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.

Invitation: Strata in Conversation ACT

Kelly + Partners Chartered Accountants will be hosting Strata in Conversation ACT, on Friday 10 August at The Mosaic Room, Hotel Hotel (Nishi Building). The topic of discussion will focus on mixed-use and the recent developments across the ACT Strata Industry, headed by a great panel of speakers.

Please click here for full details of the event and be sure to reserve a ticket as these events are limited in capacity and will sell out.

Building Cladding Crisis: Insurance

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 Governmental Response and Insurance. Below is the second of these Newsletters.

A range of stakeholders in the residential apartment building sector have indicated concerns regarding the impact non-compliant external cladding materials will have on building insurance policies.

The Insurance Council of Australia (ICA) has indicated that the non-compliant use of building products such as external cladding materials ‘critically undermines the ability for an insurer to rely upon the safety and performance of the building’. This directly impacts the insurer’s ability to establish their risk exposure which, the ICA stated, influences the setting of insurance premiums.[1]

The ICA has established a protocol for the identification of residual risk presented by Aluminium Composite Panels. This protocol is reproduced as the Appendix to this Newsletter and recommends the approach insurers should take in relation to whether a building should be insured or not. However, each insurer is considering the issues individually and is taking their own approaches to underwriting and considering how terms and conditions might be tailored in relation to coverage, pricing and excesses. Consequently, the responses of insurers range from electing not to insure through to applying higher deductibles and premiums.

It should be noted that, in particular, the testing and identification of aluminium composite panels as recommended by the Protocol will be difficult to comply with given the number of buildings required to be tested and the fact that there are currently no more than four places in Australia which can test to AS 5113 (the new Australian Standard for fire propagation on external walls which will come into force in March 2018).

Raising similar concerns, Insurance Australia Group (IAG) noted the non-compliant use of PE cladding has increased in recent years posing a fire risk much higher than other materials available, particularly when paired with equally combustible plastic foam insulation. IAG also commented that these materials are often being used in a way that does not conform with the National Construction Code and Australian Standards, which was a particular concern to IAG as:[2]

  • this threatens the safety of customers, employees and the broader community;
  • it increases the fire risk of buildings placing upward pressure on premium cost for consumers; and
  • non-compliance is a hidden risk. If the insurer cannot accurately assess risk, the uncertainty results in sub optimal outcomes for customers and insurers.

The Owners Corporation Network has also noted there are insurance implications for existing buildings which discover non-compliant cladding material and do not disclose it to their building insurance company. Conversely, the Owners Corporation Network was aware of one building that did disclose and is now unable to get building insurance, leaving all the owners in that building ‘jointly and severally liable for any debt’.[3]

In addition, the Australian Institute of Building Surveyors (AIBS) has expressed concern surrounding professional indemnity insurance for building certifiers overseeing the initial building work:[4]

… an emerging area of concern for the regulatory system and consumers is the issue of professional indemnity insurance. The current public debate on external cladding is already having a negative impact, with AIBS recently being advised that some insurance companies are inserting exclusion clauses for external cladding and non-complying building products into their policies.

CHU, the country’s largest underwriting agency of strata schemes (it insures 100,000 strata schemes under the QBE brand), has said it has not yet refused insurance to bodies corporate based solely on cladding that does not meet the building code. But the insurer said it had already priced the risk in some buildings as too high to make insurance worthwhile for some property owners. That is, it would be better to spend money on the removal of the cladding rather than pay for annual insurance.[5]

The inability of an owners corporation to obtain insurance has a number of ramifications.

Firstly and most obviously, the need to replace the building with the owners’ own funds in the event of a fire.

Secondly and less obvious is the fact that adequate building insurance coverage is a normal requirement of a mortgage and the mortgagee is likely to take action to ensure the asset is protected.[6]

In addition, some valuation reports prepared for lenders and insurers are indicating that some buildings are not fit for purpose and have an increased risk of fire.[7]

Westpac has commenced an audit of developers of all its residential and commercial projects that are under way and is looking to confirm the compliance of all external wall cladding products with the National Construction Code (https://www.propertyobserver.com.au/forward-planning/investment-strategy/property-news-and-insights/75813-cladding-aftermath-westpac-auditing-projects-for-compliance-with-safe-building-practices.html).

One of the particular problems facing residential apartment buildings is the fact that premiums for building insurance for residential apartment buildings are generally lower than premiums for commercial buildings. That is, premiums on commercial buildings are sufficiently profitable for the insurer to look for solutions to any problems associated with building cladding. However, where the profit margin is slim on a residential apartment building, an insurer has no incentive to accommodate that building and could potentially withdraw coverage entirely.

In the light of the above, some buildings are simply removing the cladding and not replacing it.

Naturally, some building owners will consider simply not informing their building insurer of the fact that there are Aluminium Composite Panels on their building. This approach is flawed given insurance coverage may be voided by failing to disclose such a material fact. Further, some insurance policies have exclusions that apply if the building does not comply with the Building Code of Australia.

Case Study

The Anstey Square Apartments in Sydney Road, Brunswick, are clad in a mix of expanded polystyrene and aluminium composite panelling, the same material that was used on the Grenfell Tower.

Last year, the apartments suffered a small, quick-spreading fire that brought attention to its cladding.

Consequently, in November 2017, the owners were required top pay an insurance premium of $134,000 (which was $29,000 the previous years). In addition, their excess rose from $1000 to $100,000.

Further, in December 2017, Moreland Council gave the Anstey Square owners corporation orders to carry out works to make the 105 apartments safe within three months. The order required immediate action that will cost owners around $250,000.

Finally, the owners corporation researched replacing the cladding, and discovered that it would cost between $2 million and $3 million to replace the non compliant cladding.

The owners have begun legal action against builder to recover the costs of fixing the nine-level tower.[8]

 

Appendix

Insurance Industry Aluminium Composite Panels Residual Hazard Identification / Reporting Protocol[9]

Introduction

Recent multi-level building fires in Australia and overseas have resulted in Federal and State governments inquiring into the potential exposure for buildings in relation to non-conforming and non-compliant building products. Governments are particularly focused on the potential exposure caused by inappropriate use of some types of aluminium composite panels (ACPs).

Insurers providing policy cover for buildings and set premiums according to the residual risk (after any effective risk mitigations present are considered) of damage occurring and a claim being made against the policy. The higher the probability of a damaging event occurring, the higher the premium.

Insurers have invested in the expertise necessary to measure residual risk. Using this, the industry has considered the challenges posed by non-conforming ACPs, beginning with the most fundamental of issues: its identification.

Through the ICA, insurers have agreed upon a Residual Hazard Identification Protocol for the identification of residual risk presented by the use of this building material.

Critically, the evaluation of exposure for each building that has ACPs present needs to be conducted on a case-by-case basis by qualified fire protection professionals including fire safety engineers, to evaluate the most critical exposures, safety to life and code compliance.

Building owners should also consider working closely with their insurer to ensure that the identification and evaluation process adopted for the building, including those engaged to undertake the process, will be considered sufficient for ongoing underwriting of the building.

Purpose

The purpose of the Residual Hazard Identification/Reporting Protocol is to provide a consistent methodology, in circumstances where ACP-type materials are considered to be present, for assessment and reporting of the residual risk, suitable for both building owners (to make decisions) and underwriters (to set premiums).

Intent

This protocol should be referenced by all stakeholders involved in assessing building risk posed by ACPs. Adopting this protocol will produce reports that are consistent across all jurisdictions and will be meaningful to building owners and their insurers.

Approach

The approach includes both the identification of the material used and the installation methodology. This will enable assessment of the risks posed by the use of the materials, which may then trigger consideration of remedial actions to lower a building’s residual risk to acceptable levels.

Residual hazard identification protocol

Reports commissioned by a building’s owner should address 10 critical questions through three steps:

Step 1 – Identification of Materials

The identification of ACPs is the critical first step in the process of identifying the potential hazard to life and property presented by the ACP. It must be undertaken with an almost 100 per cent confidence of the results.

The primary purpose is to accurately classify and quantify the materials present in order to determine the fire load along with its location and proximity to ignition sources.

Once identification and quantification is achieved, this enables respective parties to consider Steps 2 and 3 of this protocol.

Insurers have observed that ACPs typically come in four general categories defined by the composition of their core materials:

A. 50%-100% Polyethylene (PE, EVA Ethylene-vinyl acetate) – Category 3 in the BRE appendix

These are considered the problem materials.

B. 30% PE and 70% inert materials – Category 2 in the BRE appendix

Typically identified as FR (Fire Rated). Inert materials are typically mineral compounds.

C. 7% PE and 93% inert materials – Category 1 in the BRE appendix

These are considered close to non-combustible

D. 0% PE –  Category 1 in the BRE appendix

Typically an aluminium honeycomb or similar core. Also considered close to non-combustible.

In cases where there is no documentation associated with the building’s construction, or where available documentation lacks the necessary information to positively identify the ACPs that have been installed; or where there is sufficient doubt that the ACPs installed are what is documented (substitution), it is necessary for samples of the ACP, along with sarking and insulation materials behind any ACP, to be subjected to testing to clearly identify the composition of the core material and combustibility of the insulation/sarking.

Importantly, visual examination of the ACP or small flame application of a sample, in these circumstances, is insufficient for identification purposes.

ICA members, together with the Engineers Australia, the Fire Protection Association of Australia and registered fire safety engineers, have worked with accredited laboratories to agree upon a series of controlled tests that will adequately identify the core composition of installed ACP materials (including an insulation) on a building.

The tests have been verified by providing known samples of each category of ACP for testing. Each sample was coded and provided to independent labs for testing. Results were then compared to ensure that the testing methods used provided results that accurately identified the ACP into the correct category.

The laboratories that consistently identified the ACP samples into their correct categories are listed in the Appendices to this protocol.

Reports commissioned by a building owner using this protocol should answer the following questions for Step 1:

  1. Who has carried out inspections and testing for the building owner, and testing of the cladding material, what are their relevant competencies, qualifications and experience and what testing laboratories were used to test the samples?
  2. What category(s) of ACPs are present on the building (A, B, C or D)?
  3. What quantity of the material is present (m2)?
  4. What substrate or insulation is present behind the ACP?
  5. What potential ignition sources exist for the ACP given the configuration of the building?

Step 2 – Evaluating the exposure

Using the identification and quantification outcomes of Step 1, the purpose of this step is to provide a consistent report into the exposure of the building regarding the presence of ACPs.

This output is dependent upon the category of the ACP determined in Step 1 and should make findings with regard to four questions:

  1. What exposures exist to the safety of the occupants based on the Step 1 outcomes?
  2. Is the building compliant, with regard to ACPs, with the National Construction Code and associated Australian Standards?
  3. What are the exposures to the property and consequential business interruption risk of a fire involving the ACP?
  4. What exposures exist to the reputation, image and market value of the building as a result of the ACP identified?

Making findings for each of the questions is necessarily complex. Each building with ACPs present will vary in terms of quantification, insulation materials, ignition scenarios, fire protection and suppression systems, as well as occupation type.

Reports commissioned by a building’s owner to make findings on the exposure should consider the following factors identified by insurers:

Step One identified 50%-100% PE or EVA Ethylene-vinyl acetate core ACP

The exposure should be considered similar to that demonstrated by the Lacrosse Building fire (Melbourne), which was an ACP panel fire with fibreglass insulation and reflective foil sisalation in the cavity and an internal building sprinkler system (combined sprinkler/hydrant system sharing a redundant water supply). The Grenfell fire had the added impetus of a combustible foam-based insulation material behind it and no internal sprinkler protection[i].

Where the quantity of 50%-100% PE ACP present is considered to be sufficient to sustain a fire, and relevant ignition scenarios exist, adverse findings to the four questions above should consider the risk as HIGH and Step 3 remedial action may be required.

Step One identified 30% PE core ACP.

The evaluation of the exposure to this type of ACP is more complex, with the existence of a combustible or semi-combustible (fire retardant) insulation or sarking in the cavity being a defining factor.

Recently completed and published full-scale façade fire tests (BS 8414-1:2015) conducted by BRE Global (a fire testing laboratory in the UK) on behalf of the UK Department for Communities & Local Government showed this category of panel, when combined with a PIR or Phenolic insulation, with horizontal and vertical non-combustible cavity barriers (not typically provided in Australia), resulted in flaming above and to the top of the test structure respectively. The prime concern for Australian stakeholders is how much more severe the fire spread would have been without the cavity barriers.

Where a quantity of 30 per cent PE ACP present is combined with combustible or semi-combustible insulation materials, and relevant ignition scenarios exist, adverse findings to the four questions above should consider the risk as HIGH and Step 3 remedial action may be required, unless appropriate internal fire suppression and protection systems exist to reduce the risk.

Where the insulation is considered close to non-combustible – mineral wool or fibreglass, and the sarking has a flame spread rating of less than 5 to AS 1530.2, the risk could be considered as low.

Step One identified 7% or less PE core ACP.

The fire risk presented by this material can be considered as LOW regardless of quantity, ignition scenarios and type of insulation.

Step 3 – Remedial actions for consideration

Remedial actions (if any are required) will be different from building to building and dependent on the category of ACP and insulation/sarking installed. Depending on the quantity of ACP installed, its configuration and installation, there is the potential for actions to be taken that would not necessarily involve 100 per cent replacement.

The report submitted to the building’s owners with regard to Step 3 should address, in detail if necessary, a response to the following question:

  1. What remedial actions are necessary (if any) to address unacceptable risks to the building due to the presence of an unsuitable ACP?

The acceptability of any such (alternative or performance) solutions should be agreed by all parties involved – such as the appointed fire safety engineer, the owner, insurer, regulator and fire authority – before any work is carried out. The importance of consulting with the relevant jurisdiction’s building regulator and urban fire authoritiy cannot be stressed enough in response to this question.

Testing and References

The BRE reference document referred to above can be downloaded here.

The ICA and its members conducted round robbin testing with laboratories to identify those that could accurately classify the different categories of ACP.

The ICA has received positive results from two organisations, both of which can provide the confidence required to identify ACPs correctly for the purposes of this protocol:

CETEC Pty Ltd is a technical and scientific risk management consultancy. With more than 30 years’ experience, CETEC is acknowledged as a leading provider of specialist technical and scientific risk management solutions for the built environment. Through Foray Laboratories, which is wholly owned by CETEC, we can use a range of analytical techniques to assist building owners, building managers, building insurers, fire engineers and other stakeholders to provide advice relating to the flammability potential, composition and toxicity of cladding materials. Foray Laboratories is a NATA-accredited laboratory and is ISO/IEC 17025 compliant. Please contact our head office on 03 9544 9111, visit our website at www.cetec.com.au or email info@cetec.com.au for further information.

CSIRO offers a wide range of specialist laboratory and engineering services to Australian industry and building owners. CSIRO experts can provide testing and identification ACP cladding core via TGA, FTIR or XRD techniques, delivering a comprehensive report classifying materials in accordance with the ICA categories. CSIRO is a Registered Testing Authority accredited by the National Association of Testing Authorities (NATA) for a wide range of materials performance tests. In addition to ACP characterisation, we can provide fire testing to the AS 1530 series of standards as well as full-scale evaluation to the new AS 5113 test for external walls. Our fire safety engineering experts can provide building audit and assessment, advice on structural fixing, regulatory compliance, help with selection of test methods, and independent third-party peer review. Please contact us at firesafety@csiro.au or call our telephone enquiries team on 1300 363 400 and ask for ACM core categorisation. More information at https://research.csiro.au/infratech/fire-safety/

Conclusion

Inspections, assessments and reports commissioned by a building owner to determine the risk associated with the presence of ACPs on a building should be carried out by competent fire protection professionals and including fire safety engineers.

A consistent methodology – yielding responses to the 10 questions above and able to be accepted by the broadest possible regime of underwriters and other building professionals – is essential.

For further information contact:

Karl Sullivan

General Manager Policy, Risk and Disaster Planning

e: ksullivan@insurancecouncil.com.au

[i] *The insulation used was PIR (polyisocyanurate), which does not melt but chars and typically has good fire retardant properties.

 

[1] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p.12.

[2] Ibid, p. 12.

[3] Ibid, p. 12.

[4] Ibid, p. 12 and 13.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] http://www.theage.com.au/victoria/council-orders-brunswick-block-owners-to-fix-flammable-cladding-20171207-h00f43.html

[9] Insurance Council of Australia, “Insurance Industry Aluminium Composite Panels Residual Hazard Identification/Reporting Protocol”, 20 November 2017.

Building Cladding Crisis : What’s All the Fuss About?

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 Governmental Response and Insurance. Below is the first of these Newsletters. We thank Allan Harriman of BCA Logic for his input.

Nature of the Problem

From early in the 1990s, there has been a significant decline in Australia’s manufacturing base. The effect of this decline has been a transition where the majority of products used in the Australian domestic building market are now imported from overseas. While there are companies like Symonite that manufacture a portion of their product in Australia, most Aluminium Composite Panel products are manufactured internationally in Germany, China, India, Brazil, Japan and the United States.[1]

The prime fire safety risk identified with the importation of construction materials into Australia is the difficulty in establishing if those materials are compliant with the relevant Australian Standards.[2]

It therefore appears that fraudulent or misleading product certification is a significant problem in the Australian construction industry.[3]

And along with deliberately misleading or fraudulent documentation or certification, product substitution has also been identified as perhaps the most significant contributing factor to the prevalence of non-compliant external cladding materials on Australian buildings (ie where an inferior and generally cheaper product is substituted).[4]

Thirdly, and finally, the greater use of performance-based design and assessment has probably also contributed to higher fire safety risks.[5]

Aluminium Composite Panels

There have been at least 19 fires involving building cladding worldwide since 2005. The death tolls from these fires range from none to 80.[6]

In Dubai alone the following major fires have occurred in the last five years in apartment buildings – Tamweel Tower (2012), The Marina Torch (twice – in 2015 and again 2017), The Address Downtown Dubai (2015) and Ajman One (2016).

Aluminium Composite Panels are used in construction where light-weight sheeting is required. Their use can be external or internal on walls, ceilings, roofs or for signage. Some panels are flexible and can be moulded to shape for architectural design features. They do not generally add to the structural integrity of a building.[7] Their benefits include an ability to stop wind and rain entering a building, sound and thermal insulation as well as varying levels of fire resistance.[8]

The panels themselves are comprised of an aluminium inside and outside skin with an inner core comprising some form of insulating material.[9]

The inner core composition of aluminium composite panels usually consists of polyethylene (PE), a mineral fibre and PE mix, or an aluminium extruded core.[10]

Both the outer surfaces and inner core may respond differently to fire. Additionally, the finished product will also respond differently to the isolated materials. Finally, the method of installation can influence the material’s flammability.[11]

It is well known within the building industry that there are a range of different types of Aluminium Composite Panels, some of which contain combustible materials, some of which don’t. Notwithstanding this, it is clear that combustible materials including Aluminium Composite Panels have been used in a manner that does not comply with Volume One of the Building Code of Australia.[12] The Building Code of Australia (BCA) is a uniform set of technical provisions for the design and construction of buildings and other structures throughout Australia. The BCA is produced and maintained by the Australian Building Codes Board (ABCB).[13]

For example, building designers have been specifying and relevant building surveyors approving ‘generic’ brand products such as “brand name or similar” where a particular model of that branded product may comply and another model would not.[14] An example of this in relation to Aluminium Composite Panels would be Alucobond Plus (which is compliant with the Building Code of Australia) and Alucobond PE (which is not compliant for high rise buildings).

Polyethylene Core Aluminium Composite Panels

As PE core material is much cheaper than the fire retardant or non-combustible panelling systems, it has been used extensively in Australia.[15]

PE core Aluminium Composite Panels typically have an insulating core 2 – 5 mm thick made of 100% polyethylene and a 0.5 mm thick aluminium skin. Panels are produced in various formats but can span 2 – 6 m in length and be 600 mm to 2 m wide.[16] In a fire, heat from the fire will conduct quickly to the core through the thin aluminium. This causes the core to lose the ability to bind, causing the outer skins to deform and delaminate. Finally, the core melts and can ignite.[17] Once the core ignites it melts which results in PE droplets forming and dripping causing the fire to move down the building as well as moving up the building.[18]

The problem with PE Core Aluminium Composite Panels was described as follows by an Australian Safety Engineer, Mr Tony Enright, in a recent ABC Four Corners program:[19]

“A kilogram of polyethylene will release the same amount of energy as a kilogram of petrol, and it gets worse than that because polyethylene is denser than petrol too, so that’s about, a kilogram of polyethylene is like about one and a bit, one and a half litres of petrol. If you look at a one metre by one metre square section [of PE Core ACP cladding] that will have about three kilograms, the equivalent of about five litres of petrol.”

Aluminium Composite Panels with a PE core have been banned in countries such the USA and Germany.[20]

Non-Compliant v Non-Conforming Products

There is an important distinction to be made between non-compliant and non-conforming products.

Non-conforming products are products that are not appropriate in any circumstances because they:[21]

  • do not meet the required Australian Standards for their intended use; or
  • are not fit for purpose or of acceptable quality; or
  • purport to be something they are not and are supplied or marketed to deceive those who use them.

For example, a building product labelled or described as being non-combustible but is combustible is a non-conforming product. Or a building product that is combustible, and described as such, but is used in a situation where a non-combustible product is required under the National Construction Code, is not fit for purpose (ie it is a product used in a manner that does not comply with the National Construction Code).[22]

The non-compliant use of a product is typically associated with decisions by those determining how a product is used.[23] That is, non-compliant building products should not be used in situations where they do not comply with the National Construction Code but there may be situations where such products are compliant.

Alucobest is an example of a non-compliant product. It is an aluminium cladding product that contains PE and therefore is highly combustible. It does not meet the performance requirements for combustibility in the Building Code of Australia for high rise buildings. However, Alucobest may meet the performance requirements for low rise buildings and consequently is a non-compliant product rather than a non-conforming product.

Standards

The relevant standards in Australia which Aluminium Composite Panels must comply with are set out below.

The performance requirement under the National Construction Code (NCC) provides that a building must have elements that will avoid the spread of fire in a building and between buildings, in a manner appropriate for that building.[24] The NCC is an initiative of the Council of Australian Governments (COAG) developed to incorporate all on-site building and plumbing requirements into a single code.[25]

The NCC sets the minimum requirements for the design, construction and performance of buildings throughout Australia.[26]

The NCC is comprised of the Building Code of Australia (BCA), Volume One and Two; and the Plumbing Code of Australia (PCA), Volume Three.[27]

The current Australian Standard in relation to combustibility is AS 1530.1.

AS 1530.1

Non-combustible is a defined term in the BCA. The compliance of a material with the BCA non-combustibility definition can be determined by conducting an AS 1530.1 standard combustibility test. If the material satisfies the criteria outlined in the test method the material is not deemed to be combustible.[28]

AS 1530.1 is a small-scale material fire test involving immersing a small sample of the material in a furnace held steady at 750°C. There are three criteria in AS 1530.1 which determine whether a material is deemed combustible:[29]

  1. the mean duration of sustained flaming, as determined in accordance with AS 1530.1 Clause 3.2, is other than zero. In summary, the material is combustible if flaming sustained for a period of 5 seconds or longer occurs at any time during the test for any of the five samples tested;
  2. the mean furnace thermocouple temperature rise, as determined in accordance with AS 1530.1 Clause 3.1, exceeds 50°C; and
  3. the mean specimen surface thermocouple temperature rise, as determined in accordance with AS 1530.1 Clause 3.1, exceeds 50°C. The test method is intended to provide material property data on individual materials, not systems or composites. However, if any one layer or element of a system or product is combustible then the whole system or product is considered combustible.

AS 1530.1 requires 5 samples to be tested and the minimum test time is 30 minutes. If a sample fails by means of sustained flaming early in the testing process, the test is terminated to prevent damage to equipment. In this case, the intended 30 minute test exposure requirement of the standard has not been satisfied for number of samples and test duration, hence calculations for criteria related to furnace temperature rise and specimen temperature rise cannot be carried out. However, in these instances CSIRO (the organisation conducting the testing) will issue a formal test report stating the material to be of a clear fail on criteria (a) and that the material is deemed to be combustible.[30]

Aluminium composite panels are a bonded laminate product, consisting of 3 primary layers and clause 1.4 of AS 1530.1 states the test is not applicable to bonded laminate materials as a result of differing results due to the bonding agents.

In short, it appears that AS 1530.1 is a standard that is not suitable for Aluminium Composite Panel  products because the actual test is not intended for these types of products.[31]

AS 5113

Standards Australia, in consultation with the Australian Building Codes Board (ABCB), industry and the Australian Fire and Emergency Services Authority Council, has developed a new Australian Standard (AS 5113), that provides procedures for the fire propagation testing and classification of external walls of buildings according to their tendency to limit the spread of fire via external walls and between adjacent buildings.[32]

The test consists of building a corner wall scenario of up to 4.5m high with a fire located within a ‘window’ at the bottom. This test is designed to better reflect actual fire scenarios and is commonly referred to as a ‘full scale test’. AS 5113 will not replace AS 1530 but rather is an additional test method.

CodeMark Scheme

A current Certificate of Conformity issued under the ABCB’s voluntary CodeMark Scheme is evidence that a building material or method of design fulfils the specific requirements of the National Construction Code.

State and Territory legislation requires building approval authorities to accept Codemark Certificates of Conformity as evidence of compliance with the BCA, as long as the product is used as specified on the certificate.[33]

Currently there are a number of external wall products on the market, including some aluminium composite panels, that have a CodeMark Certificate of Conformity.[34]

Case Study – Lacrosse Apartments

An example of what can befall an apartment building with PE core Aluminium Composite Panels may be seen with the Lacrosse Apartments.

On 25 November 2014, a fire occurred at the Lacrosse Apartment building in Docklands Melbourne. The fire was started on an eighth floor balcony by an unextinguished cigarette and in approximately 11 minutes the fire travelled the full extent of the building – 23 floors. Upon arrival, the Metropolitan Fire and Emergency Services Board (MFB) observed that the entire building was on fire.

The MFB found that the use of PE core Aluminium Composite Panels was a contributing factor to the vertical spread of the fire.[35]

The MFB observed that “it was fortunate that the installed fire sprinkler system operated well above its designed capability preventing further internal spread”. The MFB noted that if not for the performance of the sprinkler system and the quick and professional response by MFB fire-fighters, there “could have been a greater likelihood of serious injury or even loss of life”.[36]

Following the fire, the Victoria Building Authority referred the:

  • building surveyor, registered builder and fire safety engineer to the Building Practitioners Board (Vic); and
  • architect to the Architects Registration Board of Victoria (although the Architects Registration Board has determined not to proceed with any action against the architect).

In addition, a rectification order was issued on the owners corporation requiring the apartment owners to replace the non-compliant cladding.

In turn, the owners corporation commenced court proceedings against the builder, LU Simons, claiming more than $15 million in damages (which equated to about $40,000 per apartment). Work completed to date has already cost $6.5 million including almost $700,000 to dry out the building. It is estimated that it will cost another $9 million to remove and replace the remaining unburnt cladding to comply with the rectification order.[37]

In late November 2017, the builder of the Lacrosse Apartments released a statement to The Herald Sun in Melbourne indicating that it had agreed to replace the combustible cladding on the Lacrosse Apartments and would seek to recover cost of the replacement works from others.[38]

Consequences of non-conforming Aluminium Composite Panels

Owners of apartments in buildings with non-conforming Aluminium Composite Panels should be aware that doing nothing is not an option as the owners corporation may be required to rectify, replace or manage the risk under work, health and safety legislation as well as under common law duties of care.

Further, apartment owners need to fully consider what steps they need to take on the following issues given the range of consequences of non-conforming Aluminium Composite Panels:

  • liability for personal injury and property damage;
  • cost of alternative accommodation;
  • significantly increased insurance premiums or the inability to obtain insurance;
  • decreasing property values;
  • very significant rectification costs which may force some owners to sell. Owners wishing to re-finance will need to advise the mortgagee of the reason for re-financing which would result in the bank questioning whether the normal terms and conditions of a mortgage can be met;
  • reduced rental income as well as increased vacancies;
  • costs associated with additional fire trucks and fire ladders in the event of false alarms;
  • business interruption suffered by commercial tenants; and
  • potential difficulties in selling apartments which are under suspicion of having non-conforming Aluminium Composite Panels.

Next Steps

It is important that owners corporations are pro-active so that as much as possible they can manage the risk posed by non-conforming Aluminium Composite Panels.

That is, if an owners corporation ignores the potential presence of Aluminium Composite Panels on their building, the owners corporation may find itself completing more work and incurring more expense than was necessarily required to properly manage the issues.

The first step is to identify whether non-conforming Aluminium Composite Panels have been put on the building or not. In this regard, it is important to retain the advice of a fire safety engineer to identify the nature of the cladding. This process may begin with a paper trail audit from documents but given products or labels can be illicitly substituted by an installer or at some other point in the supply chain, the building itself needs to be checked to verify the paper trail.[39]

In short, unless there is a Codemark Certificate of Conformity which specifies that the material on the building conforms with the Building Code of Australia, a section of the suspected Aluminium Composite Panel will need to be inspected or removed from the building and tested to determine it’s nature.[40]

In addition, as indicated above, if Aluminium Composite Panels are present on the building, then apartment owners need to consider issues around:

  • the notification of insurers;
  • the notification of mortgagees;
  • building reputation; and
  • falling apartment values.

Thirdly, owners corporations need to consider whether it can recover the cost of rectifying the non-conforming Aluminium Composite Panels from some third party such as the builder.

[1] Victorian Cladding Taskforce, Interim Report, November 2017 at p. 9.

[2] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p.25.

[3] Ibid, p. 26.

[4] Ibid, p. 27.

[5] Ibid, p. 28 and 32.

[6] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p.10.

[7] Victorian Cladding Taskforce, Interim Report, November 2017 at p. 9.

[8] Strata Community Insurance, “Demystifying Cladding!”

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Industry Alert, Victorian Building Authority, 24 February 2016 (updated 28 June 2016).

[13] https://www.mbqld.com.au/laws-codes-and-regulations/building-act/building-code-of-australia

[14] Ibid.

[15] https://certmark.org/articles/2017/06/cmi-advisory-note-aluminium-composite-panels-acp-fire-risk-australia-new-zealand/

[16] Victorian Cladding Taskforce, Interim Report, November 2017 at p. 8.

[17] Strata Community Insurance, “Demystifying Cladding!”

[18] http://www.sgi-architectural.com.au/wp-content/uploads/2015/07/PE-ACM-The-Issue-of-Combustibility.pdf

[19] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p.5.

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

[21] https://www.abcb.gov.au/Connect/Articles/Non-compliant-and-non-conforming-products

[22] https://www.abcb.gov.au/Connect/Articles/Non-compliant-and-non-conforming-products

[23] https://www.abcb.gov.au/Connect/Articles/Non-compliant-and-non-conforming-products

[24] ABCB, “Advisory Note 2016-3 : Fire Performance of External Walls and Cladding” September 2016 @ p.3.

[25] https://www.mbqld.com.au/building-and-planning/national-construction-code

[26] https://www.mbqld.com.au/building-and-planning/national-construction-code

[27] https://www.mbqld.com.au/building-and-planning/national-construction-code

[28] CSIRO, Fire safety guideline for external walls, 18 April 2016 @ p.4.

[29] Ibid, p. 4.

[30] Ibid, p. 5.

[31] Senate Enquiry Hansard Record, Economics References Committee, “Non-conforming Building Products – the use of non-compliant external cladding materials in Australia”, Wednesday 19 July 2017, p. 67.

[32] ABCB, “Advisory Note 2016-3 : Fire Performance of External Walls and Cladding” September 2016 @ p.8.

[33] http://www.abcb.gov.au/Product-Certification/CodeMark-Certification-Scheme.

[34]  ABCB, “Advisory Note 2016-3 : Fire Performance of External Walls and Cladding” September 2016 @ p.9.

[35] The Senate Economics References Committee, Non-Conforming building products, Interim Report: aluminium composite cladding, February 2017, p.5.

[36] Ibid, p. 6 and 7.

[37] Ibid, p 8.

[38] https://www.propertyobserver.com.au/forward-planning/investment-strategy/property-news-and-insights/78752-builder-to-replace-flammable-cladding-on-lacrosse-tower.html

[39] Harriman, A., “Strata Fire Safety Forum”, 31 August 2017

[40] Ibid.

High Court Rejects Appeal by Builder of Lagani Apartments

In a key decision for ACT owners corporations, the High Court of Australia recently rejected a special leave application by the builder of Lagani Apartments to appeal the decision of the ACT Court of Appeal in Koundouris v The Owners – Units Plan No 1917 [2017] ACTCA 36. This High Court decision is important because it was the final avenue of appeal for the builder and the more expansive interpretation of the application of statutory warranties under the Building Act 2004 remains in place.  Click here to read the article published in the Canberra Times on this decision.