In our latest Corrs High Vis podcast, David Hastie and Mitchell Francis discuss the Victorian Court of Appeal's resounding affirmation of VCAT's decision in the Lacrosse cladding dispute.

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David Hastie, Senior Associate
Mitchell Francis, Lawyer

Mitch: Hello and welcome to Corrs High Vis. My name is Mitch Francis and I'm a lawyer in Corrs' Projects practice group. Today I'm joined by Senior Associate David Hastie.

Today's podcast looks at the highly anticipated outcome of the Lacrosse appeal that was handed down by the Victorian Court of Appeal on Friday.

This piece of litigation has been on the radar of participants in the construction industry for upwards of 4 years now. This case is critically important to many in the construction industry as it sets a bar for how liability will be split between builders and various consultants who have contributed to or been involved with the installation of combustible cladding on buildings.

Dave I'm really interested to get your perspective on the Lacrosse appeal but perhaps we should start by going back in time and considering the background to the original decision that was given by VCAT back in 2019.

David: Hi Mitch and thanks for that. As most would probably know, but I will still recap, the dispute started from the fire in an apartment tower located in Melbourne in the Docklands being Lacrosse High Rise RESI building. A substantial fire spread across the façade across 14 stories in the building in 12 minutes from a single cigarette butt and this was largely a consequence of the use of combustible cladding.

Now all of the 400 or so occupants were successfully evacuated from the building, however there was quite extensive damage to the building. In total the owners and the owners corporation claimed to have incurred losses in excess of $12 million. To recover their losses the owners brought a claim in VCAT – obviously as we know VCAT has the exclusive jurisdiction in Victoria for domestic building disputes. Now the owners brought this dispute against the building professionals involved in the construction of Lacrosse. The building professionals included the builder, who is L U Simon, the building surveyor – the Gardner Group, the architect and the fire engineer. So collectively, these were the consultants to the builder.

We can roughly divide the claims into two groups. These being the owners claims against L U Simon and L U Simon's claims downstream against the consultant. Now the owners were largely successful in their claims against L U Simon, with Justice Woodward in VCAT ordering the builder to compensate the owners for their loss. At the same time L U Simon succeeded in its downstream claims against the consultants, with Justice Woodward ordering the consultants to reimburse the builder in respect of 97% of the damages awarded to the owners.

The practical impact of VCAT's findings was that although the builder was held liable to the owners, it was able to pass this liability on to the consultant. Now Justice Woodward reached this outcome having decided that the owners' claims against the builder were not apportionable because there was no negligence there on L U Simon's part, and that the builder's claims against the consultant were in fact apportionable.

This decision meant that the consultants were required to reimburse the builder for the amount they were liable to the owners. This aspect of the Judge's decision was highly contentious and was the subject of most of the 25 grounds of appeal in the Victorian Court of Appeal.

Now the liability split was as follows:

33% Building Surveyor

25% Architect

39% Fire Engineer

3% The tenant who originally started the fire by not putting out his cigarette.

That 3% that tab has been picked up by L U Simon.

Mitch: Very interesting David. So why do you think that the decision was appealed?

David: It goes without saying that these consultants and their insurers were really put off by this outcome and wanted to appeal the Tribunal's finding in respect of the consultants' liability. The building surveyor and the fire engineer's fees on the project were – let's call it around $90,000 each. But their total liability each exceeded in excess of $2 million.

To put this into context that would mean that these consultants would need to complete work on more than 22 similar projects – and this was a large scale project – to cover their liability as was determined by VCAT.

Now as I flagged earlier there were 25 separate grounds of appeal filed by the consultants, Mitch.

Mitch: Yes, and Dave these were distilled by the court into 11 different issues and I think maybe just in the interests of this podcast maybe we should just talk through some of those issues.

David: And maybe in the interest of time we can probably distill down maybe three key issues. How does that sound, Mitch?

Mitch: Yes, well I think the first of the three issues started by looking at the apportionability generally and whether or not the owners' claim against the builder was apportionable. Dave, do you mind just talking us through what the Court thought about these issues?

David: Yes absolutely, and look this was the key consideration and the one that all the consultants out there have been waiting to have feedback from the court system on. Ultimately the Court of Appeal held that leave to appeal was not granted here. The Court of Appeal held that Justice Woodward made no error determining that the breach of warranty claims that he upheld against the builder were not apportionable, as the owner's claims against the builder did not themselves arise from any failure to take reasonable care.

Now what we really need to be cognisant of here is that the implied warranties under the Domestic Building Contract Act in Victoria require that the builders take reasonable care, and obviously in this instance given that VCAT found that reasonable care had been taken by L U Simon – what that ultimately finds is that there is no negligence argument so therefore that ground of appeal was thrown out.

Mitch: There was also a really strange suggestion that the builder, being L U Simon, was required to pick up that combustible cladding had been specified by the architect and then go about ensuring their compliant and non combustible alternative was installed. Dave do you mind talking us through what the court thought about this particular issue?

David: Yes in the interesting one here it's not surprising frankly, but the Court held that any references to ACPs in the specification and drawings prepared by the architect did not require L U Simon to ensure that the material selected complied with the Building Code of Australia. This remained, and rightfully so, the architect's responsibility under its consultancy agreement and again this harks back to the findings that there was no breach of the implied warranties under the Building Contracts Act here in Victoria.

Mitch: Yes it almost seems as if the architect is trying to say that it specified but didn't specify a particular product which just wouldn't lead to a logical result.

David: Correct.

Mitch: So another issue that was raised was in respect of the architect's duty to inspect samples of the combustible cladding, and they have since suggested their obligation only extended to inspecting the samples visually. What do you make of the court's findings in respect of that particular issue?

David: Yes, thanks Mitch. Another really interesting ground of appeal, unsurprisingly – again, leave to appeal was not granted. The Court of Appeal held that it made no commercial sense to limit the scope of the architect's requirement to inspect samples as being limited to a visual inspection only, rather than approving based on regulatory compliance – which frankly makes perfect sense, and accordingly Justice Woodward was held not to have erred in the construction of the architect's obligations in respect of the approval of the samples.

Now further to this the Court of Appeal concluded that even if VCAT had misconstrued the obligation, this would not impact the conclusion that the architect's approach to the sample approval was in fact in breach of its broader obligation as the head design consultant, and I might just add another thing too Mitch is that there's plenty of resources out there and there has been for a while now, but in particular one that I would draw our listeners' attention to for example is the material library of cladding materials at the University of Queensland. It is incredibly comprehensive, it's an amazing resource and frankly my understanding was it was around at this particular time so again, unsurprisingly leave to appeal was not granted.

Mitch: So the other issue or another issue that was considered was whether or not the owner and the owners corporation had substantiated its losses in respect of increased insurance premiums that were suffered as a result of having the combustible cladding on the building between the period of – after the fire and before the rectification work was carried out. What did you make of the Court's findings in respect of that issue?

David: An interesting one again, Mitch – they all seem to be interesting according to me, don't they? What we can't forget here and overlook is that VCAT is not bound by the rules of evidence, and the relevant document that was relied upon here had been tendered without objection. So the Court of Appeal held (and again, unsurprisingly) that evidence of an insurance broker which was contained in an email attached to a witness statement stating that cladding at the property had accounted for approximately 80% of the increase in the insurance premium had been properly taken into account by Justice Woodward to support the owners claim for damages.

Mitch: Very interesting – so what did the Court think about the building surveyor's attempt to rely on the peer professional defence under the Wrongs Act? It is my understanding that this defence typically has been in place to protect people like doctors and other similar professionals from negligence claims. How did the Court apply this to the facts of Lacrosse?

David: Yes Mitch the Court ultimately agreed with the findings again of VCAT that the peer professional opinion defence did not apply under the Wrongs Act in this particular context and on this set of facts.

Just to recap, it was held at the first instance that building surveying is a profession within the meaning of the Wrongs Act peer professional opinion defence. It was held that there was sufficient evidence to suggest that the installation of alucabond PE cladding to Type A construction was a widely accepted practice. However, and critically I might add, VCAT was not persuaded that this widespread practice of installing highly flammable cladding was reasonable and I reflect on that word "reasonable" because it could not withstand logical scrutiny and therefore the defence failed – pretty straightforward again.

Mitch: Yes, and I think particularly that the building surveyors – had you gone to ask a fire engineer or had they gone and made the requisite enquiries – they would have very quickly found out that it wasn't a reasonable view to hold.

David: Correct.

Mitch: And so there's a certain degree and a certain obligation that is being imposed on professionals in those instances to take reasonable steps.

David: Absolutely. So Mitch you can see from what I've just explained that the Court of Appeal pretty well threw out the consultant's appeal. There was I should flag however one issue that the building surveyor raised that was successful, which was whether the building surveyor's failure to identify and remedy omissions in the fire engineering report was causative of any loss to the owners. Now Mitch you've done a good job of combing through this very long decision. What did you make of that particular finding and any implications that we should note?

Mitch: Yes, look it was pretty interesting this issue that was raised, and ultimately it came down to a bit of a factual analysis that the Court took. What was suggested was that the building surveyor, when it was reviewing the fire engineering report that was prepared by the fire engineer, that the building surveyor should have identified the fact that the building surveyor had noted the wrong material was going to be installed on the façade.

So the building surveyor, the fire engineer rather, had noted that the external wall would be precast concrete whereas it was actually going to be combustible cladding material. So it was reasoned and VCAT said that the failure of the building surveyor to bring that to the attention of the fire engineer caused loss and ultimately by going back through the facts of this particular case the Court was provided with enough evidence to suggest that the fire engineer already knew that the combustible cladding was going to be installed on the building and so therefore there wasn't really any loss associated with this failure of the building surveyor to identify that the wrong product had been installed.

So it really wasn't a massive legal take back from the Tribunal's decision, it was rather just a bit of a tidying up of the facts. So not really enough impact to the overall outcome.

David: Thanks Mitch, interesting.

Mitch: So I guess looking at this thing holistically the Court of Appeal has really strongly affirmed the decision of Judge Woodward in VCAT. So Dave just curious here – what are your immediate thoughts about the decision?

David: Yes look I don't think many of us in legal practice were overly surprised by the outcome of this decision. Frankly it's what we anticipated and expected, so I think that the Victorian Court of Appeal has got it right. Interestingly it will be to see whether special leave is sought and whether this finds its way up to the High Court, so watch that particular space because a lot still does ride on this, so it will be very interesting to see what the High Court would have to say if in fact it gets there.

Taking a step back from that, I think in the first instance builders may well be buoyed by the fact that L U Simon emerged relatively unscathed after this appeal. However for those of us who have practised long enough in construction law, you know that each case ultimately turns on its facts and we really need to emphasise that, that including the specific obligations imposed on each of the parties under the contract, the circumstances in which the design and construction of the project is undertaken and of course but not limited to the involvement of the builder in the selection and specification of the cladding material and its compliance with that particular specification.

Mitch: And even just the type of when this took place, so obviously the relevant work that we're discussing in this particular case. All of the work was done in 2007 to 2010 so obviously in light of the Lacrosse fire and in light of the Grenfell fire in the UK we are probably going to have a different result if the case was considering facts in a different time.

David: That's right Mitch, and what we should be cognisant of the fact is that on 1 February of this year the Victorian Government actually introduced a ban on the use of high risk cladding products in Type A and Type B buildings. So effectively what that seeks to do is just now it provides clarity around the fact that certain building materials including ACPs just simply can't be used. Where there used to be discretion allowed by building surveyors with regards to the use of these types of products, now simply they are banned – end of story.

Mitch: Yes, and that was actually something that in the Lacrosse appeal the Court dealt with but it didn't need to and that was it went and affirmed Judge Woodward's position that the use of alucabond cladding – of the ACP cladding in the Lacrosse tower – was not compliant with the BCA and there had been some uncertainty in the industry about whether or not it was compliant, but the Court here just wants to strongly stamp out any possible arguments that might be put to in an appeal or back in VCAT it strongly wanted to affirm that position that this type of material is not compliant with the BCA and was not compliant with the BCA back when this was taking place back in 2007.

David: Absolutely and just finally it would be remiss of us not to touch on the fact or the implications this appeal has on the Victorian government's cladding rectification program CSV, so again watch this space.

Mitch: Thanks everyone for listening that's all we have for now – thank you very much for joining us Dave.

David: Thanks very much Mitch.

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