Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286

INTRODUCTION

On February 28, 2018, Judge Woodward of the Victorian Civil and Administrative Tribunal (VCAT), handed down the first major decision in Australia in relation to the respective liability of parties involved in the design and construction of a building that included combustible cladding.

The case concerned the fire at the 21-storey Lacrosse apartment tower in La Trobe Street, Docklands, in Melbourne. Lacrosse suffered a serious cladding fire on November 24, 2014, started by a single cigarette on a balcony.

In late 2018, the builder agreed to replace the aluminium composite panels (ACPs). This resulted in the legal proceeding, which focussed on the allocation of responsibility between the remaining respondents.

Legal action in the Lacrosse matter involved 211 applicants (the owners) and five key respondents. The first was LU Simon the builder, the second and third were the building surveyor and his employer the Gardner Group, the fourth was the architect Elenberg Fraser, and the fifth was Thomas Nicholas, the fire engineer. 

FINDINGS

The judgement focuses on the selection, approval and installation of the ACPs that enabled the fire spread.

Aluminium Composite Panels
The Tribunal found that the composite metal panel wall and soffit cladding performance system specified in the original design (‘indicative to Alucobond’), failed to comply with the Building Code of Australia (BCA). The judgement also found the substitute ACP ultimately installed also failed to comply with the Deemed to Satisfy (DTS) provisions of the BCA and accordingly, the Building Regulations 2006 (Vic). 

The Builder
It was found that 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 Tribunal found the builder breached the warranties implied in the design and construct contract under section 8 of the Domestic Building Contracts Act 1995 (Vic) (the Act). That is, the warranties as to:

• suitability of materials; (section 8(b) of the Act);
• compliance with the law (which includes the BCA) (section 8(c) of the Act); and
• fitness for purpose (section 8(f) of the Act).

The tribunal found the warranty for fitness for purpose was “absolute”.

It was held the builder did not fail to exercise reasonable care by installing combustible ACPs. In 2011, when the ACPs were installed, there was a poor understanding among building professionals of the fire risks associated with ACPs, and there was no reason to expect the builder to have a superior understanding to that of architects, building surveyors or fire engineers. No evidence was given 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 judgement states:

“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.”

The effect was that the builder was liable for all loss, as between the owners and the builder. 

Superintendent /project managers
While dependent on the particular facts, the Tribunal held there was no duty of care owed by the superintendent to the owners.

The project manager/superintendent, PDS, reached a settlement and withdrew from direct involvement before the judgement, however it is important to note that is irrelevant to the Tribunal’s finding of no duty of care, which was based on the nature of their responsibility outlined in the contracts they held.

The Consultants
The building surveyor, fire engineer and architect were all held to have breached their consultancy agreements with the developer (which were novated to L U Simon by the developer) by failing to exercise due care and skill. 

It was decided the building surveyor failed to exercise due care and skill in:

• issuing the building permit that approved the architect’s specification of ACPs “indicative to Alucobond”; and
• “failing to notice and query the incomplete description of the cladding systems” in the fire engineering report.

It was found that the architect failed to exercise due care and skill in:

• “failing to remedy defects in its design (namely, in the architect’s specification and drawings which provided for the extensive use of ACPs on the façades), which caused the design to be non- compliant with the BCA, and not fit for purpose with its own design intent articulated in the specification and the BCA and not fit for purpose”; and
• Failing as head design consultant, to ensure the ACP sample provided by the builder was compliant with the architect’s design intent as purportedly articulated by the T2 specification and the BCA It was found that the architect was liable for approving the builder’s substitution of Alucobest, which the architect approved on the basis of warranty and colour and requested confirmation of specification requirements being met. 

It was decided that the fire engineer:

• “failed to conduct a full engineering assessment of the Lacrosse tower in accordance with the requisite assessment level dictated within the International Fire Engineering Guidelines, and failing to include the results of that assessment in its Fifth FER” (fire engineering report); and
• Failing to recognise the ACPs proposed for use in the Lacrosse tower did not comply with the BCA and failed to warn at least LU Simon” (and probably also the building surveyor, the architect and the superintendent) of that fact.

THE RESULT

While L U Simon was liable to pay damages to the owners, the damages payable by L U Simon are 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 per cent
• Elenberg Fraser: 25 per cent
• Thomas Nicolas: 39 per cent
• Mr Gubitta: three per cent

No order was made against Mr Gubitta and L U Simon was not reimbursed the three per cent damages it is liable to pay to the owners that was apportioned to Mr Gubitta.
Damages of $5,748,233 were awarded. The remainder of at least $6,823,165 is to be the subject of further submissions and remain unresolved.

Implications for the industry
Two issues that the Tribunal noted:

• Comments “should not be read as commentary generally on the safety or otherwise of ACPs and their uses”.
• “The decision should not be taken as a general statement of how and where liability will fall in similar cases. Caution must also be taken given the specific facts and contractual clauses that were pertinent to the finding.” 

Regardless, the decision will have significant consequences for regulators, builders, design consultants, building surveyors, insurers, developers and owners of affected properties.

What next?
This decision raises many questions that we plan to explore in more detail in coming weeks:

• Understanding performance solutions vs deemed to satisfy compliance with the BCA
• The developer, builder (head contractor) and project manager/superintendent are typically the parties that drive the decisions on these projects – what are their responsibilities?
• Understand and define the rights, roles, responsibilities and risks under a design and construct contract for all parties
• The regulator’s role – the Australian Building Codes Board and local regulator and the potential misinterpretation of C12(f) of the Building Code of Australia (BCA)
• Insurance implications and risk mitigation