Many parties are involved in the construction and approval of residential apartments in Australia – from the design stage, through the supply chain and then the installation and approval of materials. Wall cladding has been in the news repeatedly since the Grenfell Tower fire in London in June 2017; however, there have been other cases of fires coming from wall cladding prior to that time. In this article Caitlin Meers discusses a recent decision in one such case.
It’s critical that those in the building and construction industry understand the implications of this decision, including liability and claims that might flow from owners corporations around Australia. This matter is a cautionary tale for builders, surveyors, architects, engineers and other consultants.

Lacrosse Apartment fire

On 5 March 2019, the Victorian Civil and Administrative Tribunal (VCAT) handed down its decision as to the liability of various parties from the Lacrosse Apartments fire in Melbourne in November 2014. The Tribunal found that liability was shared between the architect, surveyor, the fire engineer and the tenant, for the reasons set out below.

Background

On 25 November 2014, a fire began in an ashtray on the balcony of an 8th floor apartment at the Lacrosse Apartments. These apartments were located in the Docklands, Melbourne city. The fire was triggered by a series of unfortunate events, including a cigarette being incompletely stubbed out in a plastic container, which lit some organic seeds wrapped in foil, which set the container alight, which lit a washing basket full of clothing, which was resting on a timber table.  An apartment tenant, Jean-Francois Gubitta, had smoked the cigarette.
After the table caught fire, the flames spread to a blanket that had been resting on the external air conditioning unit. The flame melted the aluminium covering of the panels affixed as cladding to the building, lighting the polyethylene core. The panels then caught alight and travelled from level 8 to level 21 in only 11 minutes. This occurred at 2.35 am. 
All 400 occupants of the building were evacuated safely.

Proceedings

In 2016, the owners corporation commenced proceedings in the VCAT to recover costs incurred from the fire damage but also to replace all the undamaged cladding on the building, which was clearly a significant fire hazard.
The matter was heard over 22 days. The VCAT produced a lengthy judgment detailing the cause of the fire, its spread and the damage, as well as who was responsible and why.

Findings

VCAT found that the fire could be attributed to:

• the smoker of the cigarette failing to properly and fully extinguish his cigarette
• the installation of aluminium composite panels with 100% polyethylene core on the external walls of the building (the cladding).

VCAT did not attribute any loss to the items stored on the balcony.

Who was responsible?

When the owners corporation filed the claim, they elected to sue the builder for damages. To attempt to indemnify themselves against any damages payable, the builder joined its surveyor, architect and fire engineer to the proceedings. This meant that there were ultimately 4 defendants.
Builder – LU Simon
In its Design and Construct Contract for the development, the builder gave warranties that it would use suitable materials that complied with the law and were fit for purpose. Those warranties were ‘absolute’. This means that even if the builder could demonstrate that it applied reasonable care, the warranties would not be extinguished.
Once it was established that the cladding was unsuitable, the builder became liable because of its breach of the warranties.
VCAT found that, while the builder was liable for damages payable to the owners for foreseeable damage, it had not acted negligently because it wasn’t aware of the fire risks, having engaged external professionals to provide it with the relevant information.

Building Surveyor – Gardner Group

VCAT found that the surveyor failed to exercise reasonable care by issuing a building permit for construction of the building, approving the use of cladding that didn’t comply with the Fire Resistance specifications in Section C of the Building Code of Australia (BCA). This section of the BCA notes that external walls must be non-combustible.
In addition, the surveyor failed to query the incomplete description of the cladding systems in the Fire Engineering Report prepared by the Fire Engineer.
Finally, VCAT found that the building permit issued was misleading and deceptive, in contravention of Australian Consumer Law.

Architect – Elenberg Fraser

VCAT found that that the architect failed to exercise reasonable care in failing to remedy defects in the design of the tower to ensure its compliance with the BCA and to ensure the sample of cladding it was given was compliant with the BCA.
Pursuant to entering the consultant agreement with the builder, the architect had been appointed ‘Head Design Consultant’ and so could not assign the responsibility or liability to the builder.

Fire engineer – Thomas Nicolas

VCAT found that the fire engineer failed to exercise reasonable care by failing to conduct a full engineering assessment of the building to the level required by the International Fire Engineering Guidelines and to including it in the Fire Engineering Report. The effect of this failure was that sprinklers were not installed on the balconies and there was no alternative solution put in place.
Further, the fire engineer failed to:

• recognise that the panels didn’t comply with the BCA
• warn the builder and other consultants about that
• provide advice about a suitable solution.

Finally, VCAT found that the Fire Engineering Report was misleading and deceptive, in contravention of Australian Consumer Law.

Damages

VCAT ordered the following damages be paid:

• $4,851,937.19 for reinstatement works as a result of damage caused by the fire
• $701,270.16 for the increase to insurance premiums as a result of the fire.

It was ordered that the payments be made in the following proportions:

• Surveyor – 33%
• Architect – 25%
• Fire Engineer – 39%
• Tenant – 3% (assigned to the builder).

There were further compliance costs of $6,823,165.65 (removal and replacement of the unburnt cladding), as well as loss of rent and alternative accommodation claims yet to be calculated.

What does this decision mean?

VCAT noted that this case should not be considered a precedent in relation to the suitability of aluminium composite panels.
Notwithstanding that, this case sets a precedent for owner corporations (including unit owners) to recover compensation from builders and associated experts or contractors if panels installed on buildings were not compliant with the BCA. Please note that, in most cases, these claims must be made within 6 years of the Certificate of Occupancy (or Final Inspection) being issued.
It’s clear that there’s an expectation on all parties and experts involved in the construction of a building that they both conduct their own duties to the highest standard and closely and carefully scrutinise the work of other experts involved.

How can we help?

If you have any questions about your business’s liability in matters like these or require any other advice, please contact the Business Law team at Snedden Hall & Gallop on 02 6285 8000 or by email.