The recent decision of VCAT Deputy-President Justice Woodward regarding the widely reported fire in the Lacrosse Tower in 2014 has raised serious liability implications for consultants under separate agreements that are novated to construction contracts, in cases involving combustible cladding. His Honour apportioned liability in varying degrees to three consultants, all of whom had no direct contractual relationship with the applicant owners.
In an historic judgment, Justice Woodward awarded the applicant owners in excess of $5.7 million in damages immediately payable, with the cost of replacing the non-compliant cladding still to be negotiated.
LU Simon (the Builder) entered into a design and construct contract with 675 La Trobe Street Pty Ltd (the Developer) for the construction of Lacrosse Tower in the Docklands.
The contract contained warranties regarding the suitability of materials, compliance with law and fitness for purpose implied into it by section 8 of the Domestic Building Contracts Act 1999 (Vic).
The Developer entered into three separate consultancy agreements which were subsequently novated to the Builder with Gardner Group (the Building Surveyor), Elenberg Fraser (the Architect) and Thomas Nicholas (the Fire Engineer), and construction was completed in 2012. On the night of 24 November 2014, a discarded cigarette of an eighth floor occupant, Mr Gubitta, ignited a fire which spread rapidly throughout the building due to the widespread installation of combustible Alucobest aluminium composite panels (ACPs). The ACPs had a 100% polyethylene core on the external building façade.
In the aftermath of the fire, 211 applicants comprising relevant owners corporations and individual apartment owners commenced a damages claim in VCAT for over $24 million against the Builder, the Building Surveyor, the Architect, the Fire Engineer, Mr Gubitta, and the superintendent under the design and construct contract.
Justice Woodward found that Mr Gubitta’s cigarette butt was the cause of the fire, however the extensive damage that ensued was caused by the ACPs.
His Honour found that the ACPs did not adhere to the ‘Deemed to Satisfy’ provisions of the Building Code of Australia (BCA) and were ‘combustible’ within the meaning of the BCA’s definition.
With respect to the claims against the Builder, Justice Woodard held that “not every error is negligent” and found no evidence that the Builder failed to utilise the necessary care in installing the cladding. Further, His Honour found that the Builder did not have any knowledge regarding the danger of ACPs, nor was it reasonable to expect a competent builder to have that knowledge.
Justice Woodward noted that the separate agreements with the consultants was an attempt by the Builder to mitigate the shortcomings in its knowledge and “an important link in the chain of assurance”. Further, the separate agreements with the consultants was pivotal in Justice Woodward’s apportioning of liability between the respondents
The Fire Engineer, Building Surveyor and Architect were found to have failed to exercise the requisite care and skill in the installation, approval and selection of the ACPs. This also resulted in the consultants breaching their respective separate consultancy agreements with the Builder.
Finally, the Fire Engineer and Building Surveyor were also found to have breached section 18 of the Australian Consumer Law, as they made misleading and deceptive representations concerning the suitability of the ACPs to the Builder.
Justice Woodward apportioned liability to the Building Surveyor (33%), Architect (25%), Fire Engineer (39%) and Mr Gubitta (3%) as concurrent wrongdoers within section 24AH and section 51 of the Wrongs Act 1958 (Vic), and were cumulatively liable for $5.7 million in damages payable by the Builder to the applicants.
The decision of Justice Woodward highlights that although a builder may be primarily liable to the property owner for property damage caused by fire, it may have recourse through pursuit of subcontracted third party professionals whose skills and expertise have been relied upon on, provided that the builder can show that there was no knowledge of the risks.
More broadly, this decision may have a strong impact on the professional indemnity insurance market. Insurers may seek to insert exclusion clauses in policies in respect of liability caused by combustible cladding or alternatively, seek to raise premiums.
If you would like further information about professional indemnity, please contact Urban Lawyers.