Wednesday, 8 January 2020

Who is responsible when external cladding fails in an apartment tower during a fire?

In early 2019, in a judgment that ran to 647 paragraphs, County Court Judge Woodward, sitting as a Vice President at VCAT, had to deal with a claim following a fire at a residential tower in Melbourne that occurred due to faulty cladding (see: Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286). 

This was the first major decision in Australia in relation to the respective liability of parties involved in the design and construction of a building which included combustible cladding.

Facts
The case concerned the well-publicised fire at the 21 storey Lacrosse Apartment Tower in La Trobe Street, Docklands (near Marvel Stadium) on 24 November 2014

That fire (as well as the Grenfell Tower fire in England and the Sydney Opal Tower cracks) prompted widespread critical analysis of the adequacy of building regulation by governments across Australia.

The commencement of the fire was quite simple – the tenant at the apartment returned from a working holiday in France, dropped his backpack, and decided to smoke a cigarette on the apartment balcony. He left his cigarette butt in a plastic food container that served as an ashtray.

At 2.23am, the smoke detector in the hallway outside his apartment activated and notified the Metropolitan Fire Brigade. A fire crew arrived minutes later, by which time the fire had travelled rapidly up the external wall cladding to the fourteenth floor and spread to the balcony on each level. Six minutes later the fire had reached the roof of the Tower.



The fire lead to losses exceeding $12 million.
The unextinguished cigarette butt was held to be the ignition source but the rapid spread of fire up the side of the building was facilitated by the aluminium composite panels (Cladding) used on the southern wall. The Cladding had a 100% polyethylene core.
In late 2018, the builder of the Tower, L U Simon Pty Ltd (L U Simon) agreed to replace the Cladding. 

The claim in VCAT focused on the allocation of responsibility between the remaining respondents.


The proceeding
The owners corporations and apartment owners brought a claim in VCAT against the following:
  • L U Simon;
  • the building surveyor and his employer (Gardner Group);
  • the architect, Elenberg Fraser Pty Ltd (Elenberg Fraser);
  • the fire engineer Tanah Merah Pty Ltd, trading as Thomas Nicolas (Thomas Nicolas);
  • the occupier of apartment 805, Gyeyoung Kim (Mr Kim);
  • the resident who lit the cigarette, Jean-Francois Gubitta (Mr Gubitta); and
  • the Superintendent, Property Development Solutions Pty Ltd (PDS).

None of the Respondents had a direct contractual relationship with the Owners.

The case was heard over 22 sitting days, with 91 volumes of tribunal books and 10 barristers and 5 firms of lawyers representing the parties. Evidence was given by seven lay witnesses and 13 expert witnesses. Mr Kim (the apartment occupier) and Mr Gubitta (the tenant who lit the cigarette that caused the fire) did not participate in the proceeding. 

PDS reached a settlement and withdrew their involvement before the hearing.


Judge Woodward’s findings
His Honour found that:
  1. The external cladding specified in the original design, namely Alucobond, failed to comply with the Building Code of Australia (BCA). The substitute aluminium composite cladding (ACP) ultimately installed also failed to comply with the BCA and accordingly, the Building Regulations 2006 (Vic).
  2. In installing the cladding, L U Simon breached the implied warranties of suitability of materials, fitness for purpose and compliance with the law set out in section 8 of the Domestic Building Contracts Act 1995 (Vic) (the DBC Act) and is therefore liable to pay damages to the Owners. However, his Honour found that L U Simon did not fail to exercise reasonable care in the construction of the Tower.
  3. Each of the consultants (Gardner Group, Elenberg Fraser and Thomas Nicolas) breached their obligations to L U Simon under their respective consultant agreements (which were novated to L U Simon by the developer) by failing to exercise due care and skill in that:
    • Gardner Group issued a Building Permit for the relevant stage of the building approving the specification by Elenberg Fraser of the ACP. Gardner Group also failed to notice and query the incomplete description of the cladding system in a report produced by the Thomas Nicolas.
    • Elenberg Fraser failed to remedy defects in its design (namely the specification of ACP and design drawings providing for extensive use of ACPs at the Tower) which caused the design to be non-compliant with the BCA and not fit for purpose. Elenberg Fraser also failed as head consultant to ensure the ACP sample provided by L U Simon was compliant with Elenberg Fraser’s design intent as articulated by its specification and the BCA.
    • Thomas Nicolas failed to conduct a full engineering assessment of the Tower in accordance with the International Fire Engineering Guidelines and failed to include the results of that assessment in its fire engineering report. Thomas Nicolas also failed to recognise that the ACP used at the Tower did not comply with the BCA and did not warn L U Simon (or Gardner Group, Elenberg Fraser or PDS) accordingly.
    • The resident, Mr Gubitta, had breached a duty of care owed to the Owners by failing to take care in the disposal of his smouldering cigarette, but concluded that his responsibility for the loss and damage was minimal.

The Result
While his Honour concluded that L U Simon was liable to pay damages to the Owners, he then determined that the damages payable by L U Simon were to be reimbursed by the other Respondents as ‘concurrent wrongdoers’ pursuant to Part IVAA of the Wrongs Act 1958, in the following proportions:
  • Gardner Group: 33 percent
  • Elenberg Fraser: 25 percent
  • Thomas Nicolas: 39 percent
  • Mr Gubitta: three percent
Because Mr Gubitta had taken no part in the proceeding and no party had sought judgment against him, no order was made against Mr Gubitta and L U Simon was not reimbursed the three percent damages it is liable to pay to the Owners that was apportioned to Mr Gubitta.

The Owners originally claimed at least $12,765,812.94 in damages; of that amount, $4,851,937.19 was agreed as payable between the parties.

Including the agreed sum, his Honour awarded damages in the sum of $5,748,233, finding that damages in the sum of $194,414.01 were not proven by the Owners and were disallowed. The remainder of at least $6,823,165 are to be the subject of further submissions and remained unresolved at the date of the decision.

In his reasons, his Honour takes care to note that his comments ‘should not be read as commentary generally on the safety or otherwise of ACPs and their uses’. His Honour notes that there may be circumstances (such as signage or decorative use) where the use of ACP can be compliant, including where made subject to a performance-based solution under the BCA, or where types of ACP with a lower polyethylene content is used. His Honour notes that his findings relate only to the particular use of ACP at the Tower and are informed by the particular contracts between the parties in the case.


The judgment focuses on the selection, approval and installation of the ACPs that enabled the fire spread. Critically, his Honour found that the ACP did not satisfy the Deemed-to-Satisfy provisions of the Building Code of Australia (BCA).

As noted, His Honour also found that the builder breached the warranties implied into the design and construct contract under section 8 of the DBC Act. Those are the warranties as to:
  • suitability of materials (section 8(b) of the DBC Act);
  • compliance with the law (which includes the BCA) (section 8(c) of the DBC Act); and
  • fitness for purpose (section 8(f) of the DBC Act).

His Honour confirmed the well established position that the builder’s liability for design and construction was not merely an obligation to use reasonable care and, in particular, the warranty for fitness for purpose was “absolute”. Further, the obligation of the builder must be measured by reference to the purpose for which the building was required under the conditions likely to be encountered (i.e., Lacrosse was a multi-storey residential apartment building).


The builder was found to have breached the warranties and, therefore, held primarily liable to the owners.

However, his Honour found that the builder did not fail to exercise reasonable care in the construction of Lacrosse by installing the ACP's.

Instead, his Honour found there was no evidence that the builder failed to take reasonable care and no evidence adduced from any party to the effect 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. The critical point here (at paragraph 307):
... for a large and complex project, [the builder] has sought to cover acknowledged shortcomings in its own expertise by engaging highly skilled professionals to (in a variety of different ways) direct and supervise its work.

Implications 
The Victorian State Government has undertaken an audit of buildings with Cladding issues. 

According to "The Age" on 26 November 2019: 
More than 1200 buildings with risky levels of flammable cladding are included on the state government's list – which is not publicly available – but the [Master Builders's] Association believes there are potentially many more buildings around Victoria that could be dangerous.
Cladding is clearly an issue that will have ramifications for a long time to come, and that needs a concerted effort by all parties concerned (Builders, Architects, Engineers, Building Surveyors, Owners Corporations, Residents, Owners, Regulators and Insurers) to resolve. 

The Andrews government has committed $600 million to remove the combustible material used on hundreds of high-risk buildings. However, it seems that money has all been allocated and it is most likely to be used for extremely high-risk buildings housing the frail, elderly and very young (such as hospitals, child care centres and nursing homes). 

The State government has also stated that it will 'crack down' on dodgy builders and building products. 

The solution to this major problem seems to be that existing buildings with dangerous Cladding will need to be rectified, and as soon as possible. 

The problem of who will pay for the cost of doing this remains to be resolved. However, Judge Woodward's decision points to the direction that is likely to be followed. 

In other words, the professionals involved in the choice of Cladding, and its installation, will be held responsible if negligence against them can be established. 

Primarily, the DBC Act obliges builders to meet certain minimum standards (among others) as to the suitability of materials and fitness for purpose. 

As this case has shown, builders can defray that responsibility if they employ suitable professional advisors who in turn fail to meet their professional obligations. 

WG Stark
Hayden Starke Chambers

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