Who’s liable? Combustible cladding prompts building reform in NSW

August, 2017

By Scott Higgins, Partner and Lucy Hancock, Lawyer

As set out in our previous update, the devastating Grenfell Tower Fire in London in June highlighted the pervasive use of combustible and potentially unsafe cladding materials in high rise developments across the world.

In terms of government responses to the risks, Victoria had already been leading the charge in the wake of an earlier fire in 2014 at the Lacrosse building in Docklands – with legal proceedings surrounding issues of liability and disciplinary action still ongoing.

NSW has now been sparked into action, last week publishing the results of an audit of NSW buildings revealing that 1011 buildings out of the (approximately) 178,000 audited across the state are potentially at risk from dangerous cladding. The  Environmental Planning and Assessment Amendment (Fire Safety and Building Certification) Regulation 2017 will also come into effect on 1 October 2017.

The question of how to deal with non-conforming cladding, whether existing regulatory frameworks can be utilised and who will be liable for the substantial costs that may be incurred if rectification is required remains a live issue for governments, councils, and property owners.

This article sets out the recent announcements, the effect of the new regulations and the practical implications for stakeholders in the property and construction sectors.  We also explore some of the issues with the fragmentation of the building regulation and certification process in NSW which, if not reformed, is likely to compound the present problems and hamper efforts to compel the removal and replacement of unsafe cladding.

Announcement of a ’10 point plan’

An inter-agency Fire Safety and External Wall Cladding Taskforce has been established, with representatives from the Department of Finance, Services and Innovation, the Data Analytic Centre, the Department of Planning and Environment, Fire and Rescue NSW, the Office of Local Government, Treasury and the Department of Premier and Cabinet.

The NSW Government has now announced a wide-ranging fire safety package, which includes new legislation to prohibit the sale and use of unsafe building products.

The Minister for Better Regulation, Matt Kean, announced on 28 July 2017 that the state government would be implementing a “10 point plan” for fire safety, which includes:

  1. A comprehensive building product safety scheme that would prevent the use of dangerous products on buildings.
  2. Identifying buildings that might have aluminium or other cladding.
  3. Writing to the building / strata managers or owners of those buildings to encourage them to inspect the cladding and installation of cladding, if it exists.
  4. NSW Fire and Rescue visiting all buildings on the list, as part of a fire safety education program. This will allow them to gather information they need to prepare for a potential fire at that building, and provide additional information to building owners.
  5. Creating a new fire safety declaration that will require high rise residential buildings to inform state and local governments as well as NSW Fire and Rescue if their building has cladding on it.
  6. Expediting reforms to toughen up the regulation of building certifiers.
  7. Reforms to create an industry based accreditation that will ensure only skilled and experienced people can do fire safety inspections.
  8. Establishing a whole of government taskforce that will coordinate and roll out the reforms.
  9. Instructing all government departments to audit their buildings and determine if they have aluminium cladding, with an initial focus on social housing
  10. Writing to local councils to follow up on correspondence they received from the state government, after Melbourne’s Lacrosse Tower fire, in 2016.

Mr Kean indicated that the reforms are already underway, however the details are not yet available.

Implications for owners of existing buildings with suspect cladding

As it currently stands, the plan gives little insight into how the NSW Government proposes to deal with the 1100 buildings clad with potentially combustible materials. Points 2 and 3 suggests the implementation of a ‘light touch’ of encouraging replacement by owners rather than requiring it (for example under some form of rectification order).

Immediate safety concerns are no doubt being balanced with the desire to take a fair and considered approach and avoid sparking a panic along with plunging property prices for the affected buildings.

Mills Oakley suspects that the fragmentation of powers for the investigation and issuing of work orders for non-compliant buildings in NSW might also be a complicating factor for the NSW Government.  Unlike Victoria, there is no centralised body overseeing building regulation compliance in NSW.  Local Councils have the ability to issue work orders and otherwise the powers given to the Department of Fair Trading to investigate defective works and issue rectification orders to builders and owner-builders are limited to residential building work and, in our experience, are usually only implemented after a decision is made by a Court or the NSW Civil and Administrative Tribunal (if at all).

Owners should be aware that even if rectification isn’t mandated as part of the 10 point plan, if the materials pose a risk to health and safety, then owners may still have legal liabilities to rectify, replace or manage the risk under work health and safety legislation and common law duties of care.

In such situations there are likely to be legal avenues (under contract, statute and duties of care under the common law) to recover the costs of rectification as between, developers, builders, suppliers, installers, architects, fire safety engineers or building certifiers (and of course insurers).

Mills Oakley understands that building regulation standards in respect of cladding and fire safety have not been applied universally and the supporting evidence such as material testing might not always have been accurate and verifiable. These sorts of issues could give rise to liability throughout the building supply, installation and certification chain.

Overhaul of the Building Certification System

The fact that at least 1100 buildings in NSW have been certified as fit for occupation despite posing a potential fire safety risk suggests something of a failure of the system.  Many industry insiders are unsurprised by recent events and there had been warning signs for some time following the fire at Melbourne’s Lacrosse building in 2014.

The regulatory framework in NSW is arguably one of the most fragmented in the country, with Local Councils, the Department of Planning and Environment, the Building Professionals Board and the Department of Fair Trading each tasked with separate and distinct regulatory functions. While the Department of Fair Trading may investigate complaints made against builders and issue rectification orders, Local Councils have the most coercive investigative powers and are responsible for issuing orders against owners in respect of defective building work, whereas the Building Professionals Board administers the law in relation to certifiers.

Points 6 and 7 of the 10 point plan relate to reforms that were already proposed following an investigation and report into the building certification system in 2016 which recommended a significant overhaul of the system.

In October 2016, Former Treasury Secretary Michael Lambert released his report concerning the building regulation regime. One of the main criticisms levelled, was that:

Fragmented and under-resourced administration of building regulation [is] creating confusion and dissatisfaction in the industry and for consumers. DPE undertakes building regulation functions in three different areas of department; Fair Trading also has a role with building industry regulation both in respect to residential buildings as well as with regard to the PCA; the licensing of building practitioners is handled separately from the accreditation of certifiers. This negatively impacts on the efficiency and effectiveness of regulation and results in poor development outcomes. There is also lack of adequate funding for councils to effectively undertake a building compliance role”.

Mr Lambert recommended, amongst other things, consolidating the building regulation function into one “Office of Building regulation”. He also recommended a rewrite of the Building Professionals Act which would see Developer’s loose the ability to select their own certifier. Mr Lambert observed that:

“…there is an inherent conflict in the regulatory role undertaken by the certifier and the commercial driver of securing appointment from the builder/developer (on behalf of the owner) whose interests may not coincide with regulatory requirements”.

The NSW Government indicated that it would adopt 72 of Mr Lambert’s recommendations (including some consolidation of legislation and departments).   A copy of that response can be found here.

In the meantime, the Government has enacted the Environmental Planning and Assessment Amendment (Fire Safety and Building Certification) Regulation 2017.  This does not specifically  address cladding issues or non-conforming products, but it may be capable of being utilised for this purpose or being amended to include specific reference.  The regulation is due to come into effect on 1 October 2017 and the main changes include:

Aside from the release of these discrete amendments to existing legislation, the Government is yet to release a draft of the new legislation in line with Mr Lambert’s recommendations and there has been little noticeable movement since September 2016, when its response to the review was released.

Mills Oakley will keep you updated of further developments now that these matters are being expedited.  In the meantime, if you are a property owner, builder, supplier, installer, architect or certifier and you have concerns about issues of potential liability or the use or replacement of combustible cladding generally please contact the authors.

Contact


Scott Higgins | Partner
T: +61 2 8035 7872
E: snhiggins@millsoakley.com.au

 


Scott Laycock | Partner

Ziv Ben-Arie | Partner

Andrew Wallis| Partner

Peter Meades | Partner
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