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Recent years have delivered a steady stream of bad news for construction professionals - Covid, inflation, supply chain issues and an increase in litigation to name a few.
The construction industry is overdue some good news and the NSW Supreme Court in Strata Plan 92450 v JKN Para 1 Pty Ltd [2022] NSWSC 958 seems to have delivered this in the form of a rare cladding decision, finding that the Plaintiff had failed to demonstrate that the use of combustible cladding on a building was a breach of the Building Code of Australia.
The facts
The Owners Corporation (OC) brought proceedings against the developer (JKN Para 1 Pty Ltd) and the builder (Toplace Pty Ltd) and issued an application to determine whether the combustible aluminium composite panels (ACP) installed on a 28-storey building in Parramatta, NSW (the Building) complied with the Building Code of Australia (BCA).
The OC contended that the ACP installed (Vitrabond FR) did not comply with the BCA and was in breach of s 18B of the Home Building Act 1989 (NSW) (HBA). The defendants argued the ACP complied with the BCA at the time of installation (the APC installed is now a banned product under the Building Products (Safety) Act 2017 (NSW)).
The issue to be determined was whether the Building complied with the Performance Requirements of the BCA. This could be done by either (1) establishing compliance with the ‘deemed-to-satisfy’ (DtS) provisions or (2) formulating an Alternative Solution (where qualified experts can prepare a solution which complies with the Performance Requirements, but does not strictly comply with the DtS). The Court also considered whether (a) the ACP was good and suitable for the purpose for which it would be used and (b) the use of the ACP meant that the Building was not fit for occupation as a dwelling.
The decision
Ultimately, Justice Black found the ACP was not ‘combustible’ (as defined) for the purposes of the BCA; and in the alternative, not otherwise compliant with the BCA Requirements. The OC’s application failed. In particular:
Compliance pursuant to the DtS provisions of the BCA
Justice Black accepted that the ACP installed on the Building does not comply with the DtS. However, this did not mean that the material was ‘not good and suitable’ or that the Building was not fit for occupation as a dwelling.
Under the BCA, combustibility is determined by a test in accordance with AS1530.1-1994 (AS1530.1). His Honour agreed with the parties that no test result under AS1530.1 was obtained or is available to establish that the Vitrabond FR (as opposed to another Vitrabond product) is not combustible for the purposes of the BCA. This finding was key and meant that His Honour could not therefore find that there was a breach of the BCA or the HBA statutory warranties.
Compliance by way of Alternative Solution under the BCA
Justice Black held that the cladding was not compliant with the Alternative Solution. This was because no Alternative Solution had been prepared prior to the issue of a construction certificate for the Building. Further, no Alternative Solution had been prepared at the time of the proceedings. Even so, none of the parties had produced evidence to demonstrate that an Alternative Solution would not have been available at the time. This conclusion was significant for any available remedy.
Damages
In view of the above conclusions, Justice Black did not consider there was a basis for the loss claimed (i.e. the rectification costs) in circumstances where the OC did not establish that:
- an Alternative Solution could not have been obtained; or
- the APC was or is combustible (per AS1530.1).
This will be encouraging for Insurers and Insureds as it shows that the Courts will not always consider a wholesale replacement of cladding systems to be appropriate. The parties must explore whether there is a more appropriate remedial solution.
Implications
Though fact specific, all in all, these are welcome developments for insurers and insureds.
Simply because compliance with the BCA at the time a building was constructed was not achieved for one product does not equate to liability on the part of defendants. The decision shows the importance of expert evidence to demonstrate compliance (or otherwise) at the relevant time or now. Reliance on generic product statements produced by manufacturers or assumptions that a polyethylene core is likely to be combustible and should not be used, in circumstances where combustibility testing is not carried out, is not sufficient.
Further, it is clear that a holistic approach needs to be adopted when considering fire safety of buildings, looking at the fire safety systems in the building in its entirely and not focussing on individual components (see paragraph [68] of the NSW Judgment). This is not only the case in the NSW Supreme Court but has also recently been applied by the Victorian Building Appeals Board with regard to the performance solution for combustible cladding on the MCG (In the matter of the Melbourne Cricket Ground [2022] VBAB 105). When considering whether a performance solution for cladding on the MCG was compliant with Performance Requirements CP1, CP2, and CP4 under the BCA, the Board acknowledged that fire safety is not absolute. It concluded that a fire risk cannot be totally eliminated but, even so, implementation of all necessary measures to minimise fire risk is required, except where those measures are unreasonable.
Further reading
Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958
In the matter of the Melbourne Cricket Ground [2022] VBAB 105
Read other items in the Australian Insurance Brief – September 2022
Read other items in Professions and Financial Lines Brief – October 2022
Construction and engineering
Insurance and reinsurance
Australia