- Contractors' all risks
Partner - London. United Kingdom
Following on from our previous article on significant issues in Australia’s building and construction industry, we provide an update on a recent important development relating to Aluminium Composite Panelling (ACP).
On 28 February 2019, His Honour Judge Woodward, of the Victorian Civil and Administrative Tribunal (VCAT), handed down the long awaited decision in the Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property)  (the Decision). The Decision provides guiding principles on liability in cases concerning ACP cladding that will likely shape future cases.
The claim was commenced by the Owner’s Corporation of the Lacrosse Apartments Tower, a building that had ACP and sustained a significant fire on 25 November 2014. The fire was started by a smouldering cigarette. The claim was brought against the builder and other consultants who worked on its construction, including the surveyor, architect and fire engineers, with residents facing a A$24 million rectification order.
His Honour Judge Woodward found the cause of the fire was the failure of one of the residents to extinguish the cigarette, and the extensive damage to the tower was caused by the installation of the ACP. Judge Woodward found that the builder, the fire engineer, the building surveyor, the architect and the resident of the property where the fire had originated, had failed to exercise reasonable care, which was a cause of harm to the builder resulting in breach of the design contract. Finding each to be a concurrent wrong doer within the proportionate liability regime set out in the Victorian Wrongs Act 1958 (Vic), Judge Woodward ordered that the A$5.748 million in damages payable by the builder, LU Simon, be apportioned in the following way:
With LU Simon as the lead contractor in the development of the Lacrosse Tower (and with disciplinary proceedings against it from the Building Practitioners board), it was anticipated prior to the outcome of the highly publicised case, that it would be held accountable for the highest portion of any damages award.
The outcome of this case has caused widespread concern amongst building professionals. Contrary to expectation, VCAT held that LU Simon did not breach its duty of care and was not reasonably expected to have known of the dangers of using ACP. This was in line with LU Simon’s submissions, during the proceedings that building professionals were not, at the time, aware of the risks associated with ACP cladding, where building regulation authorities were not keeping them informed.
Other contractors, such as the architect and fire engineers were held to a higher standard, notwithstanding their limited involvement in the construction of the building. The fire engineers were found to have failed in conducting a full engineering assessment and approving the use of ACP, which was found to be non-compliant with the Building Code of Australia (BCA). The architect’s design was also deemed to be non-compliant with the BCA, in failing to remedy a design defect, being the specification of ACP cladding on the project.
The Decision provides that consultants, who bear the risk under a building contract for any professional responsibilities assigned to them, will likely be held liable for a breach in connection with those works. Therefore, builders may be protected against a significant portion of liability by effectively drafted building contracts, which attribute risks based on the skills and expertise of various consultants, providing what Judge Croft has described as a “chain of assurance and compliance with the BCA” throughout the project.
The Decision has raised some concern among building professionals in Australia, especially architects, where the use of ACP cladding in design specification was so widespread at the time of the building’s development. While builders may be actively involved throughout the majority of building and construction works, the apparent outcome of this tribunal decision is that other professional consultants are held to a higher standard of care when approving and commissioning materials to be used in a construction development. Building professionals should take extra care to ensure they have considered the relevant provisions of the BCA when executing their duties under a building contract.
Insurers are also now well aware of the risks posed by ACP cladding; and policies are now incorporating cladding exclusions and rising premiums in an attempt to contain their exposures. As cases against building professionals are expected to increase exponentially in the coming years, it remains to be seen how much weight a court will place on the Tribunal’s decision.
Read other items in Construction and Engineering Brief - June 2019
Related item: Issues in Australia’s building and construction industry under increased scrutiny