Fire in the sky: Lacrosse building consultants found liable for cladding

A Frenchman lights a midnight cigarette on his balcony in Melbourne. In less than three hours, most of the 23-storey high rise building catches fire. The Docklands area narrowly avoids burning to the ground.

Thanks to the incredible work of the fire brigade, the occupants and the sprinkler system, not a single one of the tower’s 400 occupants or anyone in the Docklands was hurt by the towering inferno.

Like Deep Purple’s rock classic, this is a true story, the butterfly effect of nightmares for three consultants to a building project. They were found, in what was crucially a breach of their consultancy agreements, to have contributed in various ways to the installation of combustible cladding on the building. This was against the regulations that applied to the high-rise.

They have been ordered by the Victorian Civil and Administrative Tribunal per His Honour Judge Woodward to foot a $5.75 million bill. More damages may follow. A further $6.8 million in claims is still being heard by the judge, mostly for removal and replacement of the unburnt cladding.

It was a landmark decision, one of the first in Australia on liability in relation to combustible cladding. It will not be the last. High rise building owners and building consultants must carefully examine their properties (and their contracts), or they could be next.

To see the full 227-page judgment, follow this link.

For the key details and what builders, consultants and residents need to know moving forward, keep reading.

The events

At about midnight on 24 November 2014, one of the Lacrosse residents returned from work and had a cigarette on a level 8 balcony. Leaving the almost-extinguished cigarette butt in a plastic tray, he went to bed.

Unfortunately, the tray contained aluminium foil, a plant and a packet of seeds. After two hours, everything combustible on the balcony caught alight, including the timber table, some clothes and an air conditioning unit. High-rise balcony areas are high-risk fire hazards.

The building was clad in aluminium composite panels (otherwise known as ACPs) which had a core containing the highly combustible material, polyethylene. Polyethylene has a combustibility similar to petrol and diesel. In the space of twelve minutes the fire spread from floor eight to floor twenty-one.

The use of an ACP with a 100 percent polyethylene core as part of the external wall of the building was found to be “primarily responsible” for spreading the fire.

The applicants

The 211 owners of the various floors and individual apartments brought the case. This included three owners corporations.

The respondents

The case was brought against eight respondents:

  • L U Simon Pty Ltd was the builder;
  • Stasi Galanos and his employer Gardner Group Pty Ltd, who was the building surveyor;
  • Elenberg Fraser Pty Ltd was the architect;
  • Tanah Merah Pty Ltd trading as Thomas Nicholas was the fire engineer;
  • the resident who lit the cigarette;
  • the primary occupier of the smoker’s apartment unit; and
  • the superintendent of the build, Property Development Solutions.

This was the cast of characters in Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286.

Liability of the builder

The builder’s warranties (promises) stated in the Victorian Domestic Building Contracts Act 1995 were the basis for its overall liability. It was alleged that the builder:

  • Had failed to provide materials good and suitable for the purpose for which they were used;
  • Had not carried out work in compliance with the Building Act 1993 (Victoria) and the Building Code of Australia (BCA), and
  • Had not used materials reasonably fit for a particular purpose which was stated in the contract, in circumstances where the building owner clearly relied on the builder’s skill and judgment.

Such warranties are a part of every domestic building contract, and very similar warranties are implied into many home building contracts in NSW law.

In this Victorian case, combustible panels were found to be not good or suitable for the purpose of being used as external walls of a high-rise residential building. The cladding did not avoid the spread of fire in the building so as to prevent injury and property damage. The builder had made an error in selecting these materials.

However this was not the end of the story, as “not every error is negligent” at law.

To be found negligent, the builder had to have failed to take reasonable care in selecting the ACPs. Judge Woodward found that the builder had not failed, for three reasons:

  1. The builder had not known that ACPs were highly combustible and was not expected (at least in 2011) to know this;
  2. The installation of ACPs was a part of the building contract itself, forming the annexed performance requirements; and
  3. The builder had signed consultancy agreements with “highly skilled professionals” (consultants) to supervise and ensure that the complex project was compliant with the BCA. By engaging them, the builder had relied on their expertise.

Liability of the consultants

Point (3) just above meant that there was a possibility that the consultants (the fire engineer, the building surveyor, and the architect) were responsible for the damage. It was alleged that these were the parties who had failed to exercise due care and skill in relation to the installation of the ACPs.

Judge Woodward agreed. Courtesy of the consultancy agreements, the builder was able to pass almost all of the risk in relation to the BCA compliance of the cladding down to the consultants. The consultants were ultimately at fault, and apportioned the $5.7 million in damages as follows:

  • The fire engineer was found liable for 39 percent of the damages;
  • The building surveyor was found 33 percent liable; and
  • The architect was found 25 percent liable.

The French smoker was found 3 percent liable, but given he did not appear in the proceedings and his responsibility was found to be “minimal’ by the judge, the builder copped this amount instead.

Each judgment was made considering the particular consultancy agreement between the consultant and the builder.

The fire engineer: 39 percent liable

As the “primary consultant responsible for fire safety compliance”, the fire engineer was always going to be in trouble.

It had failed to conduct a full fire engineering assessment that would inquire into and assess the range of construction materials. The purpose of this assessment was to identify potential fire hazards of the building.

The fire engineer made the almost-deadly error of assuming that it was not required to conduct an assessment under the consultancy agreement that it had signed. This was incorrect. It was in fact required to conduct some proactive investigation and assessment of the building materials, which it did not do.

It had also failed to warn the builder (and also the other consultants) that the ACPs used for the high-rise residential building did not comply with the Building Code of Australia. Finally, it had also failed to advise about a solution to the non-compliance.

The fire engineer was found the most liable out of everyone, for the simple reason that it was the only professional on the project who actually knew that ACPs were not compliant and were fire risks. A simple email or comment at a meeting may have got it out of trouble. Its inaction was costly.

The building surveyor: 33 percent liable

The builder surveyor was in the firing line primarily because it had decided to issue a Stage 7 Building Permit. Through this, ACPs were approved for use on the façade of the building despite not being in compliance with the BCA. This was allegedly a breach of its consultancy agreement.

However, it was also alleged that the building surveyor’ failed to query the incomplete description of the cladding systems in the fire engineering report, and also that it failed to properly inspect the work during construction for compliance with the BCA.

Judge Woodward found that, notwithstanding some expert evidence to the contrary, the building surveyor’s had failed to give adequate consideration to whether the ACP was compliant with the BCA before issuing the permit.

The building surveyors might have had a defence if the builder did not give them insufficient information about the materials used in construction. Unfortunately for the Lacrosse tower building surveyors, this was not the case.

The architect: 25 percent liable

The other consultant in hot water was the architect.

The allegation was that the architect had made an agreement to prepare architectural drawings of the external cladding that satisfied legislative requirements, and it had breached this agreement. The allegation was also that it had failed to check whether the sample of the ACP provided to it complied with the BCA and was fit for purpose.

Both allegations were proven. The design specified ACPs for the external walls of the tower, including one with 100% polyethylene core, which was a breach of the BCA. Secondly, as head design consultant, it was also responsible for ensuring that the ACP sample it provided was compliant with its design intent and the BCA. In approving of a sample of the ACP, it had failed to exercise due care and skill.

Overall

In summary, the consultancy agreements between the builder and the consultants existed for the commercial purpose of ensuring ongoing involvement from consultants in the project, and therefore ongoing responsibility for the work.

Judge Woodward found that the involvement of the consultants, on terms that they would advise on non-compliance of building materials, meant that they and not the builder were liable for the fire damage.

The lesson for consultants: know exactly your obligations under a contract, whether they are immediate or over a longer period of time, and warn of non-compliances with the law consistent with your knowledge.

Whose line is it anyway?

The line between what is the builder’s responsibility and what is a consultant’s responsibility is a difficult one for the law to trace. There are no hard and fast rules, especially as much will depend on the particular builder-consultant contract.

There will be cases where a commercial builder, given its expertise and experience, will be expected to identify and correct errors by another building professional.

However, in this case Judge Woodward ruled that “where (as here) the skill involved is beyond that which can be expected of a reasonably competent builder and there is no actual relevant knowledge”, the liability of a skilled consultant will be possible.

Knowledge of consultants

The lack of knowledge about the combustibility of ACPs, and the failure of the few who had this knowledge to pass it around, proved very costly and almost deadly.

In another important lesson for consultants, the building surveyor tried to argue that because its peers held similar (incorrect) assumptions about ACPs and their compliance with the BCA, it should not be liable. However, Judge Woodward was unimpressed, as these incorrect assumptions formed “organically and apparently without any practitioner seeking any kind of assessment or endorsement from a professional body or regulatory authority”.

Uncritically adopting a practice perceived to be widespread will not save a consultant. He or she must logically consider each issue they come across, and seek professional advice such as that of a fire engineer.

Conclusion

The judge emphasised that this decision was based on the specific facts of the case. If the building contract and the building had been different, or if ACPs had been used on buildings without obvious ignition sources like barbeques and air conditioning units, then the outcome of the case may have been different.

Nevertheless, building owners and consultants, especially those who have been involved in installing combustible cladding, should be on high alert.

They will need to review their building and consulting contracts immediately, not to mention their professional indemnity insurance. This applies not just for current projects, but for previous ones too. The Lacrosse fire happened in 2014 and the companies are paying dearly for it today.

Building owners will also need to go about registering their buildings on the NSW Cladding Registration portal (see link for more).

If you or someone you know wants more information or needs help or advice, please contact us on +612 9248 3450 or email info@bradburylegal.com.au.

New laws in relation to multi-storey residential strata schemes

On 27 September 2018, the NSW government enacted amendments in relation to residential strata schemes. In introducing the bill, Minister for Innovation and Better Regulation Matt Kean MP said: “Currently more than two million New South Wales residents are working as strata industry professionals or strata owners, or are living in strata-titled townhouses or units.”

The amendments are aimed at reducing defects arising from defective construction of residential strata schemes. The Amending Act is called the Strata Schemes Management Amendment (Building Defects Scheme) Act 2018. It makes changes to Part 11 of the Strata Schemes Management Act 2015 (the Act) and will take effect when the government announces so in the NSW Government Gazette. The Legislation Review Committee indicates this will happen ‘once the regulations are operational’.

Who is affected by this amendment?

Firstly, Part 11 only applies to contracts entered into on or after 1 January 2018.

Secondly, Part 11 only applies to ‘residential building work’ carried out on any part of a multi-unit dwelling strata scheme of at least four storeys.

Thirdly, Developers cannot contract out of these provisions.

The Act

At its core, Part 11 was intended to ‘streamline the identification and rectification of defects for the benefit of strata residents, builders and developers’. The Act contains the following provisions:

  • A developer must arrange for an inspection report. This means they must appoint a qualified, impartial and independent person as a building inspector, generally within 12 months of completion of the building works;
  • This building inspector must carry out an inspection of the building work and provide an interim report between 15 months and 18 months after the completion of the building work. This interim report must identify any defective building work and attempt to identify the causes of the defective work;
  • Within 18 months of the completion of the building, the developer must then arrange for the same building inspector to provide a final report on the building work;
  • The building inspector must carry out a final inspection and provide the final report to all parties between 21 months and 2 years after the completion of the building work. This report is to identify both defects not rectified, and defects arising from attempts to rectify defects. The report also must specify how defects should be rectified;
  • All costs of inspection and reporting are borne by the developer;
  • Before commencing a development, a developer must also lodge a building bond which is worth 2 percent of the total development contract price, it is to be given to the Secretary of the Department of Finance, Services and Innovation (the Secretary);
  • The 2 percent bond will be used by the owners corporation of a building as security for funding to rectify any defects in the building that arise. It can be claimed up to 2 years after the date of completion of the building work, or within 60 days after the building inspector’s final report – whichever is later; and
  • The Secretary,  owners corporation or the developer can apply to the NSW Civil and Administrative Tribunal to have the contract price determined by the Tribunal..

Some of the decisions made by the Secretary are reviewable, but such an application for review must be made within 14 days after notice of the decision is given.

The amendments

Developers of strata schemes need to be aware that there are now new requirements in relation to lodging a bond and providing information to authorities in relation to the contract price. Additionally, the Secretary has been given increased investigative powers in relation to the contract price, building bonds and building defects.

The amendments are as follows:

  • The Amending Act now makes it mandatory, before an application can even be made for an occupation certificate, for the developer to give the 2 percent building bond to the Secretary. Failing to do this will attract a significantly increased penalty: originally $22,000, the maximum penalty is now $1.1 million and an additional $22,000 for each day the offence continues;
  • There is also a new penalty where a developer provides the Secretary with false or misleading information about the contract price or amount required to be secured by the bond (maximum penalty: $1.1 million for corporations, $22,000 for any other case);
  • A requirement that the developer and owners corporation agree on the amount required to rectify any building defects identified by the inspector. They may use a wide range of methods to determine the cost. If they cannot agree, the Secretary may appoint a quantity surveyor to determine this amount;
  • The deadline for an owners corporation to claim the secured amount to rectify defects has been extended, from 60 days after the building inspector’s final report is issued to 90 days;
  • The Secretary may consider it appropriate to release the developer from the bond, if the interim report does not identify any defects, or if some of the amount has been claimed and both the owners corporation and developers agree to cancel the remaining amount;
  • Where the building bond given by a developer is insufficient to cover the amount required to be secured, the Secretary may recover the required amount in court as a debt from a developer. The owners corporation may then claim from the Secretary;
  • The Amending Act grants new powers of investigation and enforcement of Part 11 to any officer authorised by the Secretary. These powers are for the purposes of investigation, monitoring and enforcing compliance with Part 11, and/or for obtaining information and records to be used in administering Part 11. For these purposes:
    1. An authorised officer may by notice in writing to a person require them to provide information or records;
    2. An authorised officer may require a person or the director of a corporation to answer their questions, if they suspect this person has knowledge about Part 11 matters;
    3. An authorised officer may enter premises at any reasonable time, with or without a search warrant, and do certain activities: make examinations and inquiries, direct a person to produce records, examine and inspect records, copy records, and seize anything suspected of being connected with an offence. Where the premises are predominantly residential, a warrant or the consent of the occupier is required for entry;
    4. An authorised officer may obtain a warrant to enter and search premises for evidence of contravention of Part 11;
    5. Penalties for refusing to comply with these requirements, or obstructing an authorised officer, gives rise to penalties up to $4400 for a corporation, or $2200 for any other case. This is unless reasonable excuse can be shown, such as client legal privilege or a privilege against self-incrimination; and
  • A building inspector is protected from action, liability or claim where they act in good faith and for the purposes of their Part 11 functions. Professional associations will however have powers to impose conditions on the functions of building inspectors. A person authorised by the Secretary is also protected from liability, however the Crown may be sued.

Conclusion

The NSW government is taking a keen interest in the processes of identification and rectification of defective building works in strata schemes. It is also clamping down on attempts to circumvent the Act.

In this changing legal environment, it is essential that parties involved in constructing residential strata developments, including developers and owners corporations, understand these changes to their rights and obligations. For developers affected by these provisions, the first deadline to be met could be as soon as 1 January 2019 for the appointment of a building inspector.

Please contact us, should you require any further information, on +612 9248 3450 or email info@bradburylegal.com.au.

Greater regulation of buildings using external combustible cladding

Recent disasters befalling high-rise buildings locally and overseas have intensified calls for owners and developers to take greater steps to prevent such tragedies. The Grenfell Tower tragedy in June 2017 was one of the worst modern disasters in the United Kingdom, as 72 Londoners died as a direct result of a 60-hour fire that caught the side of the residence and enveloped the entire outer building.

The cladding was an exacerbating factor in the disaster. The University of Leeds found that the burning of the combustible material would have released the same energy as if 51 tonnes of pinewood were wrapped around the building. The UK has since banned combustible cladding on external walls of high-rise residential buildings.

NSW government getting tougher on unsafe cladding

Australian states and territories are also attempting to limit the use of dangerous cladding on such buildings. This year the NSW government put into effect a ban on unsafe use of building products, which now includes some types of external combustible cladding, in the Building Products (Safety) Act 2017 (NSW). This Act also authorises councils or other government authorities to order unsafe products to be removed.

The NSW government is now also imposing greater obligations on owners to register their buildings if they use unsafe cladding, and is making development consent harder to obtain where combustible cladding is proposed, in two pieces of legislation:

  • Environmental Planning and Assessment Amendment (Identification of Buildings with External Combustible Cladding) Regulation 2018  (the Identification Amendment)
  • State Environmental Planning Policy Amendment (Exempt Development – Cladding and Decorative Work) 2018  (the SEPP Amendment)

These amendments will take effect from 22 October 2018.

Identification Amendment: who is affected?

These changes affect owners of both new and already existing buildings, so it doesn’t matter if a building was constructed before the amendments take effect.

The Identification Amendment applies to any building that (1) is in a prescribed class, (2) has two or more stories, and (3) has external combustible cladding.

For point (1), a building is in a prescribed class if it is at least one of the following:

  • A building containing two or more sole-occupancy units each being a separate dwelling (class 2);
  • A building that is residential, and a common place for long term or transient living for a number of people unrelated to each other (e.g. a boarding house, guest house, hotel, residential part of a health-care building or detention centre, or accommodation for the aged, children or people with disabilities) (class 3)
  • A building of a public nature (including a health-care building, an aged care building, or an assembly building such as a trade workshop or a laboratory) (class 9)
  • A dwelling in a building of a public nature, if it is the only dwelling in the building (class 4)

For point (3), a building is considered to have ‘external combustible cladding’ if it has either of the following:

  • Any cladding or cladding system comprising metal composite panels, including aluminium, zinc and copper, that is applied to any of the building’s external walls or to any other external area of the building; or
  • Any insulated cladding system, including a system comprising polystyrene, polyurethane or polyisocyanurate, that is applied to any of the building’s external walls or to any other external area of the building.

Identification Amendment: what do building owners have to do?

The Identification Amendment amends the Environmental Planning and Assessment Regulation 2000 (NSW).

It makes the following changes:

  • Any owner of a building above with external combustible cladding must now provide the Secretary of the Department of Planning and Environment (the Planning Secretary) with a number of details about:
    • The building itself (including the name and address of the owners corporation representative, and number of storeys); and
    • The building’s cladding (including a description of the external combustible cladding, any materials comprising the cladding, and a description of the extent of the application of external combustible cladding to the building).
  • The details of the buildings will have to be provided to the government through an online portal. Emails will not be accepted. This portal will soon be up and running, and building owners are encouraged to register to receive an alert for when this happens at: https://www.planning.nsw.gov.au/Policy-and-Legislation/Buildings/Combustible-cladding.
  • Once the portal is running, the deadlines for owners to register are as follows:
    • For buildings that were occupied before 22 October 2018, the deadline for registration is 22 February 2019.
    • For buildings first occupied on or after 22 October 2018, owners must register their building within four months of the building first being occupied.
  • Failing to register a building to which the Act applies attracts a penalty of $1500 for individuals and $3000 for corporations.
  • Owners are also now obligated to provide details about a building and any external combustible cladding if the Planning Secretary, an authorised fire officer or the council of the area directs them to do so in writing. Failure to provide these details within 14 days of the written request attracts a penalty of $3000 for individuals and $6000 for corporations.

The NSW government hopes to use this information to enable Fire and Rescue NSW to educate occupants about fire prevention and to improve its response to fires. It will also assist councils with determining whether further action is necessary.

The SEPP Amendment: greater oversight for combustible cladding

The SEPP Amendment amends eight NSW government planning policies:

  • State Environmental Planning Policy (Affordable Rental Housing) 2009
  • State Environmental Planning Policy (Educational Establishments and Child Care Facilities) 2017
  • State Environmental Planning Policy (Exempt and Complying Development Codes) 2008
  • State Environmental Planning Policy (Infrastructure) 2007
  • State Environmental Planning Policy (Kosciuszko National Park – Alpine Resorts) 2007
  • State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007
  • State Environmental Planning Policy (Three Ports) 2013
  • State Environmental Planning Policy (Western Sydney Parklands) 2009

Each amendment is aimed at increasing developmental consent requirements for works that involve external combustible cladding. Certain developers proposing to use combustible cladding will no longer be exempt from requirements to obtain developmental consent.

For example, the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 has been changed. This Policy provides streamlined assessment processes by listing certain developments that do not need to secure development consent. It is now a requirement for some developments, such as the maintenance of buildings in draft heritage conservation areas, that if the development involves cladding and developers do not want to be burdened by consent processes, the work must not be carried out on any building more than two storeys high, and the work must not involve the use of external combustible cladding.

Conclusion

In 2017, the NSW Shadow Minister for Innovation and Better Regulation Yasmin Catley said that as many as 2500 buildings in NSW could be clad in material that did not comply with regulations. The changes aim to clarify the numbers.

Whether these changes in NSW will work to protect residents remains to be seen. A number of parties had expressed concerns about the Grenfell Tower fire safety and emergency infrastructure, but tragically this was not enough to avert the disaster.

Nevertheless, many of those working with combustible cladding are now subject to greater oversight and must carefully review these new regulations and seek advice about them if necessary. The obligations to report could kick in for some owners as early as February 2019. Failure to do so may mean financial penalty.

Please contact us should you require any further information, on +612 9248 3450 or email info@bradburylegal.com.au.