The Victorian Court of Appeal reapportions the contractors' responsibility for combustible cladding

The highly anticipated Lacrosse Appeal judgment was handed down in early 2021 providing some guidance for construction professionals around the requisite standard of care and the availability (or, more accurately, the unavailability) of the peer professional opinion defence[1] for building surveyors responding to claims arising from the use of combustible cladding in Australia.

At that time, the Court of Appeal allowed one ground of appeal raised by the building surveyor but dismissed all other grounds.

In its subsequent decision recently delivered, the Court of Appeal considered the building surveyor’s appeal and reduced the building surveyor’s liability from 33% to 30% and increased the fire engineer’s liability from 39% to 42%. All other parties’ apportionment remained as originally dictated by the Victorian Civil and  administrative Tribunal (VCAT).

VCAT’s original apportionment 

Initially, VCAT apportioned liability between the consultants and the smoking occupant as follows:

  • The fire engineer - 39%
  • The building surveyor - 33%
  • The architect - 25%. and
  • The remaining 3% to the tenant of the building who failed to extinguish his cigarette that resulted in the fire.

The above levels of responsibility were attributed due to findings by VCAT that:

  • The building surveyor breached its contract by failing to exercise due care and skill in issuing the Stage 7 Building Permit and, in so doing, approving the ACP Specification, which specification did not comply with the Building Code of Australia (BCA). This breach was a cause of the builder’s loss and damage (being the damages payable by the builder to the owners).
  • The architect breached its contract by failing to exercise due care and skill in:
    • Failing to remedy defects in its design (namely, the aluminium composite panels (ACPs) Specification and design drawings providing for the extensive use of ACPs on the eastern and western facades of the building, including the balconies) that caused the design to be non-compliant with the BCA and not fit for purpose.
    • Failing (in its role as head design consultant) to ensure that the ACP sample provided by the builder was compliant with the architect’s design intent as purportedly articulated by the T2 Specification and the BCA, which failures were also a cause of the builder’s loss and damage.
  • The fire engineer breached its contract by failing to exercise due care and skill in:
    • Failing to conduct a full engineering assessment of the building in accordance with the requisite assessment level dictated within the International Fire Engineering Guidelines and failing to include the results of that assessment in the Fifth FER.
    • Failing to recognise that the ACPs proposed for use in the building did not comply with the BCA and failing to warn at least the builder (and probably also the building surveyor, the architect and the superintendent nominated under the building contract) of that fact, which failures were again also a cause of LU Simon’s loss and damage.
  • The smoking tenant failed to exercise reasonable care in the disposal of his smouldering cigarette, and failed to ensure that it was fully extinguished before leaving it in the plastic container on a table on the apartment’s balcony.

The matter was decided by VCAT pursuant to its exclusive jurisdiction to hear domestic building disputes in Victoria and was the first judgment to apportion responsibility amongst construction professionals involved in the design and construction of buildings with ACPs on the façade.

The judgment was appealed.

The appeal

A little over two years later (in March 2021), the Victorian Court of Appeal largely upheld VCAT’s February 2019 decision and, for the most part, affirmed VCAT’s views about who was responsible for the historic use of ACPs on the Lacrosse apartment building’s façade.

The Court of Appeal’s decision surprised many by endorsing VCAT’s initial finding that a professional opinion, no matter how widely and consistently held[2] is no defence where later events lead a court to conclude that the opinion of those (many) professionals was unreasonable.

The Court of Appeal’s decision only opened up the possibility for a small shift in the apportionment between the parties due to the building surveyor successfully arguing that VCAT erred in finding that the building surveyor’s failure to identify (and remedy) deficiencies in the description of the proposed cladding in the fifth Fire Engineering Report (FER) was causative of the loss.[3]

The Court of Appeal agreed with the building surveyor that the fire engineer was already aware that ACPs were proposed for the cladding and so it could not be correct that, had the building surveyor queried the fire engineer’s incomplete description of the cladding system, this would have led to an exchange wherein the fire engineer would have agreed that the ACPs did not satisfy the deemed to satisfy provisions of the BCA. This being the case, the building surveyor’s actions (or inactions) had no causal consequence and the building surveyor’s failure to identify missing information in the FER would not have changed which materials were used on the façade.

Court of Appeal's reapportionment

The Court of Appeal has now handed down its further decision reassessing the apportionment split between the consultants in light of the building surveyor’s successful point of appeal.[4]

During the appeal, none of the parties submitted that the tenant’s 3% share ought to be changed.

The building surveyor, however, argued that its original 33% portion ought to be reduced by a third (to 22%), which would have resulted in the building surveyor being apportioned a responsibility less than the architect. Instead, the building surveyor contended that the 11% share could either be attributed to the fire engineer in full or reallocated between the fire engineer and the architect. Unsurprisingly, the fire engineer and architect disagreed with this while the builder and the owners did not seek to be heard in relation to the reapportionment the contractors and the tenant.

The Court of Appeal reminded us:

“In any apportionment between concurrent wrongdoers, the matters that need to be considered are: first, the degree of departure by each wrongdoer from the standard of care reasonably expected of that wrongdoer; and secondly, the causal potency of each wrongdoer’s negligent acts or omissions. The judgment required involved a synthesis having regard to the whole of the conduct of each wrongdoer”

The Court of Appeal then performed a fresh apportionment landing on the following levels of responsibility:

  • The fire engineer - 42% (3% more than attributed by VCAT)
  • The building surveyor - 30% (3% less than attributed by VCAT)
  • The architect - 25% (as prescribed by VCAT)
  • The tenant - 3% (as prescribed by VCAT).

In reaching this conclusion, the Court of Appeal agreed with VCAT’s initial findings that:

  • The fire engineer:
    • Sat at the top of the hierarchy of responsibility “by a clear margin” due to the fire engineer being the only building professional with knowledge that the ACPs were non-compliant and a fire risk
    • Was uniquely placed to “raise the red flag” on the use of ACPs
    • And its failures had considerable causal potency
    • The purpose of its engagement by the builder was relevant to its level as culpability as it was engaged because of its specialist expertise in fire safety and was vested with “frontline responsibility” for identifying and avoiding risks relating to the spread of fire.
  • The building surveyor:
    • Assumed a “special responsibility” to ensure that the design and materials complied with the BCA and specifically engaged to guard against non-compliance
    • And its decision to approve the extensive use of ACPs with a 100% polyethylene core based primarily on a history of similar approvals gave rise to significant culpability.
  • The architect’s position in the hierarchy of responsibility was materially lower and the inherent flaws in the architect’s design giving rise to the failure to comply with the BCA could have been expected to be identified and corrected by the building surveyor and/or the fire engineer.

The Court acknowledged that it might appear that it simply assigned the reduction in the building surveyor’s share to the fire engineer (without increasing the architect’s responsibility). However, the Court maintained that it had formed its own view about each party’s relative responsibility reflecting its view that VCAT was correct in finding that the fire engineer sits at the top of the hierarchy by a clear margin from the building surveyor and the architect, but the building surveyor bears a not insignificantly greater responsibility than the architect.

Takeaways 

In the design and construct circumstances of the Lacrosse tower which became ablaze on 24 November 2014, the fire engineer sits at the top of the Court’s hierarchy of responsibility.

The distinguishing features to look out for in future claims will be where the facts give rise to an alternative causal potency such that each wrongdoer’s negligent act or omission is more or less causative of the loss than what was witnessed in the design and construction of the Lacrosse apartment tower.

Read other items in Australian Insurance Brief - July 2021

Read other items in Construction and Engineering Brief - July 2021

[1] Being the defence provided for under section 59 of the Wrongs Act 1958 (Vic).

[2] Noting ACPs extensive use in Australia and throughout the world

[3] The fifth FER did not identify the proposed use of ACPs on the external facade of the Lacrosse building or raise an issue in this regard. The Fifth FER was used in support of a building regulation 309 application to the Melbourne Fire Brigade in respect of the project.

[4] Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T [No 2] [2021] VSCA 122 (12 May 2021).