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Court of Appeal reallocates liability in Lacrosse case – has the dust finally settled?

01 September 2021

#Construction, Infrastructure & Projects, #Property, Planning & Development

Published by:

Rebecca Weakley

Court of Appeal reallocates liability in Lacrosse case – has the dust finally settled?

In May 2021, the Victorian Court of Appeal handed down its decision regarding apportionment of liability between the building surveyor and the fire engineering consultant in the landmark cladding litigation arising from the 2014 Lacrosse Tower fire.

Background

In 2014, a fire was ignited by a cigarette left by a backpacker on a balcony in a Docklands apartment building. The rapid spread of the fire up 14 storeys was linked to the aluminium composite panels (ACP) installed on the outside of the building, which comprised a 100 per cent polyethylene core.

In 2019, the Victorian Civil and Administrative Tribunal (VCAT) delivered a decision that apportioned $12 million in damages between the building surveyor (33 per cent), the architect (25 per cent), the fire engineering consultant (39 per cent) and the individual who caused the fire (3 per cent). The builder was able to pass through its liability to the consultants, even though it had breached its warranties. See our previous discussion on the initial Tribunal decision.

The appeal

An appeal was brought in the Victorian Court of Appeal by the three consultants.

March 2021 decision

In Tanah Merah Vic Pty Ltd v Owners' Corporation No 1 of PS631436T [2021] VSCA 72, the Court of Appeal upheld the Tribunal’s decision and found that the builder was not negligent under the Wrongs Act 1958 (Vic) (Wrongs Act), as the three consultants had argued it should be. This was notwithstanding that the Court agreed that the builder had breached the implied warranty under the Domestic Building Contracts Act 1995 (Vic) and also the Building Act 1993 (Vic) by constructing a building that didn’t comply with the Building Code of Australia (BCA).

The Wrongs Act governs apportionment in Victoria and provides that the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount that reflects the proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage.

The Court held that there was no error in determining that the builder’s breach of warranty claims were not apportionable as the builder was not found to have failed to take reasonable care. The Court agreed that the builder did not fail to take reasonable care. This was because the builder was not aware of the fire risks connected to ACPs, was not responsible for including ACP in the building design, and could rely on a consultant’s understanding of items that were technical and outside of a builder’s knowledge, as a builder cannot be expected to know the intricacies of the products. The fact that the panels did not meet the statutory warranties given by the builder, because they were not compliant or fit for purpose, did not of itself constitute a lack of reasonable care, the Court held.

The Court found that the builder was not required to ensure that the materials selected complied with the BCA, even though ACP was referenced in the specification and drawings prepared by the architect. This remained the responsibility of the architect, not the builder.

The Court agreed with the VCAT decision that the ‘peer professional opinion’ defence did not apply, as the relevant peer professional opinion relied upon was ‘unreasonable’.

This affirmed the Tribunal’s first instance decision that although the builder was liable to the owners of the building, it was able to pass the liability on to the responsible consultants.

Leave to appeal was granted on the issue of the building surveyor’s failure to identify and correct an omission in a fire engineering report. The building surveyor successfully argued that VCAT erred in finding that the building surveyor’s failure to identify and remedy deficiencies in the fifth fire engineering report caused the loss, and the Court set aside that finding. The Court agreed with the building surveyor’s position that as the fire engineer was already aware that ACPs were proposed for the cladding, the inaction by the building surveyor had no causal consequence.

In all, of the 11 appeal grounds raised, 10 were rejected. The revisiting of apportionment was not remitted to the Tribunal, rather it was conducted by the Court.

May 2021 decision

In May 2021, the Court of Appeal handed down its judgment in Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T [No 2] [2021] VSCA 122, reallocating the responsibility as follows: the fire engineer was apportioned 42 per cent (up three per cent), building surveyor was apportioned 30 per cent (down three per cent), while the backpacker who started the fire and the architect’s apportionment percentages remained the same.

In reaching its decision, the Court had regard to:

  • the degree of departure by each wrongdoer from the standard of care reasonably expected of that wrongdoer
  • the causal potency of each wrongdoer’s negligent acts or omissions.

The Court held that the fire engineer sat at the top of the hierarchy by a clear margin, but the building surveyor bore “a not insignificantly greater responsibility than the architect”. The Court agreed with the original findings that the fire engineer’s failures had considerable causal potency, while also stating it had “frontline responsibility”.

The Court noted that while it might have appeared that it simply assigned the reduction in the building surveyor’s share of the apportionment to the fire engineer without increasing the architect’s share, the revised percentages reflected the Court’s view about each party’s relative responsibility.

The impacts

The case has been the catalyst for exclusions in professional indemnity insurance cover, withdrawals of insurance cover and increased premiums for practitioners in the building and construction industry, including consultants such as those in this case (architects, building surveyors and fire engineers). The appeal decision means that the issues plaguing the professional indemnity insurance industry are unlikely to cease any time soon.

Authors: Rebecca Weakley & Marie-Louise Scarf

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Rebecca Weakley

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