The Victorian Supreme Court of Appeal has upheld a landmark decision regarding liability for the highly publicised 2014 Lacrosse apartment tower fire.[1]
This confirms that consultants were ultimately responsible for the design errors that led to the fire, rather than the builder (who had relied on the consultants' advice, and in the circumstances had not failed to take reasonable care in doing so).
The very challenging professional indemnity insurance market currently faced by certifiers, architects, consulting engineers, surveyors and others is set to continue – at least pending any appeal to the High Court.
The Lacrosse fire
The Lacrosse fire broke out in the early hours of 24 November 2014. An unextinguished cigarette butt left in a plastic container on an eighth floor balcony caused the tower’s cladding to ignite.
The fire travelled up thirteen levels of cladding in a matter of minutes, spreading to many other balconies and eventually reaching the building's roof.
The VCAT Proceeding
Proceedings were commenced in the Victorian Civil and Administrative Tribunal (VCAT) in March 2016, seeking more than $12 million in damages for losses caused by the fire. The proceedings involved 211 applicants, including owners' corporations and the owners of individual apartments in the building.
The key respondents were:
The builder (L U Simon Pty Ltd);
The building surveyor (Gardner Group Pty Ltd);
The architect (Elenberg Fraser Pty Ltd); and
The fire engineer (Tanah Merah Pty Ltd, trading as Thomas Nicholas).
The builder had been engaged by the building's developer under a design and construct contract. The building surveyor, architect and fire engineer had all been engaged by the builder under consultancy agreements.
Outcome of the VCAT Proceeding
The applicants were successful and were awarded about $5.7 million in damages. A key question though was how to apportion the liability to pay those damages among the respondents.
Judge Woodward of VCAT found that the builder was primarily liable to pay damages to the owners. The builder had breached implied warranties in its building contract in that:
aluminium composite panels ('ACPs') for external cladding in the original design ('indicative to alucobond') failed to comply with the Building Code of Australia (BCA).
the substitute ACPs ultimately installed on the building (Alucobest) also failed to comply with the BCA and the Building Regulations 2006 (Vic).
The Judge also held that the builder had not failed to exercise reasonable care, because it was reasonable to rely on its consultants.
The Judge also found that the building surveyor, fire engineer and architect had breached their consultancy agreements with the builder (which had been novated from the developer) by failing to exercise due care and skill. Their failures were:
The building surveyor did not question the use of ACPs as cladding, and issued a building permit approving construction of the external walls with this material.
The architect failed to remedy defects in its design (namely, the ACP Specification, and design drawings providing for the extensive use of ACPs). This caused the design to be non-compliant with the BCA and not fit for purpose. The architect also failed as head design consultant to ensure that the ACP sample provided by the builder met the architect's design intent.
The fire engineer failed to conduct a full engineering assessment of the building in accordance with the International Fire Engineering Guidelines, and failed to include those results in its Fire Engineering Report. The fire engineer also failed to identify that the ACPs did not comply with the BCA, and failed to warn the builder (or others) of this.
Accordingly his Honour concluded that, while damages were payable in full by the builder to the owners, the builder was then entitled to be reimbursed in full by the building surveyor, architect and fire engineer. The consultants were held liable to compensate the builder as ‘concurrent wrongdoers’ under the Wrongs Act 1958 (Vic) in the following proportions:
Building surveyor: 33%
Architect: 25%
Fire engineer: 39%
Mr Gubitta: 3%
(Mr Gubitta was the building resident who inadvertently caused the fire. No party to the proceedings sought relief from Mr Gubitta, and no order was made against him, so the builder was not actually reimbursed for the proportion of damages attributed to him.)
The consultants appealed the VCAT decision.
The appeal
The appeal failed. The Victorian Supreme Court of Appeal confirmed that the builder was entitled to pass on liability for the damages relating to combustible ACPs installed on the building.
The only ground of appeal that succeeded was a relatively minor ground raised by the surveyor concerning VCAT's findings that negligence with respect to a fire engineering report caused loss.
Consequences
There are two key takeaways from these decisions.
Because of the extent of potential liability for design defects, consultants (and their insurance brokers) exposed by this case, those parties will continue to face difficulty in obtaining professional indemnity insurance that provides adequate coverage at affordable cost.
Builders typically remain 'first cab off the rank' for liability to owners for design defects. But builders can rely on their consultants' advice on technical and intricate matters beyond what builders can reasonably be expected to understand. This means that builders can seek reimbursement from consultants where builders become liable to owners due to consultants' errors on such matters.
Having said this:
Experienced commercial builders are expected to understand errors by other building professionals where the builder should know better. For example, if the defective cladding that caught fire at the Lacrosse tower were installed by a builder today, the builder would probably be found to be contributorily negligent. Obviously, there is much better industry awareness since the Lacrosse fire of concerns around non-conforming cladding products. This would impact the extent to which the builder could seek reimbursement from its consultants.
This may also be cold comfort where a consultant cannot afford to reimburse the builder. This is a particular concern given the problems that consultants are facing in the insurance market.
Further, cladding products are specifically excluded from cover under most current professional indemnity insurance policies, so if Lacrosse were to occur again today, the builder would be out of luck.
Many commentators have noted a 'PI insurance crisis' since the VCAT decision was handed down. This is unlikely to abate unless the Victorian Supreme Court decision is successfully appealed to the High Court. We will publish further updates if any appeal proceeds.
To discuss your concerns about liability in relation to non-conforming products, or design errors more generally, please contact Adam Rosser or John Vozzo.
This article provides general comments only and does not constitute legal advice. You should always seek specific advice on your particular circumstances.
[1] Tanah Merah Vic Pty Ltd v Owners' Corporation No 1 of PS631436T [2021] VSCA 72 (26 March 2021).