The story began with an unextinguished cigarette in the early hours of 24 November 2014. The fire started by that cigarette burned rapidly up the side of the Lacrosse Building in Melbourne’s Docklands precinct, from level 8 to level 21 in a matter of minutes, aided by “Alucobest” aluminium composite panel cladding with 100% polyethylene core. While no lives were lost, the resulting property damage and cladding replacement would cost nearly $13 million.

Who is liable to pay that amount? Let’s recap the 2019 judgment, and look at the impact of the Court of Appeal’s recent findings.

The Primary Judgment (February 2019)

Last time we reported on this, it was March 2019 and VCAT had just delivered its primary judgment, which came in at a hefty 227 pages. (Judgment currently available at VCAT’s website – see Owners Corporation No. 1 of PS613436T & others v LU Simon Builders.)

Of the parties that had been joined to the litigation, Justice Woodward’s primary judgment found the following parties liable, in these proportions:

Our two articles from March 2019 explained VCAT’s reasons, with particular emphasis on implications for consultants.

In the two years since then, we’ve seen an appeal from the primary judgment, as well as a pandemic, so it’s a good point to recap what has (and hasn’t) changed.

The Appeal Judgment (March and May 2021)

The Court of Appeal delivered its findings over two judgments in March and May 2021.

The building surveyor, fire engineer and architect had appealed on several grounds. In addition to several more technical points, they sought to have these findings from the primary judgment overturned:

1. That the builder did not have a duty of care to select cladding that complied with the National Construction Code as they relied on consultants to guide them.
2. That the architect’s specification permitted the builder to install a non-compliant cladding material because, while it stated that the builder must use materials that were compliant with all codes, it also specified cladding “indicative to” Alucobond, which was non-compliant.
3. That the architect’s responsibility when approving the substitution of Alucobest was to consider its performance and compliance and not just its visual characteristics.
4. That neither the “attachment” exemption nor the “bonded laminate” exemption in the National Construction Code permitted the use of aluminium composite panel cladding with a combustible polyethylene core, and that it was unreasonable for building surveyors to believe otherwise.
5. That, if the building surveyor had noticed that, in the drawings accompanying the MFB application, the fire engineer had mis-described the cladding as “precast panels” with no reference to ACPs, it would have led to the fire engineer advising that ACPs were non-compliant and (presumably) to their replacement with a compliant material.

The Court of Appeal dismissed all of the above appeals, except for point 5. (Point 5 was overturned because the Court of Appeal found the fire engineer already knew that ACPs were being used, but unjustifiably assumed the ACPs would be non-combustible, so the chain of reactions hypothesised in point 5 would not have occurred.)

Apart from that one point, the Court endorsed the findings of the primary judgment and described it as “exceptionally high quality”.

Point 1 is perhaps most surprising to consultants. Their experience of working with builders on novated or design and construct projects might be hard to reconcile with how the courts described the relationship in statements like this:

“For a large and complex project, [the builder] has sought to cover acknowledged shortcomings in its own expertise by engaging highly skilled professionals to … direct and supervise its work” – Primary Judgment [307], quoted in Appeal Judgment May 2021 [75]

Because the building surveyor had succeeded on appeal point 5, the Court of Appeal had to consider whether to recalculate the percentage allocation of liability. In its May 2021 judgment, it transferred 3% from the building surveyor to the fire engineer as follows, leaving the other parties’ portions the same. So as of today, the liability split is:

The Future

The Court of Appeal’s emphatic affirmation of the primary judgment would have to make a further appeal less likely. However, only time will tell whether any of the parties will take on the risk and cost of elevating the matter to the High Court.

Importantly, the liability allocation in Lacrosse is based on the contracts, scopes of services, products, design and roles on this project only. Both the primary judgment and the appeal judgment emphasise this. Litigation about other projects using ACPs could lead to completely different findings.

However, as it stands today, the Lacrosse litigation lends itself to a few key take-aways:

• Courts do not assume that novation changes or reduces a consultant’s role. Courts are likely to find that consultants have the same role and duty of care as on a traditional project, unless the consultant’s consultancy agreement/scope of services unambiguously states that they have a reduced and limited role.
• Consultants cannot use the specifications to “delegate” design responsibility back to the builder. For such a delegation to be effective, it would instead require clear clauses to be added to the consultancy agreement/scope of services.
• Builders do have a duty to use due care and skill, but the bar for that is not high, and even on a novated or D&C project probably will not require them to understand complicated design requirements in the National Construction Code like fire resistance.

Since the duty and the liability for National Construction Code compliance is likely to rest with consultants, it would be prudent for consultants to reclaim the knowledge, time, fees and power required to discharge this responsibility, and then use every method at their disposal to resist poor or risky substitutions or selections. Consultants should also closely interrogate the provisions in their consultancy agreement/scope that relate to post-novation services, and look to clarify and bolster them to support a robust construction phase role. If forced into a reduced role, a paper trail recording the reduction is essential, starting with striking out inapplicable parts of the scope of services until it becomes accurate.

With legislative reforms in NSW commencing on 1 July, with similar legislation under consideration in Victoria and elsewhere, this topic is so timely that we are devoting an intensive half-day webinar to it on 24 June 2021. Please consider joining us for “Out with the new, in with the old: Reclaiming a consultant’s design role”, and email us for discount codes that apply to Planned Cover clients and our mailing list.

Wendy Poulton
Manager Risk Services
informed by Planned Cover

This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.