the fire engineer, the building surveyor and the architect (in that order) should have a “better grasp than building practitioners of fire risks and the application of the BCA to those risks”. Moreover, the builder was relieved of its obligation to exercise reasonable care due to its engagement of those building consultants during the construction of Lacrosse, each being “an important link in the chain of assurance and compliance with the BCA”. The Tribunal in fact placed the builder into a separate category to the building consultants, finding that for large and complex projects, “the builder sought to cover acknowledged shortcoming in its own expertise by engaging highly skilled professionals to direct and supervise its work.”

His Honour found that that the builder was liable to pay damages to the Owners but then found that the damages payable by the builder were to be reimbursed by the respondents as “concurrent wrongdoers” in the following proportions (interestingly no order was made against Mr Gubitta and the builder was not reimbursed the 3% damages that the builder was liable to pay to the Owners which was apportioned to Mr Gubitta):

Fire engineer: 39%

Building surveyor: 33%

Architects: 25%

Mr Gubitta: 3%

The Owners claimed at least $12,765,812.94 in damages and VCAT awarded the Owners damages in the sum of $5,748,233.28.

On 1 Aril 2019 VCAT ordered that just under $7,000,000.00 was to be paid by the builders to bring the building into compliance and for other various heads of loss claimed and interest. As with the primary judgement, the further amount is to be paid by the building consultants in the same proportion as the primary judgement.

As the first decision in Australia that has considered the roles and responsibilities of the builder and other building consultants regarding the use of combustible cladding on a residential building, this decision will impact a wide range of industry participants and their liability and professional indemnity insurer interests.

 

View full decision here.

 

Newly Re-Elected NSW Government Building Standards Announcement

NSW Government – building standards update

The newly re-elected Berejiklian Government has announced its plan in response to the Building Confidence Report commissioned by the Building Ministers’ Forum in August 2017.

The independent expert review by Professor Peter Shergold AC and Bronwyn Weir examined building regulatory systems around Australia and found there are national problems in the construction industry.

In response to the Building Confidence Report, the Government will support the majority of recommendations, including requiring that:

  1. building designers, including engineers, declare that building plans specify a building that will comply with the Building Code of Australia,
  2. builders declare that buildings have been built according to their plans. and
  3. requiring building designers and builders to be registered for this purpose.

The NSW Government will appoint a Building Commissioner to act as the consolidated building regulator in NSW, including responsibility for licensing and auditing practitioners.

The plan will also clarify the law to ensure there is an industry-wide duty of care to homeowners and owners corporations so they have the right to compensation where a building practitioner has been negligent.

Read more about the NSW Government’s plan for Building Standard here.

Tribunal Decision Regarding The Executive Committee Code Of Conduct In The ACT

Leonard & Anor v Michie & Ors (Unit Titles) [2019] ACAT 14 is a recent decision by ACAT which was determined on 31 January 2019.

It is of interest to strata managers given it is the only decision of any jurisdiction in the ACT which considers allegations of breaches of the executive committee Code of Conduct.

In short, the applicants made over a dozen allegations of breaches of the Code of Conduct by the executive committee members of the Owners – Units Plan No 1636 and Senior Tribunal Member Orr QC considered each allegation in turn and determined whether a breach had occurred or not.

Ultimately, the Senior Member found that there were no breaches of the Code of Conduct by any of the executive committee members but a number of observations were made which are helpful in understanding the Code of Conduct.

Firstly, at paragraphs 29 and 30, in response to the applicants request that executive committee members be removed, or banned from standing for re-election, the Senior Member observes that “the provisions in the Act in relation to the orders the Tribunal can make (section 129) can extend to some claims in relation to the Code. These on their face may allow proceedings for an order requiring an executive member to do something required by the Code, or refrain from doing something in breach of the Code (section 129(1)(a) of the Unit Titles Management Act), particularly in light of the clear statutory obligation to comply with the Code in section 46. It may allow for breaches of the Code to be taken into account in proceedings concerning motions and decisions, especially of the executive committee (section 129(1)(f) and (g)). It may allow for declarations that an executive committee member has breached the Code (section 129(2)). But the respondents argued that the Tribunal could not make orders removing and banning them from holding the position of executive committee member for breach of the Code, or anything else. I think this is correct.”

The Senior Member then approaches each of the various allegations of a breach of the Code of Conduct on the basis that “the tribunal may order an executive member to do something required by the Code, or refrain from doing something in breach of the Code, allow for breaches of the Code to be taken into account in proceedings concerning motions and decisions, and allow for declarations that an executive committee member has breached the Code” (as opposed to such breaches resulting in the removal of an executive committee member or banning them from standing for re-election).

Generally, the Tribunal’s analysis of the various allegations do not involve a lengthy consideration of the Code of Conduct but rather a statement of the facts and a simple statement that the facts do not constitute a breach of the Code of Conduct.

However, at paragraph 184 the Senior Member does observe that “I do not think there is any obligation under the Code of Conduct on executive members to communicate at any other time and in any other manner with another member of the committee. I do not think that generally blocking emails, declining to walk around the complex, being unhelpful, ignoring email requests, turning away, deliberately ignoring well-meant greeting, leaving notes and speaking ill of the applicants in personal conversations to others amount to a breach of the Code of Conduct”.

This decision is helpful to strata managers as it can be provided to disenfranchised lot owners who wish to address the particular conduct of an executive committee member in their owners corporation. Finally, it appears that a breach of the Code of Conduct requires much more than trivial matters to have occurred.

View full decision here.

Security Bars: Common or Lot Property?

In the matter of Cestaro v The Owners – Strata Plan No. 457 NSW Civil and Administrative Tribunal of 12 February 2019 (unreported), it was held that security bars affixed to the external windows of a lot were common property.

The lot owner applicant alleged that security bars that they had installed in 2004 and that were removed by the Owners Corporation in 2015 during remedial works, were lot property and should be replaced by the Owners Corporation.

There was no common property rights by-law permitting the lot owner to install the bars, however, the lot owner had been given permission by their strata manager to change them in 2004. Although the Owners Corporation was subject to model by-law 5 regarding locking or safety devices (which permits lot owners to affix locking or safety devices to common property) this fact was not expressly mentioned in the reasoning of the Tribunal, rather, the reasoning primarily turned on the definition of lot property being the inner surface of the boundary wall and the fact that the security bars had been affixed to common property. The Tribunal further reasoned that the security bars were lot property installed at cost to the lot owner until they were affixed to the common property at which time they became common property.

It was also held that the decision of the Owners Corporation to approve a remedial works contract that expressly included the removal of the existing security bars but not their reinstallation, was a valid decision, and that the Owners Corporation decision to delegate decisions regarding the remedial works to the strata committee was authority for the strata committee’s decision to not allow reinstallation of existing or old security bars, but only to allow lot owners to install new security bars in a style and design of the strata committees choosing.

The reasoning in this decision did not consider whether security bars installed pursuant to a common property by-law would have changed this outcome, however, it is our opinion that it would have dramatically altered the outcome. If a lot owner wants permission to deal with security bars, the security bars should be authorised pursuant to a common property rights by-law that includes terms which provide for the costs and ownership of the bars and any conditions as to style, colour and of course repair, maintenance, and replacement.

Kerin Benson Lawyers advised the Owners Corporation in this matter.

Canberra Times article – Owners’ legal action over defects

On 3 December 2018, the Canberra Times published an article on owners’ legal action over defects with particular focus on Elara apartments as the owners prepare for Federal Court action against the builders’ insurance fund, which could end years of legal wrangling and building disputes over the controversial Bruce development To read the full article, click here.

Flammable Cladding Action Group

The Owners Corporation Network (OCN) is calling on all residential owners facing potential financial imposts due to flammable cladding to contact the OCN on eo@ocn.org.au ASAP, to be part of a Flammable Cladding Action Group.

The OCN has seen the benefits of strata owners pooling resources to resolve shared challenges. In addition, OCN is holding a seminar:

 Simplifying Strata – Successfully Managing Building Defects & Major Projects on Saturday 6 October 2018, 9.00am – 11.30am, at the Kirribilli Club

to assist people dealing with building defects, flammable cladding or looking to carry out major projects.  Cost for non-members is just $55 (incl GST), which includes OCN membership to 30 June 2019.

The Minister for Innovation and Better Regulation, The Hon. Matt Kean will open the session, outlining recent regulatory changes which will benefit strata owners.

OCN will introduce you to Better Living in Strata (BLISS!).  OCN is run by strata owners for strata owners with the aim to deliver Better Living in Strata Schemes for the increasing number of people choosing to make strata home.

Global building specialists, Sedgwick (formerly Sergon), will explain how to successfully manage building defects identification and resolution, including combustible cladding, as well as major repairs and upgrade projects.

For more information and to book, visit www.ocn.org.au/events.

University Research Project on Building Defects

Deakin and Griffith Universities are undertaking a research project on building defects. One part of the project involves interviewing stakeholders (including committee members) about their experiences and opinions dealing with building defects.

All participant information will be re-identified to provide anonymity.

If you are interested and available, the researchers can interview you via teleconference at any time between now and mid-December 2018.

If you are a committee member who is interested in participating, please email Christopher Kerin (christopher@kerinbensonlawyers.com.au) who will forward your details onto the relevant academics.