Combustible cladding – A flammable issue

A recent decision of the Victorian Civil and Administrative Tribunal (VCAT) has provided some useful guidance in relation to the responsibility of builders and consultants to owners in respect of the installation of non-compliant aluminium composite panels on buildings in Victoria.

On 28 February 2019, his Honour Judge Woodward handed down his decision apportioning liability for the 2014 fire at the Lacrosse building in Melbourne. This was the fire that brought the risks associated with the use of aluminium composite panels (ACP) firmly into public awareness (and the media spotlight) and led to the establishment of Victoria’s Statewide Cladding Audit.

The Lacrosse fire began with a partially extinguished cigarette left in a food container by French backpacker Jean-Francois Gubitta, which spread to a wooden table and the aluminium composite panelling on the side of the building. In April 2015, the Metropolitan Fire Brigade Post Incident Analysis of the fire found that the use of non-compliant ACP had contributed to the spread of the fire.

The builder LU Simon has been ordered to pay the Owners over $5.7 million in damages, with further sums claimed of over $6.8 million (including costs of replacement of non-compliant cladding and additional insurance premiums) which are yet to be resolved.

This order flows from the finding that the builder breached the statutory implied warranties 8(b), (c) and (f) of the Domestic Building Contracts Act 1995 (Vic). These subsections warrant that:

• all materials to be supplied by the builder for use in the works will be good and suitable for the purpose for which they are used;
• the work will be carried out in accordance with, and will comply with, all laws and legal requirements including, without the Building Act and the regulations made under the Act; and
• the work will be undertaken using materials that are reasonably fit for the purpose stated in the contract.

The Tribunal found that LU Simon had not failed to exercise reasonable care in the construction of the Lacrosse building by installing combustible cladding on its exterior. This is because at the time of construction it was unaware of the danger associated with the 100% polyethylene core between the aluminium panels. Given all that has transpired since Lacrosse was built in 2011, that finding would not necessarily be made in cases arising since the Victorian Statewide Cladding Audit began.

LU Simon was successful in establishing that the following consultants had breached their consultant agreements by failing to exercise due care and it was able to apportion liability for the damages payable to the Owners pursuant to the Wrongs Act 1958 (Vic) in the following amounts:

In addition the building surveyor and architect were found to have engaged in misleading and deceptive conduct under the Australian Consumer Law by reason of their representations made to LU Simon. This is a significant finding because a limitation of liability clause which is commonly found in most commercial agreements is unlikely to be effective in limiting such a claim.

This is a landmark decision, not only for its size and media coverage, but because it is the first decision on the apportionment of liability in relation to the installation of non-compliant ACP cladding.

Mr Gubitta did not participate in the proceeding and as no party sought judgement against him, there was no order directly affecting Mr Gubitta and LU Simon remained liable for his 3% contribution.

The decision makes clear that builders and consultants who allow dangerous materials to make their way into the completed building are likely to bear significant financial responsibility. Given the large number of buildings that have been identified as having ACP cladding, this decision will be of particular interest to owners, builders, consultants and their insurers.

The decision also provides useful guidance in relation to the quantification of damages in these circumstances and highlights the importance of Owners Corporations keeping comprehensive records of all costs incurred in order to ensure that they are fully recoverable.

Finally, the decision provides a copious and useful analysis on the operation of the Building Code of Australia in connection with Aluminium Composite Panels. While his Honour was quick to warn that “these reasons should not be read as a commentary generally on the safety or otherwise” of aluminium composite panels, his reasons provide a timely reminder of the risks of combustible cladding to both public safety and liability.

Authored by:
Daniel Middleton, Partner
Adrian Clifford, Senior Associate
Marco Paoletti, Lawyer