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.

 

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