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.

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.

Inquiry into Building Quality in the ACT

The Canberra Times has reported on the current and ongoing “Inquiry into Building Quality in the ACT” which was announced in April 2018 by the ACT Legislative Assembly. Click here to read the article.

The Standing Committee on Economic Development and Tourism, which is in charge of the Inquiry, has resolved to inquire into and report on the quality of new buildings in the ACT and any potential or actual causes of poor building quality in the ACT

As of 4 October 2018, 39 submissions had been made by owners corporations, apartment owners, the Owners Corporation Network and other interested stakeholders.

Submissions to the Inquiry can still be made and stakeholders are encouraged to make submissions. The date for the lodgment of submissions has been extended to Friday 30 November 2018 and the Committee intends to hold public hearings in the first quarter of 2019.

Building Cladding Crisis: The Government Response

There has been a huge amount of publicity around non-compliant building cladding but what does it all mean? Kerin Benson Lawyers has created a three part series explaining What the Building Cladding Crisis is about, the Government Response and Insurance. Below is the third and last of these Newsletters.

The Building Cladding Crisis has been met with responses from both Commonwealth and State and Territory governments.

This Newsletter summarises the responses from both the Commonwealth and ACT governments.

  1. Commonwealth Government

a ) Commonwealth Parliament

On 23 June 2015, the Commonwealth Parliament Senate referred the matter of non-conforming building products to the Economics References Committee for inquiry and report.[1]

In the light of the Grenfell Tower fire in June 2017, the Committee agreed to prepare an additional interim report on the implications of the use of non-compliant external cladding materials in Australia and on 6 September 2017 the ‘Interim Report: aluminium composite cladding’ was produced.[2]

This Interim Report contained 8 recommendations being:

i. Recommendation 1.The committee recommends the Australian government implement a total ban on the importation, sale and use of Polyethylene core aluminium composite panels as a matter of urgency.

Within a short time of the release of the Interim Report (ie on 11 September 2017), Senator Nick Xenophon introduced the Customs Amendment (Safer Cladding) Bill 2017 which intended to amend the Customs Act 1901 and ban the importation into Australia of polyethylene (PE) core aluminium composite panels. However, this Bill has not progressed very far.

Indeed, some of the problems outlined with the bill include:[3]

  • the bill does not define what constitutes a “polyethylene core aluminium composite panel”. Is it an Aluminium Composite Panel with a 30% PE core or one with a 100% PE core? and
  • it doesn’t address Aluminium Composite Panels with a PE core that are already within Australia or the use of Aluminium Composite Panels with a PE core.

ii. Recommendation 2. The committee recommends that the Commonwealth work with state and territory governments to establish a national licensing scheme, with requirements for continued professional development for all building practitioners.

The committee acknowledges that greater enforcement of existing regulations is needed. However, current building regulations appear inadequate and are too easily evaded, largely due to existing deemed-to-satisfy and performance-based pathways, which provide avenues to circumvent the Australian Standards in the National Construction Code.

The committee also considers that a national licencing scheme for all trades and professionals involved in the building and construction industry including building surveyors, building inspectors, builders and project managers, would improve compliance and provide greater consumer protection and public safety outcomes.

iii. Recommendation 3. The committee recommends that the Building Minister’s Forum give further consideration to introducing nationally consistent measures to increase accountability for participants across the supply chain.

The committee supported the implementation of nationally consistent mandatory on-site inspections throughout the construction process. Whether this is done through the reinstatement of the role of Clerk of Works or some other process is eventually a decision for governments.

In addition, the committee agreed that responsibility for building compliance was weighted too heavily at the end of the supply chain. Consequently, measures need to be put in place to ensure greater accountability across the supply chain.

iv. Recommendation 4. The committee strongly recommends that the Commonwealth consider making all Australian Standards and codes freely available.

In the committee’s view, making Australian Standards freely available would reduce the overall cost of compliance and insurance and most significantly, it will reduce the cost and impact on future state and territory emergency, fire and medical services.

v. Recommendation 5. The committee recommends the Commonwealth consider imposing a penalties regime for non-compliance with the National Construction Code such as revocation of accreditation or a ban from tendering for Commonwealth funded construction work and substantial financial penalties.

The committee considers that the Federal Safety Commissioner (FSC) has an important role in ensuring compliance with the National Construction Code on Commonwealth funded projects but is concerned that it is not adequately resourced.

vi. Recommendation 6. The committee recommends the Commonwealth ensure the Federal Safety Commissioner is adequately resourced to ensure the office is able to carry out its duties in line with the new audit function and projected work flow.

vii. Recommendation 7. The committee welcomes the Commonwealth’s decision to give further consideration to Director Identification Numbers and recommends that it expedites this process in order to prevent directors from engaging in illegal phoenix activity.

The committee is concerned that it has been nearly two years since its report on insolvency in the construction industry was tabled and the Productivity Commission’s report was released and considers that a Director Identification Numbers (DIN) initiative should be considered as a matter of urgency. A DIN initiative would go some way to preventing directors engaging in illegal phoenix activity.

viii. Recommendation 8. The committee recommends that state and territory governments work together to develop a nationally consistent statutory duty of care protection for end users in the residential strata sector.

The committee believes that there needs to be a greater awareness and protection for consumers in the residential strata sector. The committee considers there is an urgent need to provide a statutory duty of care to cover the discovery of non-compliant or non-conforming building products for the increasing number of the Australian public who purchase residential apartments.

It should be noted that the above eight recommendations are only recommendations and derive from an interim report.

In February 2018, the Australian Government response to the Interim Report: Aluminium Composite Cladding was released and responded to each of the above recommendations. The responses ranged from Supported, Supported in Principle and Noted to Not Supported.

Prior to December 2017, Craig Laundy was the Assistant Minister for Industry, Innovation and Science and as such, was responsible for this issue. Upon his move to another portfolio, concerns have been raised that any progress on this issue will flounder. However, the Office of Mr Laundy has confirmed that he retains responsibility for this issue.

The Economics References Committee is expected to hand down its Final Inquiry Report on 16 August 2018.

b) Building Ministers Forum

The Building Ministers Forum (BMF) (a body of Commonwealth, state and territory Ministers responsible for building and plumbing policy and regulation) oversees the implementation of nationally consistent building and plumbing regulations through the 2015 Intergovernmental Agreement for the Australian Building Codes Board (ABCB). The Building Ministers Forum meets annually or on a needs basis[4] and is responsible for setting the regulatory agenda for both the administration of building control and reforms to the National Construction Code.

At the end of June 2017, the Building Ministers Forum announced that it:[5]

  • would direct the Australian Building Codes Board to expedite the implementation of measures through the National Construction Code to prevent the non-compliant use of cladding;
  • has directed the finalisation of the implementation of the recommendations set out in the Strategies to Address Risks Related to Non-Conforming Building Products report published in 2016, particularly the establishment of a national forum of building regulators;
  • has, with the Australian Building Codes Board, created a website providing information about non-compliant building products and allowing members of the public to submit a complaint or enquiry about a product (see https://www.abcb.gov.au/NCBP/Non-conforming-building-products); and
  • will commission a report by an independent expert on the compliance and enforcement problems affecting the implementation of the National Construction Code.

On 24 August 2017 it was announced that Professor Peter Shergold AC and Ms Bronwyn Weir had been commissioned as experts to assess the compliance and enforcement problems within the building and construction systems across Australia that are affecting the implementation of the National Construction Code.[6]

c) Australian Building Codes Board

On 14 August 2017, the Australian Building Codes Board announced that the National Construction Code would be amended out-of-cycle prior to the next scheduled edition of the National Construction Code in 2019. The key aspects of the amendment cover:[7]

  • a new verification method that adopts the external wall testing standard, AS 5113;
  • improving the evidence of suitability provisions;
  • clarifying the Deemed-to-Satisfy provisions relating to the fire performance of external walls; and
  • referencing an updated sprinkler standard, AS 2118.

Feedback on the public comment draft of the NCC 2016 Volume One Amendment 1 was due on 10 September 2017, with the amendment’s adoption date being 12 March 2018.[8]

  1. Territory Response – ACT Government

Following the Grenfell Tower fire on 14 June 2017, each State and Territory in Australia (with the exception of the Northern Territory) announced audits, or the extension of existing audits, into Aluminium Composite Panels.[9] We shall focus on the Australian Capital Territory response.

Unfortunately, the ACT Government has not been forthcoming with much information and there is little information publicly available on this topic. Therefore most of the information below was obtained via various Canberra Times articles from 2017.

Like a number of other Australian jurisdictions, the focus of the Australian Capital Territory has been on an audit of buildings for the use of combustible cladding material. Indeed, this has been the sole step taken by the Australian Capital Territory government as it has not, unlike other jurisdictions, enacted or even amended any legislation to address combustible cladding material.

A summary of the response of the Australian Capital Territory government is as follows:

  • in July 2017, the ACT government announced the establishment of a taskforce to coordinate work to identify and address buildings that are at a high risk from combustible cladding;
  • the taskforce included representatives from the Environment, Planning and Sustainable Development Directorate, the Emergency Services Agency and Access Canberra;
  • the taskforce has found combustible cladding at the following sites:
    • Cententary Hospital for Women and Children in Woden;
    • Canberra Hospital;
    • Belconnen Community Health Centre; and
    • Health Protection Service in Holder;
  • in addition, 46 schools and 7 public housing buildings had aluminium cladding although it is unclear as to whether any of that cladding contained flammable polyethylene;
  • as at June 2018, the taskforce appears to be continuing its work as the demand for qualified fire engineers has soared following the Grenfell Tower fire and there are a limited number of qualified fire engineers available for this work;
  • the surge in demand also extends to contractors and materials and consequently, the ACT Government has had to wait before the cladding identified on the above buildings can be replaced;
  • the risk posed by combustible cladding in Canberra is relatively low compared to other cities as Canberra has fewer high rise buildings; and
  • the ACT government is to take part in the abovementioned national review into building compliance and certification.

Further, it should be noted that the above taskforce only reviewed buildings owned by the ACT Government. The ACT Government is waiting on the Commonwealth to confirm if any buildings owned by the Commonwealth require rectification work.

Private property owners such as owners corporations and apartment owners need to review their own buildings to determine if there is any combustible cladding on them. In this regard, the writer has advised one large apartment building, which was found to have flammable cladding.

Curiously, it appears that concerns about flammable cladding in the ACT were raised in the ACT as far back as 2009 but a solution to the problem was never agreed upon.

 

[1] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p.1.

[2] Ibid, p.2.

[3] Minter Ellison, “Cladding: To Ban or not to Ban, that is the Question”, 12 September 2017.

[4] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p. 8

[5] Minter Ellison, “Cladding: the Australian landscape since Grenfell”, 12 September 2017.

[6] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p. 14.

[7] Ibid, p. 21

[8] Ibid, p. 21

[9] Ibid, p. 14 and 15.