By Scott Higgins, Partner, Lucy Hancock, Associate and John Hibbard, Lawyer
There have been varied responses at state and federal levels to the ‘combustible cladding crisis’ sparked by the tragic Grenfell fire in London last year, which has put non-compliant and non-conforming building products in the spotlight.
Nationally, there have been out of cycle amendments to the National Construction Code (NCC), reflecting concern at its perceived shortcomings in relation to the regulation of the use of Aluminium Composite Panel (ACP). The Building Ministers Forum (BMF) has moved forward in its goal to mandate the permanent labelling of ACP, resolving to ask Standards Australia to develop a standard at their latest meeting.
Legislative changes made by Queensland and New South Wales in late 2017 have begun to bite, especially in NSW, where the regulator has banned the use of ACP in certain buildings and has otherwise subjected its use to rigorous testing and approval processes.
In Victoria, the relevant Minister has also issued a Guideline that restricts the use of ACP and makes its use subject to review before building approval can be granted. Victoria has also introduced a loan scheme to assist affected owners to remediate their properties and have widened the scope of their ongoing audit to include buildings under construction.
Combustible cladding audits also continue in SA, WA, Tasmania and the ACT.
As may be expected, it’s a grab bag of legislative responses. This article provides a high level summary of the changes.
National Construction Code Out of Cycle Amendments
The NCC was amended effective 12 March 2018, clarifying existing provisions relating to the use of non-combustible cladding products to prevent the spread of fire within and between buildings, and providing for a new Verification Method relating to the spread of fire along external walls. For more details please click here.
Building Ministers Forum action
The recently released Shergold and Weir report on building regulation and compliance (see here for details) recommended that the BMF finish its work to implement permanent product labelling for high risk building products. In line with this recommendation, the recent BMF meeting, held on 10 August 2018 in Adelaide, resolved to ask Standards Australia to develop an Australian Standard in relation to permanent labelling of certain cladding products.
Senate Economics References Committee Inquiry
An inquiry into non-conforming building products by the Senate Economics References Committee is currently underway. An interim report was published on 8 September 2017. See our previous article which discusses key findings of the report here.
The Senate Economics References Committee’s is set to table its final report on 19 September 2018.
We also anticipate news from Standards Australia as to the permanent labelling of ACP.
New South Wales
The Building Products (Safety) Act 2017 (NSW) (the Act) commenced on 18 December 2017. It creates new powers for the Commissioner for Fair Trading and the Department of Finance, Services and Innovation to ban unsafe building products and provides for the issue of rectification orders where such bans have been contravened. For more information, see Mills Oakley’s earlier article here.
On 18 August 2018, the Commissioner issued a ban on ACP with a core of more than 30% polyethylene by mass in any external cladding or related application for Type A and Type B buildings, under section 9 of the Act. The exceptions to the ban are:
- where such ACP products can be demonstrated to be non-combustible when tested in accordance with AS 1530.1; or
- if the product and the wall assembly can both be shown to have passed external wall fire and building-to-building fire spread tests in accordance with AS 5113. Tests must performed by an Accredited Testing Laboratory.
Tests must be performed by an Accredited Testing Laboratory.
An existing building that does not comply with a building product use ban, such as the recent ban on ACP, is an ‘affected building’ under section 17(1) of the Act. The Commissioner can issue an affected building notice in respect of an affected building which must be given to the owners and occupiers of the building, the local council, a relevant enforcement authority and the Commissioner of Fire and Rescue. A relevant enforcement authority may also make an order requiring the owner of an affected building to rectify the building.
Importantly, section 17(2) of the Act provides that a building will become an ‘affected building’ within the meaning of the Act, notwithstanding that the product was used in the building before the ban was in force. In that sense, the ban applies retrospectively with regard to the ordering of rectification work.
Section 15 of the Act provides that it is an offence for anyone to use a building product in contravention of a ban, with a maximum penalty of up to $1.1 million for corporations and $220,000 for individuals. Although it is not entirely clear, it does not appear that section 15 applies retrospectively and it is a defence to the prosecution of an offence under this section if the person has a “reasonable excuse”.
The second reading speech also suggests that it is not the intention of the legislature to prosecute those who used the products prior to the ban, but only those who continue to use the banned product.
Identification of buildings clad with combustible cladding
The Environmental Planning and Assessment Amendment (Identification of Buildings with External Combustible Cladding) Regulation 2018 was published on 31 August 2018. The object of the new regulation, is to make provision for the identification of and collection of information about buildings to which external combustible cladding has been applied.
Notably, the regulations require owners of buildings to which combustible cladding has been applied to provide the Secretary of the Department of Planning and Environment with details of the building and the external combustible cladding. These details must be provided by 22 February 2019 (in the case of occupied buildings) or otherwise within 4 months after the building is first occupied.
External combustible cladding for the purpose of the regulations includes any cladding system comprising metal composite panels or any insulated cladding system.
The regulator in Victoria, the Victorian Building Authority (VBA) continues to undertake an audit of buildings to identify unsafe cladding. On 31 May 2018 the VBA began to contact registered builders and building developers with a request that they report on the type of cladding they intend to use on buildings under construction.
The Victorian Minister for Planning issued Ministerial Guideline MG-14 on 13 March 2018, which restricts the use of certain cladding products as part of an external wall.
Further, the building surveyor of a Type A or B construction that includes certain prescribed cladding products may not issue a building permit without a determination by the Building Appeals Board that the installation of the product complies with the relevant Act and Regulations.
The VBA sought to issue a rectification order against Lu Simon but the Victorian Supreme Court has since ruled against that order (finding it to to be outside the VBA’s jurisdiction). However, earlier this month, the Building Professionals Board has ruled that one of the directors breached the Building Act 1993 (Vic) by installing combustible cladding.
Cladding Rectification Agreements
On 26 July 2018 the Victorian Government announced that the Local Government Act will be amended to provide for the creation of Cladding Rectification Agreements (CRA). These agreements between owners, lenders and councils will provide long term low interest loans to finance the rectification of non-compliant cladding. The loans will be paid via council rates, and accordingly will run with the land in the event of sale. This represents a fairly unique and innovative approach to the ‘funding problems’ for owners. CRAs will function similarly to existing Victorian Environmental Upgrade Agreements.
Chain of responsibility law
Part 6AA of the Queensland Building and Construction Commission Act 1991 (QLD) was enacted on 1 November 2017, imposing duties on parties deemed to be in the “chain of responsibility”. This includes any person responsible for the design, manufacture, importation, supply or installation of building products. The primary duty of these parties is to ensure as far as reasonably practicably that the subject product is not a non-conforming building product for an intended use. For more information, we refer you to Mills Oakley’s earlier article on this subject, which can be found here.
Tasmania, WA, SA, and the Territories
In Tasmania, Western Australia, South Australia, the ACT and the Northern Territory, there has not been any substantive changes to existing laws in relation to building products. However, most jurisdictions are conducting or have recently completed audits into combustible cladding.
In WA, the Western Australian Building Commission is conducting an ongoing cladding audit. Its last status update was delivered on 6 August 2018. South Australia is also continuing its audit.
The Director of Building Control in Tasmania announced the completion of its audit, and produced its cladding audit summary on 19 January 2018.
The ACT has committed to an audit however has not made a report, and the Northern Territory has been writing to relevant building owners and requesting details of action taken.
In any state or territory, owners of buildings with non-compliant cladding need to swiftly take action to determine whether the building requires rectification and, if so, whether the cost of doing so is recoverable from a relevant building professional.
Similarly, builders, suppliers, fire safety engineers and architects who have been involved in the construction of a building which incorporates ACP should assess whether it is at risk of claims from owners or other legal entities and ensure that it is now complying in all respects with the NCC and state specific legislation.
In our previous article here we sought to explain the sticky web of liability for non-compliant building products. Owners and occupiers are at the front line in terms of statutory and common law duties of care and should therefore be considering rectifying and replacing combustible cladding.
The retrospective aspect of the new legislation in NSW, in particular, only serves to clarify this issue and has placed powers in the hands of the regulator to order rectification. Responsibility for rectification under the new legislation rests with owners, who will no doubt seek to recover their costs from relevant builders, designers, suppliers, fire safety engineers, certifiers and other professionals.
In the case of older buildings, owners may be caught out by relevant limitation periods under the Home Building Act 1989 (NSW) and the Limitation Act 1969 (NSW).
The use of a banned product gets picked up in the ‘major defect’ definition under section 18E(4) of the Home Building Act 1989 (NSW) and so the warranty period for such claims will be 6 years from completion of the defective work.
Owners and occupiers of affected buildings should therefore assess whether they need to act quickly.
There is also a risk that the cost of rectifying ACP is uninsured, with many insurers implementing new exclusions to policies which carve out this kind of loss. Although insurers cannot retrospectively apply exclusions, professional indemnity policies are usually ‘claims made and notified’ policies – they respond when the claim is actually made against the insured professional in the future, even though the work was performed some time ago. This will be an issue if that future policy has added an exclusion applied for ACP related claims.
For this reason, building professionals should consider notifying of facts which could give rise to a claim now against existing policies which may not have specific cladding exclusions. This takes advantage of protections in the Insurance Contracts Act 1984 (Cth), which provides that future claims arising out of circumstances notified in writing may still be covered.