In brief - on 26 March 2021, the Court of Appeal of the Supreme Court of Victoria gave judgment in various appeals brought from the orders made by the Victorian Civil and Administrative Tribunal (VCAT) relating to the Lacrosse Apartments. The Court of Appeal's decision is a strong endorsement of the trial judgment
Key points and overarching comments
The case has always been fact specific. The contractual arrangements in place were not unusual in the construction/infrastructure sector, but those arrangements are by no means universal. Not all future cases will be decided this way, particularly where the contractual arrangements materially differ. There are, however, some key findings delivered by the Court of Appeal which provide much needed certainty in cladding cases.
The arguments run by the consultants on appeal were wide ranging and of various degrees of ambition. In our opinion, the Court of Appeal decision sets out three key findings:
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The debate over whether ACPs complied with the deemed to satisfy criteria of the BCA, now or ever, has been settled, with the Court holding that they did not and do not.
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Whether a builder took reasonable care in the discharge of its duties is to be looked at in all the circumstances. There were certain findings as to the builder's state of knowledge around ACPs which aggrieved some parties but sustained the finding that the builder had sought out and deferred to subject matter experts.
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The Court also took up a point upon which there has been some judicial uncertainty concerning the proportionate liability regime. It is a seminal decision if for no other reason than that. Based on the reasons, if a claim by its character is not one that relies on a failure to take reasonable care, it is not apportionable.
Whilst centrally relevant to the Lacrosse case, perhaps the most important feature of the Court of Appeal's decision is the last one above. For now at least, the decision is the leading authority on what constitutes an apportionable claim and in time, will no doubt be remembered more for its findings on proportionate liability than any cladding issues per se.
Background to the appeals
The Lacrosse Apartments are a 21-storey residential tower that was completed in 2012.
In 2014, a cigarette started a fire on the balcony of one of the apartments on level 14. The fire spread vertically up the exterior of the building, quickly reaching level 21 causing significant damage but, mercifully, no injuries. The cause of the fire's spread was attributed to the use of combustible ACPs in the building's façade. 1
The owners of the building successfully sued the original builder, L.U. Simon, in VCAT for loss arising from the damage caused by the fire, as well as for the cost to remove and replace the ACPs with non-combustible panels.
In the same proceedings L.U. Simon in turn successfully cross claimed against the building surveyor, Gardner Group, the architect, Elenberg Fraser and the fire engineer, Tanah Merah.
VCAT found that L.U. Simon had not failed to exercise reasonable care in the design and construction of the Lacrosse Apartments but that it was, nevertheless, liable in full to the owners under statutory warranties that it owed them which were implied into the original building contract.
VCAT also found that it was the negligence of Gardner Group, Elenberg Fraser and Tanah Merah, that caused L.U. Simon to breach the warranties to the owners and, in effect, exposed L.U. Simon to the owners' claims. As such, L.U. Simon was entitled to pass through 97% of its exposure to the owners to those parties.
Each of Gardner Group, Elenberg Fraser and Tanah Merah appealed to the Court of Appeal.
Key findings and implications
We set out below some of the key findings made by the Court, as well as some implications and considerations to bear in mind regarding them.
Compliance status of ACPs
The Court held that VCAT was correct in finding that the BCA did not permit the use of combustible ACPs in the way they had been used in the Lacrosse Apartments, a building required to be of Type A construction. 2
The judgment makes it clear that, where ACPs are used in the external walls of buildings that are required to be of Type A construction, such use will not comply with the BCA. By extension, those that specify, sanction, or certify the use of, or otherwise use ACPs as part of the external walls of buildings of Type A construction will be exposed to potential claims.
This finding is critical in the context of other cladding disputes where it has been routinely argued by consultant parties that there was an exemption in prior versions of the BCA which permitted the use of ACPs. The Court held there was no exemption and that those charged with determining the compliance status of ACPs had failed in that role.
It is therefore not the case, as has so often been said, that this kind of use of an ACP was once allowed.
Peer professional opinion not reasonably held
When before VCAT, Gardner Group relied upon a defence to the effect that in certifying the ACPs for use in the Lacrosse Apartments, they were simply adopting a practice that was widely accepted by its peers, i.e. building surveyors (peer professional opinion).
The trial judge had found that the peer professional opinion identified did not withstand logical analysis. This finding was not disturbed on appeal. VCAT's finding in this regard was on the basis that, among other matters, the peer professional opinion that ACPs could be used in the external walls of buildings of Type A construction was never tested by way of material testing in circumstances where concerns had for some time been emerging internationally 3 regarding the use of ACPs and their combustibility and was therefore irrational.
This aspect of the judgment is potentially significant in other cladding cases since similar peer professional opinion defences are often raised by building surveyor parties.
Clear guidance at last on what is an apportionable claim
Based on the reasons, if a claim by its character does not rely on a failure to take reasonable care, it is not apportionable. This is welcome clarity for construction claims in particular as many claims are predicated on statutory or contractual warranties, either under the usual wording of commercial construction contracts or via implied terms under the various State residential building legislation.
There were several controversial arguments raised on appeal, such as that if a claim involves a failure to take reasonable care by even a minor player in the dispute, the whole of the claim should be treated as apportionable. The difficulty with that contention - quickly identified by the Court of Appeal - is that it would lead to a perverse situation if a defendant was not sued in negligence, yet had to contend for its own negligence to make the claim apportionable.
The Court of Appeal decision therefore aligns with longstanding legal orthodoxy that a plaintiff is entitled to select the most favourable cause of action available to it. There may still be cases where the most favourable cause of action is one which relies on a failure to take reasonable care - most third party duty cases would fall into that category - however where there are warranties that are directed to outcomes, not process - such as 'fitness for purpose' - those will be available to plaintiffs who do not want to become embroiled in an action against multiple defendants.
Concluding observations
At first glance, the decision appears harsh from the perspective of the consultant parties. Between them they will retain 97% of the owners' losses arising from the use of ACPs in the Lacrosse Apartments.
However, it is a decision made against the backdrop of legislation that is largely aimed at protecting consumers - in particular the Domestic Building Contracts Act 1995 (which implies for the benefit of owners onerous and in some cases strictly applied statutory warranties into contracts for the construction of residential buildings). The effect of the decision is to uphold those protections and to give much needed clarity in relation to the BCA in the context of ACPs.
The Lacrosse decisions are likely to colour parties' approaches to the proportionate exposure of builders and their consultants in cladding cases. However, the extent to which the decisions can be said to apply to cladding cases will depend very much upon the facts in each instance.
For example, in the Lacrosse case, the terms of the various contracts very much favoured the builder. The builder disclaimed any awareness of the dangers presented by ACPs and that evidence was accepted by VCAT. The builder maintained that it relied on its consultants to advise it of the very risks that came to pass.
As such, matters such as the nature of the contractual terms agreed, the types of ACP products in question and the individual knowledge of key decision-makers regarding the dangers presented by ACPs ought to factor heavily in liability assessments in cladding cases.
The Lacrosse decisions are at pains to make it clear that parties ought not to assume that this outcome would be reflected in all such disputes. Careful and close consideration of the individual facts and circumstances of each case will come into play and could well give rise to vastly different outcomes.
1. L.U. Simon retained a 3% exposure to the owners for the liability of 'the smoker'.
2. Buildings that are required to be of Type A construction are generally those that are higher risk such as high rise, high occupancy buildings.
3. The design which introduced the ACPs into the project was the subject of a building permit issued on 2 June 2011. VCAT stated - "It seems that fire risks associated with ACPs had been identified in Australia not long after sales of Alucobond began to accelerate in the late 1990s". [pp173].
Colin Biggers & Paisley acted on behalf of the builder (L.U. Simon Builders Pty Ltd).