Victorian Supreme Court decision on ‘directions to fix’ allows builders to avoid the heat

Liability for cladding removal is a vexed question. A range of parties are exposed to liability – including Government Departments. In a recent decision[1] that will have significant implications for building owners, Government Departments and others, the Victorian Supreme Court has determined that the Victorian Building Authority (VBA) is not entitled to issue a ‘direction to fix’ building work after a certificate of final inspection or occupancy permit has been issued.

The decision comes in the wake of numerous buildings around the world shooting into flames, partially as a result of the use of flammable wall cladding.

Following incidents such as the fires at the Lacrosse apartment building in Melbourne and the Grenfell Tower in London, the use of building products which do not comply with building standards has become a fiery hot topic.

Amongst other things, these fires have put a spotlight on the question of rectification costs – who is responsible? While the Supreme Court’s decision in LU Simon Builders Pty Ltd & Ors v Victorian Building Authority (LU Simon v VBA)[2] did not directly deal with this question, it did clarify that there are limits on the regulator’s powers to make the builder responsible for rectification of non-compliant buildings. From this decision, the conclusion can be drawn that owners are likely to be the primary party left to explore the complicated legal position of liability for (and quantification of) rectification solutions.

Below, we offer an overview of the power to issue ‘directions to fix’, and consider the implications of the Supreme Court’s decision in LU Simon v VBA for owner’s corporations, building owners and Government Departments.

LU Simon v VBA: Implications of the decision

The Supreme Court’s decision in LU Simon v VBA will have significant implications for owner’s corporations and building owners generally.

Now that the opportunities for the VBA to issue a direction to fix on builders is limited by a clear time-bar, it is foreseeable that there will be more instances in which builders ‘push back’ on liability (particularly around cladding issues) for rectification costs. This will leave building owners to wear that hefty burden or otherwise fight to recover the rectification costs from responsible parties via litigation.

In this sense, the Supreme Court’s decision has left building owners to fend for themselves.

There is a view that settlements reached to date with builders over cladding rectification have occurred under the understanding that the VBA could direct rectification. With that risk removed, it is not yet clear how the building industry will respond.

However, with the Victorian Cladding Task Force acknowledging that Government should act as an exemplar in auditing and then removing suspect cladding from its buildings, there will likely be significant risk of expensive disputes arising.

This then raises the question of whether legislative amendment of s 37B of the Building Act could be appropriate.

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