Building consultants largely unsuccessful in Lacrosse appealApr 2021 | Construction & Engineering Insurance
On Monday 24 December 2014, a fire started in apartment 805 of the Lacrosse apartment tower (Lacrosse), in Docklands, Victoria. A cigarette was discarded in a plastic food container and caught fire. The fire spread to the external wall cladding of the building and travelled rapidly up the cladding, spreading onto balconies on each level and the roof of the tower above. The rapid spread of the fire was facilitated by aluminium composite panels (ACPs) used on the southern wall of the tower. The ACPs had a 100% polyethylene core.
The owners’ corporations and individual owners of apartments in the building (Owners) commenced proceedings in the Victorian Civil and Administrative Tribunal (VCAT)1 against:
- the builder;
- the building surveyor;
- the architect;
- the fire engineer;
- the occupier of apartment 805;
- the tenant of apartment 805 (who smoked and discarded the offending cigarette); and
- the superintendent under the building contract.
At first instance, VCAT upheld the Owners’ claim against the builder, finding that it had breached statutory warranties implied into its design and construct contract (D&C Contract) pursuant to s 9 of the Domestic Building Contracts Act 1995 (Vic) (DBC Act). However, the Tribunal found that the following parties were responsible for the loss and required to reimburse the builder for their respective proportions:
- the fire engineer for 39%;
- the building surveyor for 33%;
- the architect for 25%; and
- the tenant for 3%.
Application for leave to appeal
The fire engineer, building surveyor and architect each sought leave to appeal VCAT’s decision, identifying 11 issues that required resolution.2 The Victorian Court of Appeal was extremely complimentary of the Tribunal’s reasons for judgment, describing them as of ‘exceptionally high quality’. The Court noted that the clarity and detail in the Tribunal’s reasons made the task of dealing with the application considerably easier than it might otherwise have been.
Ultimately, the Court of Appeal refused to grant leave to appeal on all grounds save for one – being the building surveyor’s appeal in relation to whether its failure to identify and remedy omissions in a fire engineering report was causative of any loss.
Issues 1-3: Were the Owners’ claims against the respondents apportionable under pt IVAA of the Wrongs Act? Was the builder a concurrent wrongdoer in respect of the consultants for the purpose of s 24AH of the Wrongs Act? Did the builder fail to take reasonable care?
As issues 1 to 3 were interrelated, they were dealt with together by the Court of Appeal. The issues were primarily advanced by the fire engineer and the architect.
The fire engineer contended that VCAT:
- erred in failing to consider the claim made against the builder - that it failed to take reasonable care in selecting the particular ACP, known as ‘Alucobest’, for use as external cladding;
- erred in failing to consider the builder’s defence that the claim against it was apportionable within the meaning of pt IVAA of the Wrongs Act 1958 (Vic);3
- failed to apply the correct test and/or misapplied the correct test under pt IVAA of the Wrongs Act in determining whether the Owners’ claim against the builder was apportionable; and
- erred in concluding that the Owners’ claim against the builder was not apportionable.
The architect also made submissions that VCAT erred in:
- its failure to determine that the claims made by the Owners were apportionable; and
- arriving at its conclusion that the builder had not failed to take reasonable care.
At first instance, VCAT found that the builder’s construction of the Lacrosse building using non-compliant ACPs was clearly an error, which gave rise to a breach of warranty by the builder under the DBC Act. However, VCAT also held that it had not been established that the builder had failed to take reasonable care, because (amongst other matters) the builder:
- was not responsible for including the ACPs in the design;
- was unaware that the ACPs posed a fire risk and were non-compliant with the Building Code of Australia (BCA); and
- relied on the expertise of the consultants.
The fire engineer and architect argued that VCAT had failed to deal with the Owners’ allegation that the builder had failed to take reasonable care. The Court of Appeal rejected this submission, noting that Tribunal had in fact considered this during the hearing of the proceeding.
The Court of Appeal also rejected a submission that the builder owed a non-delegable duty of care to the Owners by reason of the operation of s 16 of the Building Act 1993 (Vic), which requires building works to be carried out in accordance with that Act, building regulations and the terms of the building permit. The Court refused to grant leave on the basis that the argument had not been advanced during the hearing in VCAT. The Court also expressed doubt whether s 16 imposes a statutory duty of care, a breach of which sounds in damages, or that such duty is non-delegable.
The fire engineer submitted that VCAT was required to consider the whole of the builder’s defence, including its proportionate liability defence. This was rejected by the Court of Appeal, on the basis that the primary claim advanced at first instance by the Owners was for breach of the warranties implied by the DBC Act. The Owners had made clear that they did not pursue any of the consultants unless the Tribunal held that the breach of warranty claims were apportionable.
Significantly, the Court of Appeal rejected a submission by the fire engineer and the architect that the Owners’ breach of warranty claims were apportionable for the purpose of pt IVAA of the Wrongs Act. Section 24AF(1)(a) of the Wrongs Act requires a claim to arise from a failure to take reasonable care. The Court noted that the claim itself must arise from a failure to take reasonable care:
‘…the Tribunal made no error when it determined that the breach of warranty claims that it had upheld against LU Simon were not apportionable. At best, those claims involved circumstances arising out of failures to take reasonable care by the consultants and Mr Gubitta. The Owners’ claims against LU Simon, however, did not themselves arise from any failure to take reasonable care.’
We discuss this aspect of the appeal further, in the implications section of this case note.
Issue 4: On the proper construction of the T2 Specification and the architect’s drawings, was the builder directed and/or permitted to select the product Alucobest or any composite metal cladding product that was contrary to the Building Act 1993 and the BCA?
In what became known as the ‘T2 Specification’, the architect designed and specified the use of aluminium composite panels ‘indicative to Alucobond’ systems to the external walls of the Lacrosse building. The T2 Specification was incorporated into the D&C Contract between the builder and the developer and provided that the builder was responsible for the final selection of products for use in the project.
At first instance, VCAT found that the architect breached its obligations to the builder by specifying ACPs that failed to comply with the BCA.
In seeking leave to appeal, the architect contended that Tribunal had erred in its construction of the T2 Specification. It argued that the specification did not prescribe the use of ACPs and that it was for the builder, in the implementation of the T2 Specification, to select materials that complied with the applicable legal requirements. The architect argued that it was open to the builder to seek an alternative solution for the product it had selected.
The Court of Appeal rejected the architect’s submission on the basis that such an interpretation would require the Court to ignore the contractual obligations expressly imposed on the architect under its agreement with the builder. In other words, the Court concluded that the architect could not simply specify a product and then ‘wash it’s hands’ of any liability by asserting that the builder had the final say as to whether that product would be used.
Issue 5: Did the Tribunal err in finding that the architect was negligent in respect of its inspection and approval of the Alucobest sample?
On appeal, the architect also asserted that the Tribunal erred in relation to the architect’s obligation to inspect and approve samples during construction.
The architect argued that its contractual obligation to ‘inspect and approval samples as required in the architectural specification’ (Sample Approval Obligation) was qualified by the wording of the T2 Specification which provided that samples would be ‘reviewed for their visual characteristics only’ (T2 Sample Approval Method). The architect contended that its obligation did not extend to approving a sample on the basis of regulatory compliance.
At first instance, VCAT found that the architect’s inadequate assessment of the Alucobest sample gave rise to two breaches of its contract with the builder, namely, the architect breached:
(a) the express requirement that it use due skill and care in inspecting and approving samples; and
(b) its broader obligations as head design consultant.
The architect sought to appeal the Tribunal’s findings in relation to the first breach only, challenging the construction of the Sample Approval Obligation. It argued that the words ‘as required in the architectural specification’ limited its obligations and that if something more was required then those words became redundant.
Given the architect’s overall scope of responsibility, the Court of Appeal found that it made no commercial sense to interpret the Sample Approval Obligation in the manner proposed by the architect. In refusing leave to appeal, the Court noted the architect’s ongoing role in implementing the T2 Specification, including an express obligation to inspect works for compliance with the client brief, contract material and all legislative requirements. Further, the architect’s obligations extended beyond ‘material aesthetics’ and included checking compliance with the architectural requirements and design intent.
Issue 6: Was it reasonably open to the Tribunal to find that the Owners’ loss included an increase in insurance premiums?
The owners of the apartments made a claim for increased insurance premiums associated with the unburnt Alucobest cladding remaining on the Lacrosse building and whilst the rectification works were completed.
In awarding compensation for increased premiums, the Tribunal had regard to the evidence of the chairperson of two of the owners’ corporations and an email he received from the owners’ insurance broker which addressed the increases in the insurance premiums.
The architect submitted that the email was hearsay evidence, provided for the purpose of the litigation. The architect also argued that there was no evidence of the broker’s skill or experience and no explanation of the basis for the assertion that the premium increase was caused by the existence of the remaining cladding.
The Court of Appeal noted that the relevant evidence was tendered in VCAT without objection and that the architect had not taken steps to secure the attendance of the broker for cross examination. The Court also noted that Tribunal ‘is not bound by rules of evidence, may inform itself on any matter as it sees fit and enjoys a discretion to regulate its own procedure’. On those bases, the evidence was properly taken into account and was sufficient to support the owners claim for damages. Leave to appeal was refused.
Issue 7: Did the Tribunal err in its construction of cl C1.12(f) of the BCA?
The building surveyor was retained to ensure that the design and materials used in construction complied with the BCA.
The fire resistance provisions of the BCA require the external walls of buildings such as the Lacrosse building to be non-combustible. The ACP installed on the Lacrosse building were combustible and failed the requirement of the relevant Australian Standard, subject to the following ‘deemed to satisfy’ (DTS) provision of the BCA, which provided that certain combustible materials could still be used:
‘The following materials, though combustible or containing combustible fibres, may be used wherever a non-combustible material is required…
- Bonded laminated materials where—
- each laminate is non-combustible; and
- each adhesive layer does not exceed 1 mm in thickness; and
- the total thickness of the adhesive layers does not exceed 2 mm; and
- the Spread-of-Flame Index and the Smoke-Developed Index of the laminated material as a whole does not exceed 0 and 3 respectively.’ (our emphasis)
The building surveyor submitted that the ACP was a ‘bonded laminated material’. It argued that the reference to non-combustible ‘laminate’ (underlined above) did not include the polyethylene core of the ACP and therefore the core was not required to be non-combustible.
At first instance, the Tribunal rejected the building surveyor’s construction. It found that the phrase ‘bonded laminated materials’ described materials that had been through the process of lamination and could be used to encompass both the composite product and each of its layered parts.
The Court of Appeal agreed with the Tribunal’s analysis and refused leave to appeal. The Tribunal noted that the building surveyor’s proposed construction would mean that the clause only regulated the combustibility of external laminates, leaving open the possibility that layers within the materials could still be combustible and non-compliant with the clause.
Issue 8: Did the Tribunal err in its conclusion that the ‘peer professional opinion’ was ‘unreasonable’ for the purposes of s 59(2) of the Wrongs Act?
Section 59 of the Wrongs Act provides that a professional is not negligent in providing a professional service if it is established that the professional acted in a matter that was widely accepted as competent professional practice in the circumstances.
The building surveyor contended that the use of ACPs such as Alucobond with a polyethylene core was widely accepted in Australia by a significant number of respected practitioners in the field.
At first instance, VCAT held that the relevant practice was unreasonable, attracting the operation of s 59(2) of the Wrongs Act, which provides that peer professional opinion cannot be relied on if a court finds that the opinion is unreasonable. The Tribunal concluded that experienced and diligent practitioners ‘were beguiled by a longstanding and widespread (but flawed) practice into giving insufficient scrutiny to the rationale for that practice’. Therefore, the building surveyor was unable to rely upon the defence of peer professional opinion.
The building surveyor sought leave to appeal VCAT’s reasoning on the basis that s 59(2) is directed to the peer professional opinion underlying the relevant practice and not to the practice itself.
The Court of Appeal acknowledged that the Tribunal’s process of reasoning may not have been entirely correct. However, the Court accepted that the Tribunal had directly addressed the issue of whether the acceptance of that practice was unreasonable.
Issue 9: By issuing the Stage 7 Building Permit did the building surveyor make a representation to the builder that was misleading and deceptive?
Nothing turned on this issue given that it was premised upon the success of either issue 7 or issue 8. Therefore, leave to appeal with respect to this proposed ground was refused.
Issue 10: Was the building surveyor’s failure to identify and remedy the omission in the Fifth Fire Engineering Report (FER) causative of any loss?
The relevant fire engineering report (FER) prepared by the fire engineer did not describe the cladding system on the Lacrosse building in terms which identified the use of ACPs. The FER was significant because it formed the basis of an application to the Metropolitan Fire Brigade seeking approval pursuant to regulation 309 of the Building Regulations 2006 (Vic).
The Tribunal held that the building surveyor was negligent for failing to query the reference in the FER to pre-cast panel wall systems when the use of ACPs was proposed.
Specifically, VCAT found that if the building surveyor had queried the incomplete description of the cladding system, the fire engineer would likely have expressed the view that the ACPs did not satisfy the DTS requirements of the BCA. This in turn would have led the fire engineer to amend the FER or otherwise notify the parties of the need for an alternative cladding solution.
The building surveyor sought leave to appeal on the basis that VCAT’s reasoning was inconsistent with its other findings, which indicated that the fire engineer was aware that ACPs were proposed.
The Court of Appeal granted leave to the building surveyor, noting that VCAT clearly concluded that the fire engineer was aware that ACPs were proposed to be used. In those circumstances the Tribunal’s hypothesis could not be correct.
Issue 11: Did the VCAT fail to consider the degree of departure by the building surveyor from the relevant standard of care in making apportionment findings?
The building surveyor submitted that in determining the relative culpability of the consultants to the builder, VCAT was required to assess the departure from the standard of care by the negligent parties as a relevant factor. The building surveyor argued that VCAT should have had regard to the fact that the building surveyor acted in a manner which was consistent with a widely accepted practice amongst building surveyors.
The Court of Appeal noted that VCAT’s reasons demonstrated that it had regard to the culpability and causal potency of the building surveyor’s negligence. Moreover, the Court noted the Tribunal specifically referred to a history of similar approvals as a relevant circumstance.
The Court of Appeal held that the building surveyor’s actual grievance was that the Tribunal failed to place greater weight on the factor of common mistake. Such a grievance did not give rise to a question of law, unless the ultimate exercise of the Tribunal’s discretion in making apportionment findings was not open to it.
While very much fact dependent, the decision of the Court of Appeal will no doubt come as a disappointment to building consultants and their professional indemnity insurers. The decision of the Court was not only unanimous but decisive.
From a legal perspective, the decision of the Court of Appeal is significant in relation to Victoria’s proportionate liability scheme, as the Court of Appeal held that whether a claim is apportionable for the purpose of the scheme will be determined by the cause of action pleaded, and not by the evidence. Accordingly, only actions in negligence or contract4 are likely to be apportionable for the purpose of s 24AF(1)(a) of the Wrongs Act. In adopting that approach, the Court of Appeal aligned itself with the judicial opinion in New South Wales and departed from the position that had previously prevailed in Victoria.5
1 Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property)  VCAT 286. (See previous Carter Newell Constructive Notes® Newsletter by clicking here).
2 Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors  VSCA 72 .
3 1958 (Vic) (Wrongs Act).
4 As an implied term of a contract for professional services: see Astley v Austrust Ltd (1999) 197 CLR 1.
5 See paragraphs  to  of the Court of Appeal’s reasons.
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
Special thanks for the contribution of Rebecca Woodrow, Research Law Clerk.