In November 2014, fire raced up the side of the Lacrosse apartments building in Melbourne's Docklands in less than 11 minutes. The fire brigade reported that it had never confronted a similar blaze. It determined that the use of non-compliant aluminium composite panels had contributed to the spread of the fire.
The fire prompted an audit by the Victorian Building Authority (VBA) into the use of external wall cladding, particularly aluminium cladding products. The audit found that non-compliance in the use of external wall cladding materials is unacceptably high.
Underwriters should be alert but not alarmed by the audit report.
Aluminium composite panels (ACPs) are building products typically used for external cladding and internal structures in high rise buildings. The panels usually have a plastic or material core with an aluminium sheet on either side.
ACPs have been used in construction in Australia for over 30 years and are administered under the Building Code of Australia (BCA) and the building regulations in each State.
Clauses 3.1(b) and 4.1(b) of Specification C1.1 of the BCA require certain types of buildings to have non-combustible external walls. However, there is an exception to this requirement at clause 2.4 of Specification C1.1. Provided certain conditions are met, this clause allows the use of a combustible material as a finish or lining to a wall or roof, or in a sign, sunscreen or blind, awning, or other attachment to a building element which has the required fire resistance level.
Building practitioners have generally interpreted clause 2.4 as allowing the use of ACPs as external wall cladding on the basis that they are a wall finish or a lining and are attached to the non-combustible structural elements of the building.
As a result of the Fire Brigade's finding in respect of the Lacrosse fire, the VBA conducted an audit of 170 buildings in Melbourne to determine the prevalence of non-compliant external cladding. The audit findings were that the rate of non-compliance was 51%. However, apart from the Lacrosse apartments building, only one of the 170 buildings audited was found to have external wall cladding which posed a safety risk to the people occupying the buildings.
The VBA referred the 51% of non-compliant buildings to the relevant municipal councils for further action. Subsequent investigations by municipal building surveyors have determined that no further action is required for the majority of these buildings. The VBA has also initiated inquiries into some of the building professionals involved with the Lacrosse apartments construction, including the registered builder and relevant building surveyor.
We understand that more than 100 owners and residents will launch or have launched a class action against the builder and others for loss and damage as a result of the Lacrosse fire. One of the liability issues in the class action will be responsibility for the selection and use of an ACP product as an external wall cladding. The litigation will also raise the issue of whether the type of ACP installed at the Lacrosse building was not tested and in breach of the fire hazard requirements for a high rise building.
Implications for Underwriters
The Lacrosse apartment litigation is for economic loss and damage. Fortunately, no one was injured in the fire.
The issues surrounding the supply and installation of ACPs to high rise buildings in Australia have and will give rise to claims by builders and building professionals under liability and professional indemnity policies.
However, the use of ACPs and whether or not ACPs are non-compliant under the BCA are largely technical issues. Whether or not a building surveyor is professionally negligent for approving the application of ACPs to a high rise building will depend on how the court interprets the terms "finish" and "lining" in clause 2.4 of Specification C1.1 of the BCA. Resolution of this technical issue is critical to determining whether or not builders and building professionals may be liable for claims arising from the use of these products.
In our view, Underwriters should not be alarmed by the VBA audit findings, as the findings are yet to be tested in court. It may be that a court will determine that the use of ACPs in this widespread application satisfies the requirements of the BCA.
Regardless of the court's finding on that issue, the necessity of extensive rectification works to a particular building leading to a large civil claim will depend on whether the ACPs used can or cannot be justified as satisfying the requirements of the BCA.
It may also be of comfort to Underwriters to learn that in Victoria, building actions must be brought within 10 years of the date on which the certificate of occupancy for the relevant building was issued. Therefore, civil claims arising from the application of non-compliant external cladding materials cannot be made against the relevant building practitioners for any building which was constructed over 10 years ago in Victoria.
It seems unlikely that there will be a flood of litigation arising from the use of external aluminium cladding materials. The Lacrosse apartments fire appears to be an exceptional occurrence, and only two of the 170 buildings audited by the VBA were found to present a risk to safety.
It remains to be seen whether regulators in other States follow suit and commence similar investigations. We understand the Queensland Building & Construction Commission has received at least one complaint about alleged defective cladding materials installed in a Gold Coast high rise.