The Victorian Building Authority’s (VBA) efforts to make builders accountable for the cost of rectifying combustible cladding took a blow just before Christmas, with a Supreme Court decision confirming the VBA did not have power to order LU Simon Builders Pty Ltd to rectify combustible cladding on six apartment towers it constructed since 2008.

On 22 December 2017, Justice Cavanough confirmed that the VBA did not have power under section 37B of the Building Act to give a ‘direction to fix building work’ to the relevant builder, once the occupancy permit for that building had been issued. Whilst the case is an uncontroversial decision from a legal perspective, its financial and political implications in the context of the current combustible cladding crisis in Victoria are significant.

Background

LU Simon Builders Pty Ltd was the builder of the Lacrosse Tower in Docklands which caught fire in November 2014, sparking national interest in the issue of combustible cladding. It is also the builder named in the building permit for the six towers in and around the Melbourne CBD, ranging from nine to 49 storeys. The Age newspaper has estimated that at least 2500 people live and work in the towers.

The six towers were found by the VBA in its 2015 audit to include combustible cladding. The VBA sought to use the power in section 37B of the Act to have LU Simon fix the cladding, presumably by replacing it or otherwise bringing each building into compliance with the relevant fire safety requirements of the Building Code of Australia.

Section 37B relevantly provides that the VBA “may give a direction to fix…building work” if “… the [VBA] believes on reasonable grounds that the building work fails to comply with the Act, the building regulations or the building permit issued in relation to the building work.

Decision

The VBA argued that the power in s 37B was not limited by time, and could be exercised ‘at any time at all, even 50 or 100 years after the building work in question was completed’ and after an occupancy permit or certificate of final inspection was issued. In the alternative, it argued that the power could be exercised for ‘a reasonable time’ after completion.

LU Simon argued that, based on the language and structure of the Act, the power in s 37B could only be exercised prior to the issue of an occupancy permit or final certificate of inspection.

Justice Cavanough found without difficulty that LU Simon’s interpretation was correct, stating “as [LU Simon] submits, the indications in the text and context of s 37B that the power is unavailable after a certificate of final inspection or an occupancy certificate has been issued are overwhelming”.[i]

The full decision is available here. The VBA will have until early February 2018 to appeal the decision, although an appeal has been reported to be unlikely.

Implications of the decision

The case itself was relatively simple. The implications, however, are significant, confirming that the VBA cannot retrospectively force builders to fix combustible cladding on buildings, once the building is completed.

The VBA sought to place the financial strain of replacing or rectifying combustible cladding on builders. However, there are powers under the Act which are undoubtedly available to local councils to issue building notices, building orders, and emergency orders to the owners of affected apartments. Understandably, the authorities seem to have preferred a course of action which did not place the financial and emotional strain on innocent apartment owners who have little to no control over the building process, and in many cases became the owner of the apartment unaware of the problem, years after completion.

On the other hand, there are sound reasons for not forcing retrospective liability solely upon builders, especially in circumstances where the VBA itself identified in its cladding audit report in February 2016 that “No single category of practitioner involved in the design, approval or construction of those building projects audited is consistently responsible for the non-compliant use of cladding.

That is of little comfort to owners of affected apartments who, if ordered by their local council to fix the problem, will have to bear the rectification costs themselves. If they are not ordered to rectify, they will instead face the difficult choice of fixing the cladding themselves, or suffering a devaluation of their home or asset. Whilst owners can attempt to recover such losses through legal action against the builder and others involved in the design and construction of the building, the legal avenues are complex, time-consuming and costly.

Where to now?

The Interim Report of the Victorian Cladding Taskforce released on 1 December 2017 made numerous recommendations, including that the Department of Environment, Land, Water and Planning (DELWP):

  • ‘review the compliance and enforcement powers in the Building Act to ensure that regulators are equipped with a suite of comprehensive, fit for purpose tool that allow for quick, responsive, robust interventions’. This recommendation may in time lead to the VBA being empowered to direct those involved in the design and construction of a building to fix non-compliant cladding, although it would be controversial to make the power retrospective.
  • ‘Develop a discussion paper and undertake consultation on introducing a statutory duty of care on building practitioners (including architects and designers) to protect occupants and consumers in the residential strata sector; …’

While these and other recommendations of the Taskforce could result in potentially welcome outcomes from an owner perspective, they will take time. In an election year, both sides of politics have a strong interest in skilfully resolving a significant consumer protection issue in an economy that has been heavily dependent on the construction sector.

In the meantime, the VBA won’t be directing builders to fix existing cladding problems under s 37B, and owners will continue to face significant rectification costs, legal costs or property devaluation.