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Limelight 04/21

Appeal decision in Lacrosse – ramifications for construction professionals

Authors, Katherine Czoch , Samantha Hocking , Kaye Lai

In Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72 , the Victorian Court of Appeal dismissed an appeal from the Victorian Civil and Administrative Tribunal (VCAT) by the building surveyor, the architect and the fire engineer (the consultants) except for one minor ground raised by the building surveyor which attributed liability to the consultants for the loss arising out of the Lacrosse building fire.  In doing so, the Court of Appeal observed that VCAT’s reasons were of “exceptionally high quality”.

Initial VCAT decision

Many would be familiar with the initial VCAT decision, which held the builder solely liable to pay damages to the owners of the Lacrosse apartment tower. The owners sustained over $12 million in losses as a result of a fire that started from an incompletely extinguished cigarette and spread to external Aluminium Composite Cladding (ACP), which formed part of the structural wall of the building and contained a 100% polyethylene core. The entirety of the builder’s liability was then apportioned to the relevant building consultants and Mr Gubitta, the resident who had discarded the cigarette.

The builder was found to have breached warranties implied into its Design and Construct (D&C) Contract for the suitability of materials, compliance with the law and fitness for purpose.  Through various novation agreements, the builder was a party to separate consultancy agreements with the consultants. The Tribunal remarked that those agreements were ‘pivotal in ascribing liability for the various claims in the proceeding’.

Each of the consultants was found to have breached their consultancy agreements by failing to exercise due care and skill in the provision of their services.

The Appeal

The consultants sought leave to appeal against the Tribunal’s decision and raised 11 issues to be determined. Leave to appeal was refused for all but one ground. The apportionment of liability as against the consultants was maintained in line with the Tribunal’s decision: the fire engineer at 39%; the building surveyor at 33%; and the architect at 25%, with the smoker’s liability of 3% effectively absorbed by the builder.

There were four primary issues arising from the decision:

  • the apportionability of the builder’s breach of its statutory warranties;
  • responsibility for the selection of the ACP;
  • compliance with the Deemed to Satisfy (DTS) provisions under the BCA; and
  • application of the peer professional opinion defence

The apportionability of the builder’s breach of its statutory warranties

The owners’ claim against the builder at first instance was confined to breaches of warranties implied into the D&C contract under the Domestic Building Contracts Act 1995, and did not extend to a failure to take reasonable care. VCAT determined that, despite any breach of the builder’s obligations to comply with the Building Code of Australia (BCA), the builder had not been shown to have failed to take reasonable care. The breaches of warranties were not apportionable within the meaning of the Wrongs Act because they “did not arise from [the builder’s] failure to take reasonable care”.

The architect and fire engineer argued that the owners’ claim against the builder was apportionable because it may be regarded a claim “arising from a failure to take reasonable care” based on findings made to that effect, and not by the way the case was framed.

This was rejected by the Court of Appeal, which considered that the plain meaning of the statutory provision requires a claim arising from a failure to take reasonable care, and did not extend to a claim “involving circumstances arising out of a failure to take reasonable care”.

The Court of Appeal concluded that the terms in which a claim is framed against a concurrent wrongdoer are an essential determinant of whether the claim can be said to arise from a failure to take reasonable care. VCAT did not err in determining that the breach of warranty claims against the builder were not apportionable, as the owners’ claims did not arise from any failure to take reasonable care.

Responsibility for the selection of ACPs

VCAT’s determination that the architect breached its obligations to the builder under the consultancy agreement was in part based on the finding that the architect’s design specification for use of ACPs failed to comply with the BCA. The architect sought to attribute liability to the builder by contending that it was responsible for meeting the performance requirements of the specification, and that the specification did not permit departure from the BCA.

The Court of Appeal rejected this on the basis that it would ignore the obligations expressly imposed on the architect under its consultancy agreement, and would have the unreasonable result of absolving the architect of its liability to the builder as a consequence of the contractual obligations owed by the builder to the developer.

Under the architect’s specification, the obligation to inspect and approve samples was imposed on the superintendent, which was the architect at the time it was drafted. It was argued at first instance that this approval was for visual characteristics only, and did not extent to its regulatory compliance. The architect’s challenge was directed to the construction of the sample inspection obligation. It did not challenge the findings of breach of its broader obligations, rendering its challenge ineffectual and, in any event, no error was found in VCAT’s reasoning.

Compliance with DTS provisions under clause C1.12(f) of the BCA

The building surveyor was engaged by the builder to ensure that the design and materials used in the construction of the building complied with the BCA. The BCA’s fire resistance provisions require the external walls of buildings to be non-combustible so as to achieve the required fire resistance level. Non-combustible means not deemed combustible by the test in AS1530.1. Under the BCA, as applied to construction or part of a building, non-combustible means constructed wholly of materials that are not deemed combustible. The installed ACPs were combustible and failed to meet the test under AS1530.1.

The building surveyor contended that the ACPs met the DTS provisions contained in cl C1.12(f) of the BCA, based on their interpretation of a laminate material (required to be non-combustible). The building surveyor submitted that the word ‘laminate’ in cl C1.12(f)(i) does not include the ACP polyethylene core and hence the core was not required to be non-combustible.

The Court of Appeal rejected this interpretation and preferred VACT’s construction of the DTS provisions as they gave effect to the plain meaning of the language of the provision when read as a whole, with the underlying purpose of the section of the BCA being to provide for effective fire safety in buildings of particular types.

Peer professional opinion defence

Whilst the Tribunal accepted that the building surveyor could rely on peer professional opinion as a defence to a claim of negligence, it regarded the relevant peer professional opinion relied upon to be unreasonable.

It concerned the professional practice of issuing building permits for the use of ACPs with a polyethylene core and with a certificate under AS1530.3 relying on BCA C1.12(f). The ‘opinion’ in issue was the acceptance of the practice, not the underlying rationale for the practice. The Tribunal commented “it is not logical for a prescriptive exception to a blanket requirement for non-combustibility, to fail entirely to deal with a highly combustible element comprising at least 50% of the product”.  A suggestion that the combustible element was addressed by C1.12(f) was rejected.

The Court of Appeal held that the question whether an opinion is unreasonable is ultimately a question of fact.  It is open to conclude that an opinion is unreasonable if it lacks a logical basis (in the sense of a rationally defensible basis), but the ultimate question is simply whether in all the circumstances of the case the opinion was unreasonable. It was determined that the peer professional opinion relied upon by the building surveyor was unreasonable in this instance.

Implications

Although the decision concerns its own particular facts, its ramifications for construction professionals, and their insurers, are wide reaching. Carrying the weight of an Appeal Court, the underlying principles will undoubtedly be relied on by other Australian jurisdictions.

The Courts will take a purposive approach in interpreting the application of the BCA and its DTS provisions, approvals and certifications will be viewed with scrutiny, and the prospects of successfully relying on standard practice and peer professional opinion in analogous circumstances will likely be limited.

The Court of Appeal’s confirmation that a liability under a statutory warranty is not apportionable will require consideration of the appropriate causes of action, contribution and contractual relationships and obligations between parties.  Although not raised in Lacrosse, the decision may have further implications for consultants under consumer protection legislation for representing that drawings or specifications which referred to ACPs were BCA compliant.

This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author.