Lacrosse appeal: Who is responsible?

The facts of the Lacrosse case are well known. In November 2014, a late night cigarette discarded on a balcony of the 21-storey Lacrosse building in Docklands, Victoria, ignited a fire that spread to the external cladding, resulting in excess of A$12 million in damage.

The cladding used, aluminium composite panels (ACPs)[1], contained a combustible polyethylene core.

The Owners Corporation and individual owners issued proceedings in the Victorian Civil and Administrative Tribunal. In February 2019, the Tribunal handed down its decision finding that:

  • The builder had breached its statutory warranties[2] concerning the suitability of materials, compliance with the law and fitness for purpose implied into its design and construct contract.
  • Each of the building surveyor, the architect and the fire engineer (the consultants) were found to be concurrent wrongdoers[3] who each breached their consultancy agreements with the builder, by failing to exercise due care and skill in the provision of their services.

The construction, legal and insurance industries all eagerly awaited the Victorian Court of Appeal’s judgment to see, in particular, if the Tribunal’s apportionment would be altered as between the consultants and whether any responsibility would be attributed to the builder.[4]

The Court of Appeal’s decision[5] was delivered much earlier than expected but, of the 11 appeal grounds raised, 10 were rejected leaving only a small prospect for the percentages of apportionment to be adjusted.

Is a builder’s breach of its statutory warranties apportionable?

The way the case was advanced and defended at first instance is key to why the builder was found to not be a concurrent wrongdoer for the purposes of Part IVAA of the Wrongs Act 1958 (Vic) (the Act).

At first instance, the owners claimed that the builder was both negligent and had breached its statutory warranties implied by the Domestic Building Contracts Act 1995 (Vic). However, at trial, the owners did not pursue the negligence claim, nor did the owners pursue any claim against the other respondents (except in the alternative if the Tribunal held that the breach of warranty claims made against the builder were apportionable).

The builder admitted the statutory warranties were implied into the design and construct contract and admitted that those warranties ran with the building such that the owners could issue proceedings against it for breach of those warranties, as if they were parties to the contract. The builder denied it breached the warranties, but did not advance anything further in support of that denial.

Unsurprisingly, the owners argued that the builder’s breach of the statutory warranties was not a claim that could be characterised as arising from a failure to take reasonable care, and therefore did not fall within the definition of an ‘apportionable claim’ under Part IVAA of the Act. The significance of this argument was that, if a breach of statutory warranties was held to be an apportionable claim, this would open up the possibility of the builder being entitled to reduce its liability to the owners.

Critically, the Tribunal found that a breach of statutory warranties is not an apportionable claim.

The Tribunal also held that, although the builder breached its warranties and was liable to the owners, it could seek (almost) a full indemnity from the contractors for their respective breaches of their service agreements.

On appeal, the fire engineer contended that the owners’ claims that the builder breached the statutory warranties were apportionable. In the fire engineer’s submission, it did not matter that failing to take reasonable care was not an element of the cause of action pleaded and proved against the builder.

The fire engineer’s appeal on this point failed.

The Court of Appeal found that the Tribunal did not err in determining that the breach of warranty claims (that had been upheld against the builder) were not apportionable. At best, those claims involved circumstances arising out of consultants’[6] failures to take reasonable care and the owners’ claims against the builder did not of themselves arise from any failure to take reasonable care.

Contrary to the fire engineers’ submissions, the Court of Appeal held that the correct approach is to determine whether the “claim” is of itself apportionable (and one to which Part IVAA of the Act applies) and only then consider whether there are any concurrent wrongdoers in the relation to the claim.

The ACP

In another blow to the consultants, the building surveyor failed to convince the Court of Appeal that the ACPs installed on the façade of the building met the deemed to satisfy provisions of C1.12(f) of the Building Code of Australia (BCA).

The Court of Appeal agreed with the Tribunal’s finding that the term ‘laminate’ in the BCA refers to each of the bonded layers that come together to comprise the bonded laminate as a whole. The proper construction of C1.12(f) permits a potentially combustible element within the bonded laminate material, but strictly limit the potential dimensions. The use of Alucobest, with its polyethylene core exceeding those dimensions, is not BCA compliant and was a breach of the building surveyor’s contract requiring it to ensure that the design and use of materials complies with the BCA.

Leave granted

The only ground of appeal to succeed was the building surveyor’s submission that its failure to identify and correct an omission in documents submitted to the Metropolitan Fire Brigade (MFB) (those documents having failed to identify use of ACPs and instead referred to pre-cast wall panels) was not causative of loss.

The Court of Appeal rejected the Tribunal’s suggestion that, had the building surveyor identified that the MFB documents failed refer to the use of ACP, this would have led to a conversation between the building surveyor and the fire engineer wherein the fire engineer would have raised concerns about ACPs not being BCA compliant. The rejection of this hypothetical scenario was particularly the case because the fire engineer’s evidence was that he had already assumed that a compliant form of ACPs would be used (therefore the outcome may well have been the same).

Despite this “success”, it may not change the state of play at all because, in any event, the Tribunal was critical of the building surveyor’s decision to approve the extensive use of ACPs based on a history of similar approvals and its failure to inquire with the relevant fire engineer about the material.

This being the case, if the building surveyor agitates its sole successful ground of appeal, the failure to identify the omission in the MFB documents in the context of more significant failures may not shift apportionment between the parties too far at all.

The ramifications

While the Court of Appeal did not apportion responsibility for the role of the design and construct contractor, this was principally a result of the way in which the case was run by the owners and the way in which the other contractors defended the claim.

If owners bring a claim against a builder in negligence (as opposed to only breach of the statutory warranties), the apportionment between the parties could still be different.

Where the owners’ claim against a builder for breach of statutory warranties only, it is necessary for contractors to adduce evidence that the builder failed to take reasonable care and that the builder did not act reasonably or in accordance with what would be expected of a reasonably competent builder in the circumstances of the case.

This evidence was not led by the contractors in this case.

With an estimated 1,400 buildings with combustible ACPs used on their facades in Victoria (plus an unknown amount of properties with Biowood),[7] Victoria still needs authority which considers the respective roles of all contractors where all of the claims are apportionable and construction professionals and their insurers are left wondering if the “cladding crisis” is any closer to being over.

 

[1] Alucobest.

[2] The warranties implied into the design and construct contract by ss.8(b), (c), and (f) of the Domestic Building Contracts Act 1995 (Vic).

[3] Within the meaning of s.24AH of the Wrongs Act 1958 (Vic).

[4] The Tribunal having found that the following levels of responsibility: fire engineer 39%, building surveyor 33%, architect 25%, and tenant 3%.

[5] Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72.

[6] As well as the tenant.

[7] In November 2019, the NSW Civil and Administrative Tribunal found that Biowood (made from reconstituted timber and PVC) constitute an undue risk of fire spread and, therefore, it is not fit for purpose (The Owners – Strata Plan No. 92888 v Taylor Construction Group Pty Ltd and Frasers Putney Pty Ltd [2019] NSWCATCD).