Can I claim costs against a lawyer who lodges a caveat on behalf of his or her client?

1.     In Alliance Developments v Arbab [2019] VSC 832, the Supreme Court of Victoria (Garde J) considered the circumstances in which it may be appropriate to order indemnity costs against a solicitor in respect of an application to remove a caveat lodged on behalf of a client.

 

Background

2.     The Court had previously ordered that the Registrar of Titles (‘Registrar’) remove two caveats lodged by the solicitor for Mr Arbab, the first defendant, who was a resident of Pakistan, over two properties owned by the plaintiff.

 

3.     In this application, the plaintiff sought an indemnity costs order against Mr Arbab, as well as against Pasha Legal and its sole principal Ms Hina Pasha, who acted for Mr Arbab.

 

4.     The plaintiff alleged that there was no proper basis for lodging the caveats, and that Mr Arbab never had the interests in the two properties that were claimed.

 

5.     In 2013, the plaintiff entered into a contract to buy vacant land in California Gully, Victoria. It intended to subdivide the property into five lots and build new homes on the lots. Mr Arbab, who was then a director of the plaintiff, alleged that he contributed $34,300 to the purchase.

 

6.     In 2014, another director of the plaintiff entered into a contract to buy a property located in Laverton North for a purchase price of $423,000. The plaintiff was subsequently nominated as the purchaser and became registered as owner of the Laverton North property.

 

7.     In the background, Mr Arbab was in dispute with his fellow directors about building projects on eight properties, not including the California Gully and Laverton North properties.

 

8.     In the judgment, Garde J noted, among other things, at paragraph 16 (emphasis added):

When lodging a caveat, the estate or interest claimed, the ground of the claim, and the nature of the prohibition are of prime importance. The claimed estate or interest in land is a central concept in a caveat. Care must be taken to ensure that the claims made are correct, and accurately reflect the caveator’s estate or interest in the land the subject of the caveat. A caveat may only be lodged in a form commensurate to the interest it is designed to protect.

 

9.     The Honourable Justice Garde then proceeded to list several cases where the caveats in question were held to be defective.

 

10.  The lawyer for Mr Arbab lodged a caveat over the title to each of the California Gully property and the Laverton North property.

 

11.  In respect of the Laverton North property, the estate or interest claimed was a freehold estate, and the prohibition was absolute. The ground of the claim was ‘Implied, Resulting, Constructive Trust’. Garde J noted at paragraph 24:

The ground relied on by Mr Arbab was expressed in general terms. It did not refer to any agreement or basis for the claim. It did not descend into particulars or provide any explanation as to how the alleged trust arose, or how it gave rise to a freehold estate.

 

12.  In respect of the California Gully property, the estate or interest claimed was again a freehold estate and the prohibition was absolute. The ground relied upon was: Registered proprietor(s), being entitled to possession of the Certificate of Title for the land and to prevent improper dealing.

 

13.  Garde J noted at paragraphs 27 to 29 of the judgment:

The claim made was misconceived and nonsensical. The plaintiff had been the registered proprietor of the California Gully property since 2017. The ground of claim was suitable only for a registered proprietor who sought to receive notification from the Registrar of the lodgement of a dealing affecting the land.

 

28. Mr Arbab was not and did not purport to be the registered proprietor of the California Gully property. He claimed an interest in the California Gully property on the basis that he contributed $34,300 to the purchase price when the property was acquired.

 

29 The 2018 caveat made no reference to any agreement or financial contribution made by Mr Arbab at the time of the purchase of the California Gully property. It did not claim a lien or any other right relating to supervision or management work of Mr Arbab in connection with other properties, or assert any lien or right over the California Gully property. It did not make any claim for an interest consequent upon a resulting trust as suggested by … [counsel’s] advice.

 

14.  The plaintiff applied to the Registrar of Titles pursuant to section 89A of the Transfer of Land Act, 1958 (“the TL Act”) for removal of the two caveats.

 

15.  In response, the lawyer for Mr Arbab wrote to the registrar of titles and asserted that proceedings were on foot to justify the caveats.

 

16.  In fact, the only proceedings on foot were in relation to the shareholder dispute between Mr Arbab and his fellow directors of the plaintiff.

 

17.  At paragraph 34, Garde J noted:

The notice given by Ms Pasha was wrong and misleading.

 

18.  This is not a finding that a legal practitioner wants a Supreme Court Justice to make!

 

19.  In any event, the Registrar of Titles took no action to remove the caveats, pending the outcome of the proceedings that he thought were on foot.

 

20.  This necessitated the plaintiff issuing its own proceedings and seeking an order for removal of the caveats under section 90(3) of the TL Act. Before initiating proceedings, its lawyers sent a letter demanding that the caveats be removed. In that letter, the lawyers for the plaintiff foreshadowed an application for costs against the lawyer for the caveator.

 

21.  After the proceeding was issued, and directions were made about filing further affidavits and submissions, Mr Arbab consented to the removal of the caveats and to an order that he pay costs an indemnity basis.

 

22.  The plaintiff then made this application for an order that the caveator’s lawyer pay its costs of the application, on an indemnity basis.

 

23.  At paragraphs 56 and 57 of his judgment, Garde J noted (emphasis added):

It is well established that the lodging of a caveat is a serious business. It has the potential to affect commercial transactions and the lives and financial interests of others, and is not available as a bargaining chip. A shareholder has no caveatable interest in land belonging to a company.

 

57. The only proper purpose in lodging a caveat under s 89(1) of the Act is to protect the estate or interest claimed in the caveat by operation of the statutory injunction against the registration of subsequent dealings and to provide notice of the existence of the estate or interest to those who inspect the Register. The lodging of a caveat for ulterior purposes is a serious misuse of the statutory provisions.

 

24.  The Honourable Justice Garde then analysed the cases relating to indemnity costs, and noted:

In Love v Kempton, Forrest J observed that a person who lodged a caveat without proper grounds should be brought to book if others are forced to resort to court proceedings to remove a caveat which has no proper basis. The costs associated with removal of a caveat are heavy and the difference between standard costs and indemnity costs is considerable.

 

25.  Garde J concluded that special circumstances existed in this case, such that the defendant, Mr Arbab, should be ordered to pay the plaintiff’s costs of the proceeding on an indemnity basis.

 

26.  At paragraph 70, Grade J noted (after analysing the facts leading to the lodging of the caveats):

In light of the above, it must be concluded that the … caveats were not seriously intended to maintain the estate or interest in land claimed in them, but were intended to apply commercial pressure on the plaintiff and its directors and inhibit their property dealings. They were bargaining chips which had the effect of freezing the California Gully and the Laverton North properties. Their purpose was to make it impossible for the plaintiff to sell or use the properties as security for loans.

 

27.  Perhaps of more interest to practitioners is what Garde J had to say about the application for indemnity costs against the lawyers for the caveator. Those costs were claimed from the lawyer under either order 63.23(1) or the inherent jurisdiction of the court to supervise its own process. Garde J noted that: “The inherent jurisdiction requires a serious dereliction of duty or gross negligence, but this is not necessary under r 63.23. … Under r 63.23, a solicitor’s negligence or failure to act with reasonable competence may justify a personal costs order. It extends to orders that a solicitor personally pay costs in cases where it is proper to do so.”

 

28.  Among other considerations, Garde J noted

(at paragraph 87): Pasha Legal’s duties to the Court included a duty on      the factual and legal material available not to make a claim or           respond to a claim in a civil proceeding that did not have a proper           basis. Pasha Legal was required not to engage in misleading or deceptive conduct or conduct likely to mislead or deceive.

 

(at paragraph 88, among other matters): there is no sign of any     serious assessment by Pasha Legal of the basis of the claims made in           the caveats; there was no documentary evidence or corroboration of        the claim made in either caveat; Pasha Legal was given notice that it      was at risk for costs; no attempt was made to uphold either caveat;           the real purpose behind the caveats was to use them as a bargaining   chip; in relation to the s 89A application, Pasha Legal engaged in   conduct that was misleading or deceptive or likely to mislead or       deceive by misrepresenting to the Registrar that the correction     proceeding would substantiate Mr Arbab’s claims as caveator in       relation to the Laverton North and California Gully properties and the       estate or interest which he claimed. The correction proceeding   related to the state of the plaintiff’s share registry, and did not seek          any relief concerning the Laverton North or California Gully     properties; when they found out what had occurred, the plaintiff’s            solicitors expressed concern at the certification and statements made    to the Registrar. Despite this, Pasha Legal did not withdraw the    caveats or advise Mr Arbab that they should be withdrawn                immediately; by refusing to withdraw the caveats, or to obtain                  counsel’s advice, Pasha Legal triggered the proceeding to remove      them. Pasha Legal did not at any time appreciate that the caveats             were not maintainable and were highly likely to be removed by the        Court; Pasha Legal maintained a combative style, particularly in the       early stages of the proceeding; and ultimately, it was Mr Arbab who          came to the view that the proceeding should not be opposed, and   agreed to pay the plaintiff’s costs of the proceeding.

 

(At paragraph 89): … it is my view that Pasha Legal failed to act with         reasonable competence and was negligent and in breach of its    duties to the Court as to:

(a) the drafting of the caveats;

(b) the s 89A application;

(c) the misrepresentations made to the Registrar;

(d) the refusal to withdraw the caveats to avoid the proceeding;

(e) the failure to acknowledge that the caveats were unsustainable; and

(f) the failure to brief counsel with the relevant facts, or if in doubt, obtain counsel’s opinion as to whether the caveats were maintainable.

 

(And finally at paragraph 90): … I am satisfied to a comfortable level of satisfaction on the balance of probabilities that Ms Pasha failed to

act with reasonable competence and that she was negligent and acted in breach of her duties to the Court. The statements and certifications made to the Registrar were egregious. They

resulted in the need for the plaintiff to incur the costs of the proceeding.

 

Conclusion

29.  As noted, the Court concluded in this case that the caveats in question were inherently defective and the solicitor in question failed to act with reasonable competence in lodging the caveat.

 

30.  As a result of those findings, the Court ordered that the caveator and the solicitor pay the applicant’s costs on an indemnity basis.

31. This case confirms how critically important it is to ensure that a caveat has a proper basis for lodgement, and the serious consequences that may flow from not meeting the minimum standards required in assessing the alleged basis of the caveat. 

WG Stark

Hayden Starke Chambers

Can I claim compensation from a lawyer who lodges a caveat on behalf of his or her client?

1.     In Lanciana v Alderuccio [2020] VSCA 152, the Court of Appeal in a joint judgment (Tate, Hargrave and Emerton JJA) considered the circumstances in which it may be appropriate to order that a solicitor pay compensation under section 118 of the Transfer of Land Act 1958 in respect of a caveat lodged on behalf of a client without reasonable cause.

 

Background 

2.     The appellants brought a claim against the lawyers for the caveator, rather than the caveator itself, for compensation for losses sustained by reason of the lodgement of the caveat.

 

3.     Section 118 of the Transfer of Land Act, 1958, provides:

Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.

 

4.     At the original trial, the Court posed a preliminary question for determination in the proceeding, as follows:

Whether, assuming that the allegations contained in the further amended statement of claim are true, the [respondents] are ‘a person’ lodging a caveat with the Registrar for the purposes of s 118 of the Transfer of Land Act 1958 (Vic), or whether the [applicant] is confined to seeking compensation from the party identified as the caveator in the relevant caveats.

 

5.     The trial judge concluded that the respondents were not a person lodging a caveat with the Registrar for the purposes of s118 of the TLA.  

 

6.     The central contest between the parties was whether the words ‘[a]ny person lodging’ in s 118 of the Act bear their literal meaning and give rise to a purely factual question as to who in fact lodged the caveat at issue, as the applicant contends; or whether, as the respondents contend, the words ‘[a]ny person lodging’ in s 118 should be construed in the context of the Act as a whole and s 89 in particular, so that ‘any person lodging’ a caveat is to be interpreted in light of the phrase ‘[a]ny person claiming any estate or interest in land’ in s 89(1).

 

7.     In a joint judgment, the Court of Appeal noted (at paragraph 12) that the Trial Judge had found:

… the critical words in s 118 — ‘[a]ny person lodging’ — naturally invited the question, ‘who lodges the caveat?’. The judge found a clear and unambiguous answer to that question in s 89(1) of the Act: ‘Any person claiming any estate or interest in the land … ’. The judge did not accept the applicant’s submission that the Act should be construed on the premise that ss 89(1) and 118 play independent roles, as this ignored the fact that ‘[a]ny person lodging’ a caveat is a statutory concept which has been a feature of the statutory framework since the Real Property Act 1862. Moreover, the fact that s 89(1) expressly authorises a person to lodge a caveat by ‘his agent’ strengthens the conclusion that an agent who lodges a caveat is not ‘any person’ lodging a caveat in his or her own right; the act of lodging is the act of the principal.

 

8.     The Court of Appeal then set out the arguments of both parties, and (at paragraph 31) concluded:

 

…  s 89(1) … confers a right on a person who claims to have an interest in land to lodge a caveat to protect the asserted interest and to do so either directly or by his or her agent. The right is conferred on the person claiming the interest, whether or not the interest is ultimately established. Insofar as the caveat is lodged by an agent of the person claiming the interest, the agent, according to the well-established principles of the law of agency, stands in the shoes of the person claiming the interest. The act of lodging the caveat is the act of the principal, that is, the person claiming the interest in the land.

 

9.     The Court of Appeal then concluded (at paragraph 32):

… It is clear, therefore, that the respondents lodged the caveats as agents for Bloomingdale. In these circumstances, the acts of the respondents in lodging the caveats were the acts of Bloomingdale and the judge correctly so found in answering the first limb of the preliminary question. Bloomingdale lodged the caveats within the meaning of s 118.

 

10.  Among other matters considered by the Court of Appeal, they concluded:

(At paragraph 33) Accordingly, ‘any person lodging’ a caveat is a statutory concept, not simply a question of fact. The identity of a person ‘lodging’ a caveat is ascertained by reference to the exercise of the entitlement conferred by s 89(1). As the judge held, the answer to the question, ‘who lodged the caveat?’ is provided clearly and unambiguously by s 89(1): ‘Any person claiming any estate or interest in the land … ’.

…

(At paragraph 34) We also agree with the judge that the proposition, that s 118 involves a factual enquiry about the person who lodged the caveat, proceeds from the false premise that s 89(1) does not provide an answer to the question and fails to appreciate that lodgement involves a statutory concept that can only be understood by reference to the requirements governing eligibility for lodging under the Act.

…

(At paragraph 35) … the primary task of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of the statute as a whole.

…

(At paragraph 40) In our view, the judge’s construction accords with the requirement to construe the provisions of a statute in a manner that is consistent with the language and purpose of all of the provisions of the statute. It focusses on the language of ss 89(1) and 118 and how those provisions operate together, having regard to the words chosen by the legislature. It accords with authority emphasising the primacy of the text in statutory construction.

 

Conclusion

11.  It seems relatively clear that lawyers should be advising clients about whether the client has a caveatable interest and to refuse to lodge a caveat on a client’s behalf in circumstances where there is no caveatable interest.

 

12.  However, if the lawyer does lodge a caveat on behalf of a client in circumstances where there is no reasonable basis for doing so, it is the client who is claiming the caveatable interest, not the lawyer, and so it is the client who will be liable to pay any compensation under s 118 of the Transfer of Land Act, 1958.

 

WG Stark

Hayden Starke Chambers

What happens if I lodge a caveat over the title to real estate in Victoria when I do not have a caveatable interest?

A caveat is an instrument that protects an unregistrable legal or equitable interest in real property. 

The caveat is a notice to the public that the person lodging the caveat (the caveator) holds an unregistered interest in the property, and provides details of the interest claimed. 

The caveat prevents the registration of any dealings a person has with the property until the caveat is removed or the caveator consents.

Lodging a caveat is a very serious matter, and as a result a caveat should not be lodged ‘without reasonable cause’. 

Section 118 of the Transfer of Land Act 1958 (Vic) provides: 

Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.

What does ‘without reasonable cause’ mean?

In 2019, the High Court of Australia explained what it means to lodge a caveat ‘without reasonable cause’ for the purposes of claiming compensation under the NSW provision that is equivalent to section 118. 

The case dealt with the question of what property vests in a trustee in bankruptcy. However, in determining that issue, the High Court has provided some useful insight into the issue of whether a person has lodged a caveat without reasonable cause.

In Boensch v Pascoe [2019] HCA 49; 94 ALJR 112; 375 ALR 15, the High Court (Kiefel CJ, Gageler and Keane JJ and separately Bell, Nettle, Gordon and Edelman JJ) endorsed the two-step ‘reasonable cause’ test that had been applied in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) and other cases.

Background

Mr Boensch was a trustee holding real property on trust for the benefit of his children (Trust Property). Mr Pascoe was appointed as Mr Boensch's trustee in bankruptcy upon Mr Boensch being declared bankrupt. Whilst acting as Mr Boensch’s trustee in bankruptcy, Mr Pascoe lodged a caveat over the Trust Property.

Ultimately, the caveat was removed by a lapsing notice issued by the NSW Registrar General. Mr Pascoe chose not to issue litigation to establish that he had a caveatable interest in the real property (mainly due to the limited equity that appeared to be available in the property). 

Mr Boensch then commenced proceedings against Mr Pascoe seeking compensation under the Act on the grounds that Mr Pascoe had lodged and maintained a caveat over the Trust Property ‘without reasonable cause’.

In determining whether Mr Pascoe had lodged and maintained the caveat over the Trust Property ‘without reasonable cause’, the trial judge applied a two-step test, namely that a caveat is lodged ‘without reasonable cause’ if the lodging party:

1. does not have a caveatable interest; and
2. does not have an honest belief based on reasonable grounds that they have a caveatable interest.

As a result, in order to claim compensation under the equivalent of section 118 successfully, Mr Boensch was required not only to establish that Mr Pascoe did not have a caveatable interest in the Trust Property but also that Mr Pascoe did not have an honest belief on reasonable grounds that he had a caveatable interest over the Trust Property.

The High Court concluded that Mr Pascoe had a caveatable interest in the Trust Property for the purposes of lodging and maintaining the caveat. This was on the basis that the caveatable interest arose from Mr Boensch’s entitlement to be indemnified out of the Trust Property for liabilities he incurred while he was trustee. This entitlement to be indemnified created an equitable interest which vested in Mr Pascoe upon his appointment as Mr Boensch’s trustee in bankruptcy.

The majority (Bell, Nettle, Gordon and Edelman JJ) noted (at ALR page 46, paragraph 116):

For the reasons earlier stated, there is no reason to doubt that, upon the making of the sequestration order, the ... property vested in equity in Mr Pascoe by reason of Mr Boensch’s right of indemnity and, therefore, that Mr Pascoe had a caveatable interest in the property. Nor is there any reason to doubt that Mr Pascoe honestly believed on reasonable grounds that the property so vested, either on the basis that the trust was void or on the basis of Mr Boensch’s right of indemnity. On the facts as found, Mr Pascoe did not lodge or refuse to withdraw the caveat without reasonable cause.

The minority (Keifel CJ, Gageler and Keane JJ) noted (at ALR page 20, paragraph 12) that:

The existence of a caveatable interest, without more, supplies “reasonable cause” for lodging and maintaining the caveat.

In the circumstances, the High Court concluded that Mr Pascoe did not lodge the caveat ‘without reasonable cause’ and therefore Mr Boensch was not entitled to compensation under the New South Wales provision equivalent to section 118 of the Transfer of Land Act 1958.

Conclusion 

This High Court decision highlights the importance of ensuring that caveats are lodged and maintained with ‘reasonable cause’. 

It also provides guidance on how a Court will approach the issue of whether a caveat has been lodged ‘without reasonable cause’ under the Act, and thus whether an applicant is entitled to compensation under section 118 of the Transfer of Land Act 1958.

Legal practitioners will be aware that if they lodge a caveat without reasonable cause, they may be engaging in unsatisfactory professional conduct, or even professional misconduct. If that happened, the legal practitioner is likely to find themselves the subject of a disciplinary matter initiated by the Legal Services Commissioner, and having their right to engage in legal practice put at risk. 

WG Stark

Hayden Starke Chambers

The effect of COVID-19 on residential tenancies

On Friday, 17 April 2020 I presented an online seminar to Leo Cussen Centre for Law about the impact of COVID-19 on residential tenancies to approximately 60 online attendees.

The talk looked at some of the relevant measures that are being implemented in so far as they relate to residential tenancies in Victoria in April 2020. The topics covered in the presentation included:   

• Eviction Notices  
• Inspections and Open Homes  
• Loss of Income  
• Insurance  
• Government Protection Measures  
• Landlord’s and Tenant’s rights and responsibilities 

A copy of my paper is available to anyone who is interested. 

After the talk, the attendees posed a large number of questions about the way the proposed legislative changes will affect both landlords and tenants, confirming that this is an area causing considerable concern in the community. 

The Victorian government is proposing to introduce legislation into the Parliament on 23 April 2020. 

It is expected that the legislation will: 

1. introduce a temporary ban on evictions (for 6 months from 29 March 2020), 
2. pause rental increases for the same six month period, 
3. provide land tax relief for landlords, and 
4. provide rent relief for tenants experiencing financial hardship. 

Tenants and landlords who struggle to strike a deal over rent reductions will be given access to a fast-tracked dispute resolution service, with Consumer Affairs Victoria or the Victorian Small Business Commission mediating to ensure fair agreements are reached. 

If a landlord provides tenants impacted by coronavirus with rent relief, they will be eligible for a 25 per cent discount on their land tax, while any remaining land tax can be deferred until March 2021. 

Evictions will be banned for residential tenancies for six months, except in some limited circumstances.  

The Government will also create an $80 million rental assistance fund for renters facing hardship due to coronavirus. To be eligible for up to $2,000 in rent relief, renters will need to have registered their revised agreement with Consumer Affairs Victoria or gone through mediation, have less than $5,000 in savings and still be paying at least 30 per cent of their income in rent. 

I will provide a further post, if the legislation provides any surprises. 

WG Stark

Hayden Starke Chambers

Property Law - Dealing with COVID-19 Impact on Residential Leases

This Friday from 1pm to 2pm, I will be presenting a Live Stream seminar for the Leo Cussen Institute about "Dealing with COVID-19 Impact on Residential Leases". 

This one hour CPD seminar is designed to help you identify and guide you through the essential issues to focus on and how to manage your clients and risks.

During this session I will focus on the following issues:

1. Eviction Notices
2. Inspections and Open Homes
3. Loss of Income
4. Insurance
5. Government Protection Measures
6. Landlord’s and Tenant’s rights and responsibilities

Bookings and further information can be obtained at:

https://store.leocussen.edu.au/products/property-law-dealing-with-covid-19-impact-on-residential-leases 

WG Stark

Hayden Starke Chambers

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