Consultants in construction industry remain in the line of fire

In a judgment handed down nearly as quickly as the flames that once spread up the façade of the Lacrosse apartment tower in Latrobe Street, Docklands, the Victorian Court of Appeal (Beach and Osborn JJA and Stynes AJA) on 26 March 2021 refused to grant leave in all but one of the building consultants’ 25 grounds of appeal.

Key takeaways

The Victorian Court of Appeal in Tanah Merah Vic Pty Ltd v Owners Corporation No 1 and Ors [2021] VSCA 72 has strongly affirmed the original decision of Judge Woodward in the Victorian Civil and Administrative Tribunal (VCAT). In particular, the following findings were affirmed:

• that the use of combustible aluminium composite panels (ACPs) on the facade of the building was not compliant with the Building Code of Australia;
  
  
• that the installation of the ACPs breached the statutory warranties given by the builder under the Domestic Building Contract Act 1995 (Vic);
  
  
• that a builder in the period from 2007 to 2010 was not expected to have known about the risk of installing ACPs on buildings like Lacrosse;
  
  
• that despite the builder’s breaches of the statutory warranties, by operation of the Wrongs Act 1958 (Vic) (Wrongs Act), liability for the losses suffered by the building owners ultimately falls on the various building consultants and the individual who started the fire; and
  
  
• that the ‘peer professional defence’ will not be available to building surveyors who have approved the use of ACPs in circumstances like on the Lacrosse building as the widespread practice was deemed to be unreasonable.

The decision means that all participants in the construction industry, from contractors to building industry professionals, who have specified, installed or approved the use of combustible cladding on buildings will continue to be challenged by claims made by owners’ corporations and other property owners.

Background

As is now well known, shortly before 2:23 am on 24 November 2014 a fire, resulting from an incompletely extinguished cigarette butt left to burn out in a plastic container, broke out on the balcony of apartment 805 of the 21 storey Lacrosse apartment tower.

The fire spread across 14 floors of the building’s façade within 12 minutes. The rapid spread of the fire was a consequence of the ACPs that had been installed on the building’s façade.

Although all of the 400 or so occupants were successfully evacuated from the building, damage to the building was substantial. The owners and the owners’ corporation (Owners) claimed to have incurred losses exceeding $12 million.

VCAT decision

To recover their losses, the Owners brought a claim in VCAT against the building professionals involved in the construction of Lacrosse (and against the person who originally left the cigarette in the plastic container on the balcony). The building professionals included the builder (Builder) and the building surveyor, architect and fire engineer (collectively, the Consultants).

The trial at VCAT can be divided into two groups of claims, these being:

1. the Owners’ claims against the Builder; and
   
   
2. the Builder’s claims against the Consultants.

The Owners were largely successful in their claims against the Builder, with Judge Woodward ordering the Builder to compensate the Owners for their loss.

At the same time, the Builder succeeded in its claims against the Consultants, with Judge Woodward ordering the Consultants to reimburse the Builder in respect of 97% of the damages awarded to the Owners.  

The practical impact of his Honour’s findings was that, although the Builder was held liable to the Owners, it was able to pass this liability on to the Consultants.  

Judge Woodward reached this outcome having decided that the Owners’ claims against the builder were not apportionable, and that the Builders’ claims against the Consultants were apportionable.  

This decision meant that the Consultants were required to reimburse the Builder for the amounts it was liable to the Owners. This aspect of the Judge’s decision was highly contentious and was the subject of most of the grounds of appeal.  

In Victoria, apportionment of damages is regulated by the Wrongs Act. The Wrongs Act provides that the liability of a defendant who is a concurrent wrongdoer must be limited to an amount reflecting the proportion of the loss or damage claimed that the court considers just, having regard to the extent of the defendant’s responsibility for the loss and damage.  

The damages were ultimately awarded in the following proportions:

* The occupant whose cigarette appeared to have caused the fire did not participate in the proceedings but his proportional responsibility was assessed as 3% of the overall amount payable to the Builder. Since the occupant did not participate in the proceedings, Judge Woodward noted that the Builder remained liable to this extent.

The appeal 

Left cumulatively liable for 97% of the Owners’ losses, the Consultants appealed Judge Woodward’s decision to the Victorian Court of Appeal.  Given there was considerable overlap between the Consultants’ 25 proposed grounds of appeal, the grounds were distilled into 11 issues for determination.   

The issues set out by the Consultants for consideration, and the findings of the Court in respect of each of these issues, are as follows:

Conclusions

At the time of writing, the Court had not yet heard the parties in relation to consequential orders and costs. The judgment itself did not otherwise include any comment on whether the proportionate responsibilities between the consultants should be altered.

The decision effectively maintains the status quo that was put in place after the original VCAT decision was made and will come as little comfort for any consultants involved in designing buildings which specified ACP cladding, or their insurers.

Builders may be buoyed by the fact that LU Simon emerged relatively unscathed. However, each case will turn on its facts, including:

• the specific obligations imposed on each of the parties;
  
  
• the circumstances in which the design and construction of the project is undertaken (including when the relevant work takes place);
  
  
• the involvement of the builder in the selection and specification of the cladding material and its compliance with that specification.

Recent legislative changes, such as the ban on specific combustible cladding products (including ACPs), will help to ensure that the circumstances leading to this case do not happen again.

However, it remains to be seen whether the appeal will open the way for an increase in proceedings dealing with combustible cladding, in parallel with works done to rectify those buildings, including through the Victorian Government’s Cladding Rectification Program.  

It is also yet to be seen if building consultants, who were relying on arguments relating to apportionability similar to those raised by the architect and fire engineer in this case, will reconsider their position in relation to existing proceedings.