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Residential Focus

13 March 2019

#Property & Real Estate

Residential Focus

Lacrosse tower decision handed down

The Victorian Civil Administrative Tribunal (VCAT) recently handed down the eagerly awaited Lacrosse decision,[1] providing guidance as to how a tribunal (or court) may apportion liability between those involved in the selection and use of aluminium composite panels (ACPs). 

The facts 

On or around 14 May 2010, LU Simon (the Builder) entered into a design & construct contract with 675 La Trobe Street Pty Ltd (the Developer) for construction of Lacrosse tower. Warranties of suitability of materials, compliance with the law and fitness for purpose were implied in the design & construct contract pursuant to section 8 of the Domestic Building Contracts Act 1999 (DBC Act) (similar to the statutory warranties under Part 2C of the Home Building Act 1989 in the NSW context). The design & construct contract also imposed design obligations on LU Simon (relied on by the architects Elenberg Fraser). 

The Developer separately entered into consultancy agreements with Gardner Group (for building surveyor services), Elenberg Fraser (for architectural services) and Tanah Merah Pty Ltd trading as Thomas Nicolas (for fire engineering services) (the Consultants). These consultancy agreements were subsequently novated to LU Simon. 

The Consultants commenced the design and development phase of Lacrosse tower in 2007 and 2008, with the design eventually consisting of extensive use of ACP on the east and west facades, including the balconies. The ACP approved by the Consultants and installed by LU Simon (i.e. Alcubond Plus) had a 100% polyethylene core.

LU Simon completed construction of Lacrosse tower in 2012 and the tragic fire occurred on the night of 24 November 2014. While the source of the ignition of the fire was Mr Gubitta’s cigarette butt, evidence determined that the subsequent rapid spread of the fire was primarily caused by the ACP (with a 100 per cent polyethylene core). The ACPs were ultimately found not to satisfy the “Deemed to Satisfy” provisions of the relevant Building Code of Australia (BCA).

The tragic fire has caused significant loss and damage, claimed by the Owners as exceeding $12 million.  

The decision 

While the Tribunal at first instance concluded that LU Simon was liable to pay damages to the Owners for breach of warranties under the design & construct contract and DBC Act, the Tribunal consequently determined that the damages payable by LU Simon were to be reimbursed by the other respondents as ‘concurrent wrongdoers’ by operation of Part IVAA of the Wrongs Act 1958, in the following proportions:

· Gardner Group: 33 per cent

· Elenberg Fraser (the architects): 25 per cent

· Thomas Nicolas (the fire engineer): 39 per cent

· Mr Gubitta (the resident who disposed of the cigarette): three per cent

The Tribunal proportioned liability on the basis that LU Simon exercised reasonable care in constructing the Lacrosse tower, and notwithstanding the design obligations, LU Simon was not responsible for including ACPs into the design. Further, the Tribunal found that LU Simon complied with the specifications and instructions given by the Consultants, and ultimately, the Consultants were in breach of their consultancy agreements for failing to exercise due care and skill. 

Gardner Group was in breach by issuing a building permit despite Elenberg Fraser’s specification on ACPs not complying with the BCA. Gardner Group also failed to notice the insufficient description of cladding systems in the fire engineering report. Given the hazards associated with ACPs have been known since 2010, the Tribunal held the Gardner Group could not rely on a defence of peer professional opinion under section 59 of the Wrongs Act

Elenberg Fraser was in breach for failing as a head design consultant to ensure that the ACP sample provided by LU Simon complied with its specification and BCA and for failing to remedy defects in its design (which was clearly not fit for purpose).

Thomas Nicholas was in breach for failing to conduct the requisite full engineering assessment and for failing to recognise that the proposed ACP did not comply with the BCA. 

Implications on industry participants

Generally, this decision will undoubtedly heighten awareness of the risks (from an exposure to liability perspective) that are associated with ACPs, particularly those with a 30 per cent plus polyethylene core.  

The decision is controversial for building professionals and will have further implications on the already rising premiums on public indemnity insurance. 

It will be interesting to see if the NSW tribunal and courts adopt a similar approach to apportionment, noting that the NSW landscape includes s.18C of the HBA by which developers owe the same statutory warranties as the builder.

Editorial: Christine Jones & Divya Chaddha

[1] Full citation: Owners Corporation No.1 of PS613436T, Owners Corporation No. 2 of PS613436T, Owners Corporation No. 4 PS613436T & Ors v Lu Simon Builders P/L, Stasi Galanaos, Gardner Group & Ors [2019] VCAT

In the media

Building quality fiasco: The fallout rumbles into dangerous zones as governments fail to govern
As the building quality fiasco continues to bite, insurers are starting to insert inconvenient exclusions into their policies, forcing private certifiers in NSW to warn that building in the state could grind to a halt (7 March 2019).  More...

RICS: It’s time to call for outcomes not more red tape: construction industry non-compliance
The recent Building Ministers Forum (BMF) in Hobart was noteworthy for proposing the need for more red tape, more checkers checking the checkers and avoiding any measurable outcomes that would really make a difference (28 February 2019).  More...

HIA: Home building slows
Figures released by the ABS show that the residential building industry did $68.7 billion worth of work on new homes during 2018 which was an all-time high. This implies that the pipeline of new residential building work is thinning out and as the homes that are currently under construction reach completion there are likely to be fewer new projects to replace them (27 February 2019).  More...

Published - articles, papers, reports

Australian Bureau of Statistics
04/03/2019 Building Approvals, Australia, Jan 2019 (cat no. 8731.0).

In practice and courts

AIBS Member Information - Lacrosse VCAT Judgement
AIBS Legal Advisers - Kelledy Jones, have provided a summary of the Victorian Civil Administrative Tribunal's judgement on the Lacrosse Apartment fire in Melbourne’s Dockland in 2014 (07 March 2019).  More...

ABCB reminder: NCC 2019
All three volumes of the NCC 2019 preview, as well as The Guide to Volume One, are now available to download. To get your copy, log into your NCC account through the NCC online or create your NCC account and login to access. NCC 2019 will be adopted from 1 May 2019. If you’d like an overview of the key changes and dates, please check out the latest ABCB Connect article.  More...

New standards
AS/NZS 1576.1:2019
Scaffolding - General requirements -  Standards Australia.

Cases

Treble v Building Professionals Board [2019] NSWCATOD 34
(b) Pursuant to s 31(4)(f) of the Building Professionals Act 2005 the applicant is to pay to the Building Professionals Board a fine of $8,000 within 28 days of the date of this decision.
ADMINISTRATIVE REVIEW – Accredited certifier – findings of unsatisfactory professional conduct – disciplinary orders varied as to amount of fine. Administrative Decisions Review Act 1997; Building Professionals Act 2005.

D&K Developments Pty Ltd v Tchetchenian [2019] NSWCATAP 47
ADMINISTRATIVE LAW – Denial of procedural fairness – directions for service of submissions on costs application – no submissions filed – no steps taken to comply with directions or seek an extension of time.
Appeal is against a costs order made on 3 December 2018 (Costs Order) in favour of the respondents who were applicants in home building proceedings HB 17/36629.

Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286
BUILDING AND CONSTRUCTION – Fire at Lacrosse tower on La Trobe St - aluminium composite panels (ACPs) – compliance with the Building Code of Australia (BCA) – construction of the BCA – International Fire Engineering Guidelines (IFEG) – consultant agreements with building professionals – history and use of ACPs – causes of damage by fire – compliance of ACPs with the BCA – construction of BCA clause C1.12(f) “bonded laminated materials” – construction of BCA clause C2.4 of specification C1.1 “attachments to a wall” – breach of warranties under the Domestic Building Contracts Act 1995 (Vic) – role of relevant building surveyor – whether obligations under consultant agreements coextensive with duty to exercise reasonable care – failure by building professionals to exercise reasonable care under construction agreements – whether building surveying a “profession” – Wrongs Act 1958 (Vic) s59 peer professional opinion defence – relevance of D&C Contract to construction of consultant agreements – breach of consultant agreements – construction of specification forming part of D&C Contract – meaning of “indicative to” – role of fire engineer – meaning of “full fire engineering assessment” under IFEG – failure to warn of non-compliant ACP – liability of smoker – role of superintendent – liability of owners in relation to items stored on balconies – causation and remoteness in relation to failures of building surveyor, architect and fire engineer to exercise reasonable care – would a warning have avoided harm – proportionate liability – allocation of responsibility between building surveyor, architect, fire engineer and smoker – quantum – sufficiency of evidence establishing loss – reliance on assessments by insurance adjuster – loss associated with increased insurance premiums.

Bitar Pty Ltd v Hebbel Constructions Pty Ltd [2019] NSWCA 38
APPEAL – Leave to appeal from interlocutory decision not to discharge court appointed receiver – where complaints of delay by the receiver – whether error of principle in approach to removal of receiver – whether manifest injustice in refusing to remove the receiver – where futility of an appeal given receivership almost complete – where other remedies available.
CORPORATIONS – Receivers and managers – appointment by court – application for removal of receiver – conduct of receivership – powers – where receiver makes commercial judgments as to timing and staging of sale of assets.

Bellerive Homes Pty Ltd v FW Projects Pty Ltd [2019] NSWSC 193
CONTEMPT – Civil contempt – where parties entered into design and construction contract – where application made under the Building and Construction Industry Security of Payment Act 1999 (NSW) for adjudication of contractual dispute – where adjudication was that plaintiff entitled to judgment for $1,110,063.83 – where adjudication certificate filed as judgment for a debt pursuant to s 25(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) – where adjudicated sum unsatisfied – where plaintiff seeks defendant be punished for contempt by declaration, sequestration order, fine or other orders – where defendant made no case submission – whether prima facie case respondents guilty of contempt – May v O’ Sullivan (1955) 92 CLR 654; [1995] HCA 38 – whether failure to pay a judgment debt is capable of constituting civil contempt – whether relevant distinction between a judgment debt and other order to pay money.
CIVIL PROCEDURE – Civil contempt – where adjudication certificate filed as a judgment for a debt pursuant to s 25(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) – where judgment given file number – where contempt proceedings commenced by notice of motion – whether proceedings should have commenced by way of summons – Supreme Court Rules 1970 (NSW), Part 55, rule 6(2) – Civil Procedure Act 2005 (NSW), s 63, 133(2).

Legislation

New South Wales

Proclamations commencing Acts
Fair Trading Legislation Amendment (Reform) Act 2018 No 65 (2019-115) — published LW 28 February 2019
The Architects Act 2003 to remove the minimum age requirement for registration and to enable applications for registration as an architect to be made electronically.

Regulations and other miscellaneous instruments
Home Building Amendment (Miscellaneous) Regulation 2019 (2019-76) — published LW 15 February 2019

Contacts:
Christine Jones, Partner - Construction & Infrastructure (Dispute Resolution) 
T: +61 2 8083 0477 
E: christine.jones@holdingredlich.com

Divya Chaddha, Associate 
T: +61 2 8083 0457
E: Divya.Chaddha@holdingredlich.com

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 newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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