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.

 

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.

Case note: Statutory provisions prevails over rules in regards to special privilege rights

In The Owners – Units Plan 68 v Haughey (Unit Titles) [2016] ACAT 131 the respondent installed a hot water system on the back wall of his unit which was common property where it remained for nearly five years. Ultimately, a question arose as to whether the respondent had permission to place the hot water system on common property and whether a special privilege right was required.

Senior Member Robinson reviewed the judgment of Douglas J of the Queensland Court of Appeal in Katsikalis v Body Corporate for “The Centre” [2009] QCA 77 and concluded that the reasoning in that judgment applied equally to ACT legislation and should be applied. That is, where there is to be a disposal or alienation of the common property, then it is necessary that that be done by a clear and unopposed process that is consistent with the legislative scheme. The granting of a special privilege would have required an unopposed resolution of the owners corporation following appropriate notification but this requirement was not met.

The respondent argued that he had obtained permission for the installation under rule 4(1)(a) which only required a special resolution on a motion that could be brought from the floor.

Senior Member Robinson rejected this argument on two grounds. Firstly, the relevant section of the ACT legislation was a statutory provision and as such it prevailed over any inconsistent article or rule (see Unit Titles (Management) Act 2011 (ACT) s 128(4)(a)). Secondly, rule 4 did not remove or ameliorate the requirement for a special privilege in any case. Adopting the reasoning of Douglas J, rule 4(1)(a) cannot be read independently of the ACT provision. A resolution under a rule could not grant a special privilege or otherwise authorise the exclusive use of the common property.

In conclusion, the installation of the hot water system on the complex wall amounted to an appropriation of the common property for the personal use of the respondent. Two steps, which did not occur, were required to be completed for this to happen:

  • the words and nature of the motion for an unopposed resolution to grant the special privilege at the general meeting had to be notified to all members – and these words needed to clearly state that the hot water system was to be placed on the wall; and
  • at that general meeting there had to be the express act of an unopposed resolution of the owners to grant the special privilege over the common property.

Consequently, the respondent did not have authorisation to install the hot water system on the complex wall.

Case note: What is “unreasonable” to refuse?

In Floro v Owners – Units Plan No 630 (Unit Titles) [2017] ACAT 4  the applicant, Ms Floro, sought a review of a decision of the respondent owners corporation to decline to grant owners within the complex a ‘special privilege’ to erect support poles for a carport on an area of common property adjoining their units.

The resolution was opposed by one of the twenty six members of the owners corporation (the Objector) but given the requirement for unanimous approval, the opposition of one person was sufficient to ensure that the resolution was not successful. Neither the Objector nor the owners corporation participated in the ACAT proceedings.

In summary, the proposal allowed the owners of several units to put up practical and useful carports. The proposal appeared to have a minimal impact on the common property and was consistent with other current uses of the common property. No person, including the Objector, pointed to any evidence that the proposal could have any effect on any person’s material enjoyment of their property, or even of the common property. Indeed, no basis for an objection to the motion was advanced at all.

When assessing the unreasonableness of the objection to the motion, Senior Member Robinson turned to the recent High Court decision in Ainsworth v Albrecht [2016] HCA 40 which considered the concept of unreasonableness as it appears in the Queensland Body Corporate and Community Management Act 1997 (QLD). This Queensland decision concerned a similar application but was brought under the Queensland Body Corporate and Community Management Act 1997. ACAT held that while the Queensland Act is different to the ACT legislation in some respects, the concept of reasonableness was sufficiently common that the reasoning of the High Court should be applied by ACAT.

In Ainsworth, the High Court provided some guidance on the concept of unreasonableness in the context of reviews of decisions of owners corporations. The majority held that the unreasonableness of opposition to a proposal can only be determined by considering the circumstances of the proposal and its likely impact on the opponents’ property interests. However, consideration of whether a person is acting unreasonably in protecting their property interest does not require that they act with altruism or sympathy for the interests of the proponent. Lot owners are entitled to take steps in their own self-interest to protect their property interests. In the Queensland case, it was sufficient that the objectors had a reasonable apprehension that the proposal would adversely affect their property rights and consequently opposition could not be said to be unreasonable.

The High Court in Ainsworth held that the first step in considering whether the opposition was unreasonable is identification of a ground of opposition and the second step is an enquiry into whether that ground is a rational basis for opposition.

In this ACAT case, the difficulty was defining the interest to be protected given neither the owners corporation nor the Objector had articulated it. Consequently, while ACAT could theorise the basis upon which an objection might be made, there was no evidence that any of those rationales was the basis for the objection in this case and consequently ACAT held that an objection to a resolution, without any basis, was unreasonable.

Building and Construction Legislation Amendment Act 2016 – What You Need to Know

On 20 August 2016, the Building and Construction Legislation Amendment Act 2016 (the Legislation) commenced operation. The Legislation is the culmination of several years of consideration by the ACT Government and amends the following laws:

  • Building Act 2004;
  • Building and Construction Industry (Security of Payment) Act 2009;
  • Building (General) Regulation 2008;
  • Construction Occupations (Licensing) Act 2004;
  • Construction Occupations (Licensing) Regulation 2004; and
  • Planning and Development Act 2007.

The Legislation is focused on improving building quality in the ACT as well as the accountability of various construction industry protagonists. Broadly speaking, the Legislation addresses the following issues:

  • under the Building Act 2004 and Building (General) Regulation 2008 – building certification and stage inspections, certificates of occupancy and use, statutory warranties, residential building work contracts, building inspections and inspectors and exempt building work conditions;
  • under the Building and Construction Industry (Security of Payment) Act 2009 – power to make a code of practice for authorised nominating authorities; and
  • under the Construction Occupations (Licensing) Act 2004 and Construction Occupations (Licensing) Regulation 2004 – notifying loss of eligibility and changes of register details, licence applications and renewals, corporate and partnership licenses and nominees, ongoing eligibility, interim and automatic suspensions, powers of ACAT in relation to occupational discipline orders, rectification orders and mandatory qualifications and codes of practice.

The key amendment for apartment owners is the application of statutory warranties to buildings higher than three storeys (previously statutory warranties only applied to buildings of three storeys or less not including basement carparking). Unfortunately, this amendment (together with the appointment of building inspectors) did not commence on 20 August 2016. Rather, the new statutory warranty regime will commence on a day fixed by the Minister but must commence within 12 months of notification (ie no later than 19 August 2017).

Further, statutory warranties are only available to owners corporations and lot owners by virtue of the fact that contracts to carry out residential building work are taken to contain statutory warranties by force of section 88 and that such owners corporations and lot owners are successors in title to the developer. This means that once the new regime in relation to statutory warranties comes into force, it is only contracts to carry out residential building work entered into after this commencement date that will give owners corporations and lot owners the right to sue builders for breach of statutory warranties (once the relevant buildings are completed).

Allison Benson Christopher Kerin
Legal Practitioner Director Legal Practitioner Director
Ph: (02) 4032 7990
allison@kerinbensonlawyers.com.au
Ph: (02) 8706 7060
christopher@kerinbensonlawyers.com.au

Wild Weather and Damage: The Owners Corporation’s Duty to Maintain and Repair the Common Property

With the gale force winds and torrential rain that has been hitting our shores in recent times, this is a quick refresher for owners corporation’s and lot owners on what their respective duties are when common property is damaged.

Owners Corporations

An owners corporation has a strict duty to maintain and repair the common property. In NSW this duty is under section 62 of the Strata Schemes Management Act 1996 (NSW) and in the ACT this duty falls under section 24 of the Unit Titles Management Act 2011(ACT). In the ACT the duty extends for class A units to defined parts which include load bearing walls, columns, footings, slabs, beams and any part of a balcony on the building whether or not it is lot property.

The owners corporation must conduct repairs to damaged property. In an emergency, such as the storms overnight, the owners corporation has powers to enter your lot. For details see my previous blog Drips, Drizzle or Deluge: https://kerinbensonlawyers.com.au/drips-drizzle-or-deluge-powers-of-an-owners-corporation-to-enter-lot-property-incl-emergency-powers/

When repairing the common property (and the defined parts in the ACT class A units) the owners corporation need only repair the damaged item so that after the repair (or renewal or replacement if required) it then has the performance and functional efficiency at least equivalent to that prior to when the damage was caused. What this means is that an owners corporation is not required to upgrade that part of the common property when conducting the repair, replacement or renewal.

What would be an upgrade? Justice Barrett in The Owners Strata Plan 50276 v  Thoo  [2013] NSWCA 270 described the replacement of a flimsy brushwood fence with a substantial brick fence as an upgrade. Justice Barrett ‘s view was that “[r]eplacement connotes no more than the installation of one thing in the place of another to achieve functional equivalence.”

An owners corporation should therefore:

  1. Notify its strata managing agent, building manager or emergency tradespeople of the damage and request that they either attend site to assess the damage or arrange for emergency tradespeople to do so;
  2. Act promptly in obtaining quotes for repairs (using its emergency powers if required to enter lots) or request that the strata managing agent use their emergency powers (if they have been granted emergency powers) to arrange repairs;
  3. Document the damage by taking photos and noting the date and location of the photos;
  4. Submit all evidence of damage to its insurer and make a claim on its insurance policy providing details of any quotes (note that some insurers will require that their own assessors attend site and have preferred tradespeople); and
  5. Not upgrade the common property in the process of the repairs. If an upgrade is desired then in NSW a section 65A resolution of the owners corporation at general meeting is required prior to doing so.

Lot owners

As a lot owner have a duty to mitigate your loss. What this means is that you should:

  1. Immediately report any damage to your strata manager or executive committee member;
  2. Try to prevent any further damage that may be caused, for example, if water is flooding a balcony and coming into the , ensure that the drainage holes are clear and put towels down to try to minimise an internal water damage;
  3. Co-operate with the owners corporation’s experts by giving prompt access to allow repairs to occur; and
  4. Make a claim for any internal damage under your home contents policy.

I hope the storms caused as little damage as possible. These are very general comments and if there are any specific issues that you would like advice about please contact Kerin Benson Lawyers: https://www.kerinbensonlawyers.com.au.

Note that in both NSW and the ACT there are mechanisms that allow an owners corporation to determine that it is not appropriate to maintain or repair certain common property. This is not addressed in this blog.

Kerin Benson Lawyers

Author: Allison Benson

Office: Sydney & Newcastle

Email: allison@kerinbensonlawyers.com.au

Date: 21 April 2015