“Rectification notices will land in the letterboxes of home owners.”

So began a lament from the Second Reading Speech of the recently passed Building Products (Safety) Bill 2017 in the NSW Parliament – a bill designed to help address the issue of non-compliant cladding on buildings.

“They will receive a notice that says the home owner has to rip of dangerous cladding on their property.”

“The first thing they will do is get a quote and they will find out that hundreds of thousands of dollars to rip off, including major external scaffolding work and building work. It will cost hundreds of thousands of dollars. Individual home owners will be facing bills of twenty, thirty, forty or fifty thousand dollars courtesy of the rectification notices issued by this government. They will be wondering, who the bloody hell will be paying for it?”

“They built a property which was certified and built by a developer and they assumed it was safe. Who will pay for it?”

The above lament demonstrates the financial cost associated with the combustible cladding issue in Australia. That cost – and the potential for long and expensive legal disputes – had already been illustrated by the long-standing argument about who would replace the combustible cladding which contributed to the rapid spread of fire at the Lacrosse building in Melbourne’s Docklands in 2014. After years of dispute, builder LU Simon has finally agreed to replace the cladding. Even now, counter-claims are likely as the builder will no doubt try to recover as much of the cost as possible from architects and/or engineers.

First and foremost, combustible cladding is an issue of safety.

Given the cost of rectifying and replacing the material, however, legal issues are also important. That raises questions about who is responsible, what duty of care they owe, and what individual parties might do to protect themselves.

Many such issues were outlined in a presentation by Holding Redlich Senior Associate and construction and infrastructure lawyer Lachlan Ingram at the firm’s Melbourne office on November 27. Key points are described below.

The comments below pertain to Victoria – albeit with some description of legislative changes in Queensland and New South Wales. The situation may very in other states.

What is the Product and the Problem?

The problem revolves around a product known as aluminium composite panels, which have been widely used as cladding materials on multi-storey buildings throughout Australia in recent decades. These typically comprise of two 0.5mm thick inner and outer aluminium coatings within which is sandwiched a 2-5mm insulating ‘core’ – commonly polyethylene. The material’s popularity revolves around its low cost, light weight and ability to deliver a stylish finish.

The problem is that this core is also flammable. Burn one kilogram of PE and it releases 41.8 megajoules of heat – almost as much as petrol (47 megajoules). Another widely used product called EPS or expanded polystyrene, burns 39 megajoules. This means that PE is about 90 percent as flammable as petrol whilst EPS is about 80 percent as flammable as petrol.

When exposed to fire, heat conducts quickly to the aluminium core which loses its ability to bind. This causes the outer skins to deform and delaminate and can lead to the PE (or EPS) core melting and igniting. This can facilitate the rapid spread of fire up the building and can also create hazards below in terms of falling debris.

What does the National Construction Code Say About This?

Under Performance Requirement CP2 (Volume One), the National Construction Code (NCC) requires buildings to ‘have elements which will avoid the spread of fire’ in a manner which is appropriate for that building.

As with other elements of the NCC, this can be achieved through either a deemed to satisfy (DTS) solution or a performance solution.

To achieve compliance under DTS, Ingram says it is first important to determine whether the cladding is an external wall or an attachment. An external wall forms a functional part of the building and contributes toward purposes such as weatherproofing or wind protection. An attachment is not a functional part of the building and is added primarily for decorative purposes.

Where the cladding is an external wall, it will generally not satisfy DTS requirements and will be able to be used only under a performance solution. Under DTS, an external wall must be non-combustible. The current test for combustibility (AS1530) involves placing materials into a 750-degree furnace for thirty minutes. To date, it is not known if any assembled ACP cladding types have passed this test.  Indeed, few building materials pass the test .

If, on the other hand, the cladding is merely an attachment, Ingram says it can be combustible yet still potentially allowable provided it is (a) not near an exit, (b) does not create and undue risk of fire spreading up the façade and (c) does not impair the fire level rating of the material it attaches to.

Am I exposed?

According to Ingram, those who face potential legal issues can be classified into three broad categories.

First, there are those involved in the building’s design and in specifying the cladding. This could include architects as well as engineers who specialise in areas such as civil, structural or fire safety.

Next, there are those involved in construction. This includes builders, building surveyors/inspectors, certifiers and product suppliers and manufactures.

Finally, there are owners. This includes the principal developer, the first individual apartment owners, subsequent owners and owners corporations.

What Types of Liability Are There?

According to Ingram, there are four types of liability: statutory liability, duty of care, contractual liability and liability in regard to occupational health and safety.

Contractual liability, Ingram says, is generally limited to the original owner and the original builder as well as any contracts between the builder (or the developer) and the design team. Contracts between these parties will often deal with who is responsible at a contractual level where the building or any part of it is not fit for purpose. Neither this nor that relating to occupational health and safety (which Ingram says are important but less prevalent) are discussed at length here.

On the residential side, Section 8 of the Domestic Building Contracts Act (in Victoria) stipulates that six implied statutory warranties will apply to domestic building work. These include that work will be carried out in a workmanlike manner in accordance with plans and specifications, that materials supplied be fit for purpose, that the work is carried out in accordance with all laws and legal requirements, that the work be performed with reasonable care and skill, that new homes be suitable for occupation upon completion and that other types of work and materials used are fit for purpose.

These warranties apply for ten years after the occupancy certificate has been issued and are provided (by law) by the builder to the owner and any owner subsequent owner of the building (including owners corporations) who owns the building within the ten year limitation period.

These warranties are provided by builders and tradespeople only. Thus they do not impact architects and engineers or product manufacturers and suppliers. They also apply to residential only and do not impact builders on commercial projects.

Outside of statutory warranties, there is negligence. This applies both commercial and residential and could impact designers such as architects and engineers as well as builders. Since a 1995 case (Bryan v Maloney), Ingram says the Australian courts have made it more difficult for owners to sue for negligence.

Thus, he says owners (in a residential setting, at least) are better off pursuing their claims for statutory warranty under the Domestic Building Contracts Act. By contrast, claims for negligence are easier from the viewpoint of defendants compared with what is the case under statutory warranties.

What Duty of Care do I owe?

If any defendant (builder, designer, building surveyor etc.) is to be sued for negligence, Ingram says two factors must be present. First, there must have been a duty of care owed. Second, the standard of that care must have been breached.

Sadly, Ingram says, the question of whether or not a builder, designer, certifier or any other party owes a duty of care at law in respect of combustible cladding to a subsequent owner or owners corporation is not clear.

As for that standard of care, he says this may have shifted in recent years as awareness about the problem of combustible cladding has increased from five or ten years ago when little was known about the dangers of PE core cladding. Back then, Ingram says it might have been sufficient to sight a certificate of compliance and to rely upon that. Now, he says, the standard of care likely to be much higher and exactly what this looks like is currently being played out. (Other lawyers with which Sourceable has previously spoken suggest that builders would want to look at their suppliers and assure themselves that robust risk management practices are in place throughout the supply chain.)

New Laws in Queensland and New South Wales

As noted above, both Queensland and New South Wales have introduced new legislation in respect of non-conforming products. Especially in the case of Queensland, the legislation has wide-ranging impacts.

In Victoria, a taskforce is looking at potential reforms to the regulatory system. It is likely that some changes similar to those in either Queensland or New South Wales might be introduced here.

In Queensland, the Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Act 2017 came into force in August and provides the Minister the power to ban the supply or use of any product which does not comply with relevant legislation (i.e. does not comply with the National Construction Code). This legislation applies to the entire supply chain and includes not just the builder but also designers, manufacturers, importers and suppliers. It puts on each party a duty to do all which is reasonable within their power to ensure that non-conforming products are not supplied or used.

Under this legislation, the Minister has the power to ban (retrospectively) individual products. The Queensland Building and Construction Commission has the power investigate and test potential non-conforming products and order removal of the product in question. Penalties range from approximately $6,000 to $125,000, whilst the cost of removal is borne by the party which is ordered to remove the product.

A curious feature about this legislation is that the QBCC has the power to order ‘removal’ of the material only. It does not appear to enable the Commission to go further and order that the replacement of the product or that the person responsible for removing the product also pay for the product to be replaced. This, Ingram says, could leave owners in a difficult situation of having the product removed and having the weatherproofing issues associated with this whilst potentially then having to arrange for (and pay for) the product to be replaced.

In New South Wales, the Building Products (Safety) Bill 2017 passed Parliament on November 23 provides the power to ban use of ‘unsafe’ building products. In a similar vein to the Queensland legislation, this gives the Minister the power to ban products and the Fair Trading Commission the power to investigate.

Unlike the Queensland law, however, the NSW law gives the Commission to power to require rectification as well as removal of the unsafe products. Penalties under NSW law are also more significant. For a company, this includes maximum fines of $1.1 million plus $110,000 for every day in which a breach of the law continues. For individuals, maximum penalties involve $220,000 and/or two years’ imprisonment plus $44,000 for each day in which the breach of the law continues.

Nevertheless, the NSW legislation applies only to those within the design and construction space. Unlike the Queensland law, it does not confer the same duty of care upon manufacturers, suppliers or importers. In a negative for owners (but positive for builders), meanwhile, the NSW law requires owners to pay for any rectification ordered. Thus as mentioned in the opening paragraphs of this article, owners could find themselves up for tens of thousands without having done anything wrong.

What should you do?

As a practical issue, Ingram advises people to review their portfolio, have inspections performed on high risk buildings (followed by inspections on medium risk ones) and to conduct appropriate action. Depending upon who you are, the level of risk and potential liability, this could include testing, rectification or obtaining a performance based solution.

In terms of specifics, he says that:

  • Manufacturers and suppliers (especially those operating in Queensland and New South Wales) should familiarise themselves with the new Acts in those states (especially in Queensland). Any operating only in Victoria should still familiarise themselves with these changes in preparation for similar ones to potentially apply here.
  • Designers should look at the cladding on existing buildings within their portfolio and should carefully consider their insurance and be aware of any exclusions which might apply.
  • Builders should likewise find out where their risk points are work out what they are going to do with high-risk buildings.
  • Certifiers, likewise, should make sure their portfolio is up to scratch.

Australia has a problem with combustible cladding,

For various participants within the supply chain, this could entail significant legal exposure.