Corrs High Vis: Episode 37 – Cladding Safety Victoria: the Victorian Government's $600m defective cladding solution

Ben Davidson, Partner, Projects, Commercial Litigation

Samuel Woff, Senior Associate, Projects

Emily Steiner, Senior Associate, Projects

Hello this is the Corrs Chambers Westgarth Corrs High Vis podcast. My name is Samuel Woff, Senior Associate in the Projects Group here at Corrs and with me today, I’m joined by Ben Davidson, Partner and Emily Steiner. Ben, Emily – thank you for joining me.

Ben: Nice to be here.

Sam: The Victorian Government has announced a $600 million package to fix defective cladding across the State. They have also announced the creation of a new body, Cladding Safety Victoria, who will be implementing this scheme. Ben, if I can start with you, what has led us to come to this point? What is some of the brief history of the cladding crisis which has prompted the Victorian Government to take such drastic action?

Ben: Sam, that’s a great question. It’s interesting because oddly the history is not that brief. This has been an industry issue that’s been identified for in excess of 20 years with the CSIRO identifying that these cladding products had flammable issues a long, long time ago. It’s taken a very long time to get to where we are but what’s happened now has been a rapid acceleration in people dealing with it and that’s post-Grenfell in the UK, the Lacrosse fires here in Victoria and most recently the VCAT decision firming up who had liability in respect of that particular event.

In the last couple of days, we’ve seen the Building Ministers Forum run in Sydney where this issue has been tossed around and it’s been great to see Victoria take the lead with Minister Wynne announcing that there will be the establishment of Cladding Safety Victoria as an agency and the interesting part will be how that all comes together. So there’s still a lot of questions out there and we’re looking for answers and hopefully we’ll get those over the next couple of weeks but what is interesting is that there will be a lot of work going into assessing some 500-600 buildings and we know that there are a number of challenges that we’ll have a quick chat about today.

Sam: In terms of that new organisation, Cladding Safety Victoria, maybe Emily, what details do we have about that body? Do we have comprehensive details or are things still a bit of an unknown at the moment?

Emily: So as Ben flagged just a moment ago, we don’t really know a lot about the new agency just yet. As Ben mentioned hopefully we’ll be able to find out some more in the next couple of weeks but at the moment all that we know is that there’s a $600 million fund half of which is coming from the State Government and that’s already been committed and another $300 million that will be coming from an increased building levy over the next five years. So that $600 million fund is going to go towards rectifying dangerous cladding on buildings that are deemed “high risk” and to support affected owners corporations from the start of that rectification process right to the end. The funding is proposed to go towards project management support, professional design services, building surveying, permits and approvals and the building materials and the rectification works themselves. So that’s all that we know for certain about the agency but at the same time as the agency was announced the Victorian Cladding Taskforce’s final report was also released and on the basis of that report, I expect that there’s going to be two key features that really define how this new agency is going to operate. The first is a risk based approach to prioritising buildings so obviously the highest risk buildings will be rectified first and they do think there will be some challenges and some serious consideration that needs to be given how the buildings are prioritised and the second key feature that I think will be seen or potentially might see is a requirement of funding that the owners corporations novate their rights to sue the responsible parties to the State or to CSV so that the funds can be recovered down the track. Yes, so I think they’re sort of the key features and I’ll be keeping an eye out for further details as they come.

Sam: Okay, thanks Emily. Maybe Ben just throwing to you. On that last point that Emily made about the novated rights to sue people who are responsible for this defective cladding. Any time you take something over you want to do your due diligence. When Cladding Safety Victoria is taking on board these claims what are the types of things that you’d want them to be looking for?

Ben: Sam it’s a broad question isn’t it. It’s difficult across 500 to 1,000 buildings but with so many different issues to be considered in respect of what they’ve got to think about but if we narrow it down and think about the sort of common issues that they’re going to face. One of the first issues that I think they’re going to turn their mind to very quickly obviously given how long these products have been in the market will be limitation periods so we’re all clear about the fact that in Victoria, particularly there are limitations including the 10 year limitation in the Building Act that can be a final stop in respect of when things can be chased up. There will be solvency and insolvency issues that will have to be considered in respect of the builders. We’ve already seen in Victoria a couple of the builders when confronted with these cladding issues have put companies under. These claims tend to be claims that have occurred a long time ago and they will be claims that involve dealing with the owners corporation who may not have a lot of the documents that are necessary to prove these claims. So just finding the documents will be incredibly difficult and then storing and managing them and then being able to prove them all will be a big job for CSV. I think an issue that we’ve seen in the market in recent times is some difficulty with experts in this space. It’s not a great big pool of people and the practical difficulty is a lot of these experts have been deeply enmeshed and involved in the processes that have led to where we are today and they’ve got conflicts and they’ve got issues. So finding the right people to actually manage all this will be quite hard.

I think that then the other sort of issues that CSV will need to consider will be the time and costs for recovery. If the worst case scenario there was some 500 recoveries that had to be run the cost would be just spectacular and they’re going to have to think very carefully about how they streamline the recovery of these matters. Similarly, they’re going to have to think about the impact on the market so if CSV go in rattling and beating up builders and engineers left, right and centre it will have a significant impact on the market and I’m going to be conscious of that impact and how that will play out. Obviously one of the big issues that they’re going to have to confront rapidly is a fairly robust prioritisation on which buildings you fix first. So we know already that the government has been into the market and resolved issues around hospitals. We know that they’ve been pretty active around schools and that this move now is towards the residential market so there will be a prioritisation that goes on in terms of what is left out there and what’s going to be pursued and then I think finally the issue that they’re just going to have to be very conscious of is that the funding, although significant, and I think it’s $300 million that’s been promised by the State and another $300 million and they’re sort of looking for where that’s going to come from. It sounds like an enormous amount of money but the removal of this cladding is expensive and at some point the limited funding that is available to rectify these issues will bite and will become an issue. So there are a lot of broad issues that CSV are going to have to deal with from day 1 and that’s before you even take on the specifics of individual buildings that will have to be considered when they enter the market.

Emily: And I think that all of those issues that you’ve raised, Ben, they are not prohibitive to the funding program being successful. They just need to be really carefully thought through and very carefully executed as well when the program takes effect.

Sam: That’s right Emily because $600 million does sound superficially like a lot of money but it does sound like it’s maybe not going to go as far as the government was hoping.

Emily: Yes absolutely. So on a Lacrosse building that we mentioned earlier so the rectification costs on that came up to around $12 million and that was obviously a really large building that needed a lot of very significant rectification work but if we sort of do the numbers the VBA audits found close to 1,000 buildings that had cladding across Victoria and so that’s not necessarily to say that those buildings were high risk that would necessarily be captured by this program but if we take that sort of starting number of 1,000 buildings saying the large buildings will cost around $12 million to rectify that really only allows about 50 buildings to be rectified which you know obviously not every building is going to be that expensive but it really goes to show that $600 million may not go as far as it initially seems.

Sam: Yes it’s certainly going to be one that the novated cause of action is going to play an important role in hopefully topping up that fund. Ben, maybe just to finish – any final thoughts?

Ben: Yes look I think that the most important thing that the CSV is going to have to deal with in the first 100 days is a pretty aggressive information program to get out to the market. So it’s not just the builders, it’s not just the legal professionals and the people who are going to playing within the sandpit it’s the owners corps so we’re all really worried about their position and what they need to do. So I think that the number one thing for the CSV to focus on will be very clear and crisp with its message to the market about what it’s going to do; when it’s going to do it; how it’s going to do it and the way it’s going to engage because everyone including us are looking for details around that.

Sam: Ben, Emily I think that’s all we have time for today. Thank you so much for joining me. This has been the Corrs High Vis podcast. I’m Samuel Woff and thanks for dropping by. If you’ve enjoyed our podcast, please do check us out on iTunes where we have our full back catalogue available and as always remember this podcast is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice about your specific circumstances.