Australia's Victorian Civil and Administrative Tribunal has found that the contractor who built the "Lacrosse apartments" is liable to pay damages to the owners of the apartments for the damage caused by a cladding fire which occurred in 2014. Crucially however, the Tribunal ordered that the building surveyor, architect and fire engineer retained by the contractor are to reimburse 97% of those damages.
What has happened?
On 25 November 2014, a fire broke out at the 21-storey Lacrosse apartments, Melbourne, caused by a discarded cigarette butt. The external surface of the cladding to the tower block had a 100% polyethylene core within the sandwich panel - a material that has received recent widespread criticism within the United Kingdom for its highly flammable properties - and the fire spread from the eighth floor to the twenty-first floor within a matter of minutes. Fortunately, all 400 residents were safely evacuated.
The apartment owners commenced legal proceedings against the contractor to recover damages for the fire damage and to replace the undamaged external cladding on the building. The contractor joined its consultants - the building surveyor, architect and fire engineer - under indemnities contained within their respective consultancy appointments.
The Decision
On the 28th February 2019 the Victorian Civil and Administrative Tribunal handed down a judgment1 ordering the contractor, LU Simon, to pay damages of A$5,748,233.282. However, in an unprecedented twist that is likely to be of a significant cause for concern for professionals operating in the cladding industry within Australia (but also the United Kingdom and globally), the Tribunal ordered that the professional consultants engaged by the contractor should reimburse the damages payable by LU Simon, in the following proportions:
- the fire engineer: 39%;
- the building surveyor: 33%; and
- the architect: 25%.
The remaining 3% was attributed to the owner of the incompletely extinguished cigarette that started the fire, although this lesser sum was held to be payable by LU Simon. 3
Who was Responsible and Why?
LU Simon had entered into a design and construct contract with the developer. As a matter of Australian law, warranties as to the suitability of materials, compliance with the law and fitness for purpose were implied into that contract. Those warranties attached to the building, thereby crystallising the owners' cause of action against LU Simon. It was established that the aluminium cladding panels used in the construction were non-compliant with the Building Code of Australia (BCA), meaning that LU Simon was liable to the apartment owners for breach of warranty. However, a further cause of action in negligence did not arise. As would be expected of a reasonably competent contractor, LU Simon had engaged a team of professional consultants on which it relied and this was sufficient to transfer ultimate responsibility for the correct selection of the cladding panels onto that consultant team (meaning that LU Simon was not negligent, despite being in breach of the building warranties).
The Tribunal found that the fire engineer, building surveyor, and architect had failed to exercise reasonable care in carrying out their duties under their respective appointments. By way of example only:
- the building surveyor wrongly approved the use of the particular cladding panels (a comparatively cheap panel manufactured in China), which did not comply with the Fire Resistance specifications in Section C of the BCA at the time of design;
- the architect failed to remedy the defects in its design of the tower to make it compliant with the BCA; and
- the fire engineer failed to recognise that the panels proposed did not comply with the fire-resisting construction specifications of the BCA, in circumstances where it should have known.
Why is this Decision Important?
The construction industry in Australia, but also the United Kingdom following the tragic Grenfell fire in June 2017 and globally, has been waiting for a landmark decision of this nature for some months. Whilst the Australian judgment has no binding effect in the United Kingdom, it could be used as persuasive authority in other cases where responsibility for the cost of rectification of non-compliant cladding systems is being contemplated. In circumstances where rectification schemes 'after the event' are so expensive, it will also be relevant for consultants responsible for the design of buildings to consider carefully the terms of their appointments, including any indemnities offered and limits on professional indemnity cover.
Of course, much of this case turned on the nature of the legal and contractual matrix and the specific content of the consultant team's appointments, but it may indicate the direction of travel for the future.
Reiterating the fact-specific nature of the case (and surely recognising the potential widespread viewing that his judgment would receive), in his judgment, Judge Woodward stated that he did not intend his ruling to be a commentary on the safety and use of aluminium composite panels. He also noted "Many of my findings have been informed by the particular contracts between the parties in this case and by events occurring in the course of the Lacrosse project that may or may not be duplicated in other building projects."
The case is subject to appeal in Melbourne.
It is worth remembering that this case dealt with a scenario where the cladding system was unquestionably non-compliant with the BCA. The decision is likely to have been different had the installed panels - which proved to be highly flammable - in fact, been technically compliant with the BCA at the relevant time, but subsequently proven to be dangerous.
Who would have borne the rectification costs in that scenario?
Before too long we may see the answer to that question being dealt with by the Courts - and that would provide some welcome clarity for the industry.
Will this approach be followed in the courts of England and Wales? The answer to that remains to be seen; however, it certainly provides food for thought and is likely to be considered in the ongoing review of the UK's Building Regulations and building safety.
Footnotes
1 Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286
2 £3,099,094.59 at current exchange rates (the award included A$4,851,937.19 for reinstatement works and A$701,270.16 for additional insurance premiums). Further claims totalling A$6,823,165.65 for removal and replacement of the unburnt cladding, loss of rent and alternative accommodation are yet to be resolved.
3 The text of the full judgment is available at https://www.vcat.vic.gov.au/resources/owners-corporation-no1-of-ps613436t-owners-corporation-no-2-of-ps613436t-owners
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