By Stephen Aroney, Partner and Sindri Bergsson, Special Counsel

The Supreme Court has determined, in the context of a separate question application, that the Plaintiff (an Owners Corporation) has failed to prove that the use and installation of combustible cladding to its building amounted to a breach of the Building Code of Australia (BCA).

The Plaintiff sued the builder, Toplace Pty Ltd, and the developer, alleging that they had each breached the statutory warranties under section 18B of the Home Building Act 1989 (NSW) as the ACP cladding installed on the building did not comply with the BCA. The ACP cladding installed was Vitrabond FR, which contains fire retardant properties (hence the ‘FR’).

It was agreed between the parties that the ACP cladding installed on the building:

1. is combustible, with the core containing predominantly between 35% and 40% polyethylene; and
2. is now a banned product under the Building Products (Safety) Act 2017 (NSW) (BPSA), which bans cladding products containing greater than 30% polyethylene by mass (although the ACP cladding wasn’t a banned product at the time it was installed).

The Plaintiff relied on expert evidence by Allan Harriman who had incorrectly based his opinions as to the performance and combustibility of the ACP cladding on a CSIRO test certificate which in fact had been issued in respect of a different Vitrabond cladding product. This incorrect reliance was held to have infected various conclusions drawn by Mr Harriman, resulting in the Court being unable to rely on several of his conclusions.

The builder and developer argued, amongst other things, that the presence of the ACP cladding did not constitute an ‘undue risk of fire spread’ when considering the fire protection system fitted to the building as a whole. Further, that the ACP cladding could be compliant with the BCA by way of an Alternative Solution.

In finding against the Owners Corporation, Black J observed:

1. Mr Harriman’s error in relying on the wrong CSIRO test certificate rendered much of his evidence and conclusions inadmissible. As a consequence, the Owners had failed to prove that the ACP cladding was ‘combustible’ within the meaning of the BCA;
2. The Owners cannot rely on the ACP cladding now being a banned product under the BPSA as a basis to contend that the ACP cladding has never been good and suitable for the purpose for which it has been used. The building works were completed in 2017, and the ACP cladding only became a banned product in 2018. His Honour observed that community standards may change over time, and a product that is now banned may still be considered to be suitable for its purpose;
3. The Owners Corporation had not proved that an Alternative Solution was not available; and the Defendants had not proved that one was available; and
4. Even if the use of the ACP cladding was proven to amount to a breach of the statutory warranties, the Owners Corporation had not established that it was reasonable for it to incur substantial costs in removing and replacing the cladding in circumstances where it may have been possible for the builder to perform an Alternative Solution under the BCA.

The Court’s findings have raised a critical issue in claims by Owners Corporations concerning combustible cladding. That issue is whether the presence of combustible cladding will justify the Owners Corporation incurring substantial cost in removing and replacing that product with a non-combustible product, and whether the Owners Corporation can then recover those costs from the builder (or others). As this case highlights, it will be important for Owners Corporations to ascertain whether any Alternative Solution is viable prior to incurring the substantial costs of removing and replacing the ACP product.

This case has important implications for Owners Corporations, builders, developers and their insurers. It also raises interesting questions regarding the NSW Government funded ‘Project Remediate’, which provides a 10 year interest free loan to eligible Owners Corporations to fund the replacement of combustible cladding with non-combustible cladding, and the recoverability of those costs from the builder/developer if it could be established that there was a viable Alternative Solution.

It also highlights the need for great care to be taken when briefing experts to ensure their assumptions and conclusions are robust and supported by the underlying documents.

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2022/958.html