On 26 March, the Victorian Court of Appeal delivered judgment in the litigation arising from the Lacrosse fire in November 2014.^[1] 

It was the first “cladding” case to make its way to judgment an Australian Supreme Court. Its impacts will be numerous. Many other cladding claims are likely to follow.

The litigation 

The case was brought by the Lacrosse building’s owners against the builder, LU Simon. LU Simon in turn sued the fire engineer, the architect and the back-packing smoker who inadvertently started the fire.

It began in VCAT and ended in the Court of Appeal after years of hard-fought litigation.

In the Court of Appeal, each of the consultants sought to challenge the portion of responsibility assigned to them. However, despite agitating numerous appeal grounds, they were largely unsuccessful. The building surveyor scored a small win by obtaining a reduction in its share of responsibility from 33 percent to 30 percent. All other appeal grounds were dismissed.

The fire

In 2014, a discarded cigarette on a balcony of the 21-story Lacrosse tower caused a widespread and rapid fire to spread up the external cladding of the building located from the 8th to the 21st floor within minutes. The extensive use of aluminium composite panels (ACPs), containing a combustible polyethylene core, contributed to the fire.

The litigation

More than 200 owners for the Lacrosse building sued LU Simon, seeking compensation for the fire, smoke and water damaged units. They also sought to recover the costs of removing and replacing the unburnt ACP which remained on the building.

In support of their claim, the owners relied upon statutory warranties under the Domestic Building Contracts Act 1995 (Vic) with respect to the suitability of the materials used, compliance with the law (namely the Building Code of Australia (BCA) – now known as the National Construction Code) and fitness for purpose.

LU Simon joined the various consultants who had been novated to it, namely the building surveyor, the architect and the fire engineer, and alleged breach of contract and negligence. LU Simon also joined the French back-packer who inadvertently started the fire with a stray cigarette butt.

After a lengthy hearing, VCAT ultimately held that the ACPs did non-comply with the BCA (and did not fall within the bonded laminates exemption).  LU Simon was held to be 100 percent liable for breaching the DBCA warranties it owed the owners. However, LU Simon was essentially able to “pass through” its liability to the various consultants, with VCAT assigning the fire engineer 39 percent, the building surveyor 33 percent and the architect 25 percent (of the $12.7 million judgment).

The appeal outcome

The consultants all appealed the VCAT decision, on a multitude of grounds.  The Court rejected all grounds of the appeal, except for one advanced by the building surveyor. The successful ground concerned a causal finding of its negligence in failing to identify deficiencies in the fire engineer’s report.  As a result, the Court of Appeal undertook the task of “re-allocating” responsibility, as between the building surveyor and the fire engineer. In doing so, the Court looked at the extent and the impact of the wrongdoing.

Ultimately the Court increased the fire engineer’s share of responsibility from 39 percent to 42 percent and reduced the building surveyor’s share from 33 percent to 30 percent.

What about costs?

It is no secret that the legal costs incurred by the parties were significant. With the dust settling on the litigation, attention quickly turned to who would pay what in terms of legal costs.

Relevantly, the Court was asked to consider the impact of Calderbank offers sent by the owners and LU Simon to the other parties in making its costs orders. A Calderbank offer is a settlement offer which, if successful, affords the person who makes the offer a degree of costs protection (and enhances their prospects of recovering costs).

The costs orders made in the Lacrosse appeal emphasizes the significant protection which can be afforded by an appropriately drafted Calderbank offer. In this instance, the consultants were ordered to pay standard costs up to 21 August 2021 and on an indemnity basis after that date, as they should have accepted the owners’ Calderbank offer. LU Simon was entitled to its costs on a standard basis. The surveyor, who enjoyed “some success” against the fire engineer, was entitled to 15 percent of its costs of its application from the fire engineer.

From the ashes

The Lacrosse judgment, at first instance and on appeal, places the lion’s share of liability at the feet of the consultants. This is despite the extensive evidence heard during the case about the state of industry knowledge and industry practice at the time the Lacrosse building was designed and constructed.

At the time, flammable cladding was in widespread use throughout Australia, and the majority of building practitioners were simply unaware of the risks. The decision sets an unhelpful precedent for consultants in respect of cladding related liability, albeit the Lacrosse case turned heavily on its facts, including the actual knowledge of the practitioners and the contractual arrangements between the parties. The decision has also served to add more unwelcome pressure to the already strained professional indemnity insurance market in Australia.

Nearly seven years on from the 2014 fire in the Lacrosse building, the ensuing litigation has finally been laid to rest. While Lacrosse was the first, it will not be the last.

Australia has a legacy problem – thousands of buildings covered with flammable cladding. Many cases are already following in the footsteps of Lacrosse, fire or no fire, as builder owners and contractors grapple with the considerable expense associated with cladding rectification work and bring claims for compensation.

Whilst the impending tsunami of cladding litigation is troubling, it detracts from the need for introspection as to how we arrived here in the first place. Simply put, how could a regulated, first-world economy allow flammable cladding to be used across the country for decades without complaint? Surely, the blame cannot be laid simply at the feet of design practitioners.

The sheer magnitude of cladding crisis points to broader, systemic regulatory disfunction, which cladding litigation alone is ill-equipped to address.

By Natasha Stojanovich

Natasha is a Partner at Lander & Rogers Lawyers. She is an experienced litigator, with a particular focus on insurance and construction disputes. She has a strong track record of efficiently and cost effectively resolving disputes for her clients. She was also recently recognised in the Best Lawyers rankings for construction and insurance law and the Legal500 in the category of insurance.

Natasha has extensive experience in claims involving non-compliant building products, including flammable cladding. She has significant experience advising clients about navigating and mitigating the liability risks posed by flammable cladding.