Landmark combustible cladding judgment
Eakin McCaffery Cox has successfully obtained a judgment from the NSW Court of Appeal in favour of an Owners Corporation against a builder and developer for the cost of replacing combustible cladding on a 28 storey apartment building in Parramatta. This judgment has set an important precedent with respect to the serious issue of combustible cladding, and will also impact other areas of defect litigation.
Most of the façade of the Parramatta building, completed in 2017, included Vitrabond FR aluminium composite panels (ACPs) containing between 35% and 41% polyethylene. Following the New South Wales Government’s 2018 ban on ACPs with over 30% polyethylene, the Owners Corporation need either to replace the ACPs or implement an approved retrofit solution.
In Supreme Court proceedings against the builder and developer, the Owners Corporation claimed that the cladding breached several statutory warranties owed to it pursuant to the Home Building Act 1989 (NSW), including that:
- the materials used in the construction of the building would be good and suitable for their intended purpose (s18B(1)(b));
- the materials and methodology would comply with the requirements of the Building Code of Australia (BCA) and all other relevant legislation (s18B(1)(c)); and
- the construction work would result in a habitable dwelling (s18B(1)(d).
The BCA sets minimum performance requirements, and requires compliance with the “Deemed to Satisfy” provisions, or approval by relevant authorities of an “Alternative Solution” prior to the Construction Certificate, or a combination of both. In the case of the Parramatta building, there was no evidence that the ACPs complied with the non-combustibility specifications of the BCA, and no Alternative Solution had been implemented at any time.
There was also evidence from experts (and even from the manufacturers) that the ACPs were combustible and not suitable for installation as an external wall without an Alternative Solution being implemented.
The defendants denied breaching any of the statutory warranties, and argued that a cheaper Alternative Solution could now be implemented rather than replacing the cladding.
Primary Judge’s decision
At first instance, while the primary judge held that strictly the defendants had not complied with the requirements of the BCA, he characterised this as trivial, and thus not a breach of the s18B(1)(c) warranty. He also held that the Owners Corporation had not established that the ACPs were actually combustible, and required the Owners Corporation to establish that an Alternative Solution “could not then or now be performed”.
The Court of Appeal’s approach
On appeal, the Court overturned the primary judgment, on the basis that the Owners Corporation was entitled to a compliant building, and the non-compliance with the BCA had led to a real risk being placed on the occupants, the Fire Brigade and the public. This was not merely a technical breach but a substantive one, which entitled the Owners Corporation to receive compensation.
Importantly, the Court held that the defendants bore the evidentiary onus of proving that it was unreasonable for the cladding to be fully replaced, and they had failed to discharge that onus. In particular, the Owners Corporation should not be required to carry the real risk of damage and injury occurring in the future from fire in the building.
Impact of decision
This appellate-level decision has confirmed that a breach of the minimal standards set by the BCA is not a trivial matter – particularly where public safety is at risk. It also firmly requires defendants to prove that anything less than full replacement or rectification is appropriate.
Using this judgment as a precedent, an Owners Corporation should just need to prove non- compliance with the BCA to establish a beach of the s.18B(1)(c) warranty. Further, without a current approved Alternative Solution for proposed rectification works, a defendant cannot successfully argue that anything less than the full replacement of the cladding is reasonable.
This is extremely important since the ten year interest free loan offered under Project Remediate to assist with cladding replacement costs does not compensate for other losses such as increased insurance premiums.
This judgment is also likely to have an impact on other areas of defect litigation, such as where non-compliant waterproofing is causing mould. A builder may have difficulty in satisfying the court that a cheaper rectification solution should be accepted where the occupants’ health or public safety is at risk.
Queries
Eakin McCaffery Cox achieved a highly successful outcome for our clients in this case, with the assistance of the talented Jodi Steele SC and Robert Size of counsel.
We provide expert and comprehensive advice about all types of construction and defect claims, with a proven track record of achieving optimal results for our clients.
If you have any queries, feel free to contact your usual Eakin McCaffery Cox contact, a member of the Eakin McCaffery Cox Construction Team, email to info@eakin.com.au or call (02) 9265 3000.
Linda Holland 5 June 2023
The above was prepared by Linda Holland and is intended to provide a broad general overview of issues only. It is not intended, and or must not be relied upon, as definitive legal advice
