On 26 March 2021, the Victorian Court of Appeal handed down the much-anticipated judgment in the matter of Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72. This judgment decided the various appeals brought by the consultants against the orders of the Victorian Civil Affairs Tribunal (VCAT) in relation to a fire at the Lacrosse apartment tower.

The recent decision of the Court of Appeal largely upholds the VCAT’s primary judgment, save for one ground of appeal which was allowed, and has done little to resolve the implications of that judgment for the building and construction industry and professional indemnity insurance.

The key findings made in the decision are detailed below, and can be summarised as follows:

  1. The builder’s breach of statutory warranties was not an apportionable claim;

  2. Aluminium composite panels (ACPs) were not compliant with the deemed to satisfy provisions of the Building Code of Australia; and

  3. The peer professional opinion defence was not available to the building consultants.

Background to the appeal

Patrick & Associates have previously shared an article on the Lacrosse decision including a detailed analysis of the facts.  Please view here.

In summary, in November 2014, a fire caused by an unextinguished cigarette butt broke out at the Lacrosse apartment tower in Docklands. The fire spread rapidly up the building, causing extensive damage. This rapid spread of the fire was attributed to the use of a combustible aluminium composite panel (ACP) in the external cladding of the building.

The owners and owner’s corporation commenced a proceeding in the VCAT seeking.  The proceeding was divided into two claims:

  1. the Owner’s claims against the builder, LU Simon Pty Ltd (LU Simon), and the building consultants, being the building surveyor, Gardner Group Pty Ltd, the architect, Elenberg Fraser Pty Ltd, and the fire engineer, Tanah Merah Pty Ltd (collectively referred to as ‘the Consultants’); and

  2. LU Simon’s claims against the Consultants.

In a landmark judgment, the Tribunal determined liability against LU Simon for breaching statutory warranties concerning the suitability of materials, compliance with the law and fitness for purpose implied into its Design and Construct Contract by the Domestic Building Contracts Act 1995 (Vic).

Each of LU Simon’s consultants were found to have breached their consultancy agreements by failing to exercise due care and skill in the provision of their services. The effect of this finding was that the Consultants were liable to LU Simon for 97% of the damages payable to the Owners, apportioned as follows:

  • Gardner Group: 33 percent
  • Elenberg Fraser: 25 percent
  • Thomas Nicolas: 39 percent
  • Mr Gubitta: 3 percent.[1]

The reasons for the VCAT decision can be found here: Owners Corporation No 1 of BS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286.

Key findings of the Court of Appeal

The Consultants appealed the VCAT’s decision, identifying 11 core issues that required resolution by the Court of Appeal. However, leave to appeal was granted for only one of the grounds raised, with the remainder of the appeal being largely unsuccessful for the consultants.  

The key findings of the Court of Appeal are set out below.

Apportionability of builder’s breach of statutory warranties

The Court of Appeal upheld the VCAT’s finding that the Owner’s claims against the builder, LU Simon, for its breach of warranties implied into the Design and Construct Contract by the Domestic Building Contracts Act 1995 (Vic) were not apportionable.[2]

For a claim to be an ‘apportionable claim’ under Part IVAA of the Wrongs Act 1958 (Vic), it must arise from a failure to take reasonable care. However, at trial the Owners did not pursue a claim against LU Simon for negligence or failure to take reasonable care, but rather for breach of warranties.

Despite arguments raised by the Consultants that the Owner’s claim was nonetheless apportionable because it involved circumstances arising out of a failure to take reasonable care, the Court of Appeal found that the relevant definition in the Wrongs Act 1958 did not extend to such claims. Therefore the Owners’ claim did not arise from a failure to take reasonable care and was not apportionable.  

The implication of this finding is that parties may be able to avoid the proportionate liability regime by relying on statutory or contractual obligations that do not involve a failure to take reasonable care.

Non-compliance of ACPs with Building Code of Australia

The Court of Appeal upheld the VCAT’s findings that the ACPs used in the façade of the Lacrosse building did not comply with the deemed to satisfy provisions of the Building Code of Australia (BCA).[3] The fire resistance provisions in clause C1.12(f) of the BCA requires external walls in Type A buildings, including the Lacrosse building, to be non-combustible in order to achieve the appropriate fire-resistance level.

The building surveyor, Gardner Group Pty Ltd, argued that the provisions in clause C1.12(f)(i) permitted the use of a combustible polyethylene core in bonded laminate material, and thus the ACPs did comply with these provisions. However, the Court of Appeal rejected this interpretation, and confirmed that the ACPs used to clad the external walls of the Lacrosse tower were combustible and not compliant with the BCA. 

Availability of peer professional opinion defence

The Court of Appeal upheld the findings of the VCAT that the peer professional opinion defence did not apply in this case to diminish the consultants’ negligence.[4]

The building surveyor argued in the VCAT proceeding that their conduct in certifying the ACPs for use in the Lacrosse building was consistent with widely accepted peer practice. The VCAT concluded that the peer professional opinion, in issuing building permits for the use of ACPs on such buildings without proper scrutiny and advice from a fire engineer, did not withstand logical analysis and was unreasonable for the purposes of section 59(2) of the Wrongs Act 1958 (Vic).

The Court of Appeal rejected the building surveyor’s argument thus affirming the VCAT’s decision. 

Sole successful ground of appeal

As noted above, one ground of appeal, raised by the building surveyor, Gardner Group Pty Ltd, was successful.

The building surveyor was successful in arguing that its failure to identify and remedy an omission in a Fire Engineer Report was not causative of any loss. [5]  

In light of this, the Court of Appeal found, in a subsequent judgment, that the damages payable by LU Simon to the Owners should be re-apportioned as follows:

  • Gardner Group: 30 percent (formally 33 percent in the Tribunal judgment);
  • Thomas Nicolas: 42 percent (formally 39 percent in the Tribunal judgment);
  • Elenberg Fraser: 25 percent (unchanged from the Tribunal judgment);
  • Mr Gubitta: 3 percent (unchanged from the Tribunal judgment).

The reasons for the Court of Appeal decision can be found here: Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72.

The reasons for the Court of Appeal decision on apportionment can be found here: Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436T [No 2] [2021] VSCA 122.

Conclusion

While there remains the possibility for this matter to be appealed to the High Court, for now the Court of Appeal judgment has brought some clarity regarding the proportionate liability regime, compliance of ACPs with the BCA and the availability of the defence of peer professional opinion in relation to combustible cladding. 

Nonetheless, given the Court of Appeal has largely upheld the VCAT’s findings, the implications of that landmark decision for the building and construction industry and for professional indemnity insurance claims will remain mostly unchanged.

However, it is important to recognise that these judgments should not be applied too generally. The Court of Appeal’s decision was very much based on the facts and circumstances of this particular case, and factors such as the terms of the contracts between the parties, each parties’ knowledge regarding ACPs and how the claims were argued at trial greatly impacted the findings.  Different factual circumstances may lead to different outcomes.

Further, this decision does not consider circumstances where the cladding in question had CodeMark certificates in place at the time of installation thus is deemed to meet the performance requirements under the BCA.   We are watching this space closely.  

[1] Mr Gubitta was apportioned 3% as his cigarette butt had ignited the fire. However, as Mr Gubitta did not take part in the proceedings, no order was made against him.
[2] See Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72, [53]-[136].
[3] See Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72, [206]-[233].
[4] See Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72, [234]-[248].
[5] See Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72, [250]-[259].