By Scott Higgins, Partner, Carlo Garofali, Consultant, and John Hibbard, Lawyer

An interim report into defects afflicting the Opal Tower, a newly constructed residential apartment building in Sydney’s West, was released this week by the NSW Department of Planning and Environment (available here). The report was authored by Engineering Professors Mark Hoffman, John Carter and Stephen Foster.

The report was commissioned following the evacuation of residents of the tower after significant cracking occurred in hob beams (a load bearing structural member orientated on top of, rather than underneath, a slab), adjacent floor panels and in the load bearing precast concrete wall panels attached to the hob beams. The residents, though assured that the tower is structurally sound, are yet to return.

Given the report is interim in nature, it is somewhat speculative and the authors steer away from providing any definitive conclusions with further investigations promised. It primarily traverses the likely causes and impacts of the damage to Level 10 of the tower. Investigations into the damage to Level 4 and further analysis are ongoing.

The report considers a number of possible causes of damage. Environmental factors and issues relating to the foundations and quality of materials (despite some critical observations of the precast concrete panels, see below) are dismissed as unlikely to have contributed. Instead, liability is attributed primarily to design and construction characteristics, with the proportionate responsibility of each yet to be conclusively determined.

Design or construction?

In terms of design, preliminary consideration suggests that the bearing capacities of the hob beams are lower than is deemed safe by Australian Standards.  This appears to be a major deficiency.

In terms of construction and installation issues, the report observes that there has been:

• inadequate grouting between the precast panels and the hob beams which has led to eccentric bearing loads on the hob beams;
• in relation to the precast panels, inadequate cover concrete over the reinforcing steel due to encroachment of other building elements;
• incomplete (possibly cut) dowel bars that could otherwise contribute to eccentric loading;
• contrary to the requirements of the design drawings, the precast concrete panels overhang the supporting hob beams by approximately 20 mm; and
• reinforcing bars of the wrong size were placed during manufacture of a scrutinised panel on Level 10, 20mm rather than 28 mm. As noted above, this would appear to be a manufacturing issue and seems at odds with the dismissal of material quality as a factor.

The report warns that the failure of the components observed has resulted in loads being redistributed to other components, and consequently recommends that the building designers confirm that no other structural member is now overloaded.

Despite the localised damage, the report considers the tower to be structurally sound. An extensive program of rectification and strengthening works is likely to be recommended.

Where to now for owners?

The incident raises some tricky liability issues for the owners and the owners corporation, who will be seeking reimbursement for losses. The first, as with many such claims, relates to the multiplicity of parties that are involved, including the developer, the designer, the builder, as well as various subcontractors, the certifier and no doubt various insurers.

Most pressing will be ensuring safety and expediting appropriate rectification with the question of who will bear liability for the significant rectification costs likely to be a question left for subsequent determination.

The findings of the interim report (still to be confirmed by further investigations and nevertheless subject to rebuttal by persuasive expert conclusions to the contrary) would tend to indicate that the owners are likely to have a prima facie cause of action against both the builder and the developer by reason of the statutory warranties under the Home Building Act 1989 (NSW). 

It is difficult to see how it could be otherwise. In circumstances where structural concrete panels are evidently cracking within months of completion, the maxim res ipsa loquiter, (“the thing speaks for itself”) might be apt to infer a failure to take reasonable care by someone. The more difficult question is “by whom?” and if there are several contributing causes, “how should fault be apportioned?”

Whilst the head contractor will be in the immediate firing line, it may not ultimately be the one to fund this liability to the owners. Other relevant parties such as the engineers or designers are likely to be implicated also, if not by way of a direct liability to the owners (via contract or duty of care), then by way of cross-liability to the builder or developer.

As always, the specific facts will be determinative. The build methodologies and processes, communications between the parties and any directions given will all be relevant to determining the question of ultimate liability.

Putting aside the immediate concerns as to the efficacy and cost of rectification works, the nature of the problems and the very public exposure of them through the media is likely to have very serious and adverse implications on the underlying value of the properties.

Whether the owners will be legally entitled to recover the diminution in value of a property as opposed to only the rectification costs is not clear and will no doubt be a crucial question for the owners of apartments in the Opal Tower to have answered.

Are these cracks evidence of a broken system?

Public confidence in our building system has taken a battering in recent times. The combustible cladding crisis (see our previous articles here and here) is still causing serious issues for industry participants and many affected property owners. The regulatory concerns have been highlighted most recently in the Commonwealth Senate Economics References Committee’s report (available here) on the regulation of non-conforming building products, published in early December last year.

The Opal Tower cracking incident has now exacerbated this public concern over building quality and lack of proper regulation and oversight. This follows a boom in apartment construction across the country which is cause for some apprehension as to the scale of the problems that may be lurking behind walls, footings and, ceilings and balconies. The Opal Tower may be the most extreme and public example of problems, but defect issues in new apartment buildings and resultant litigation are commonplace.

The vulnerability of the whole building regulatory ecosystem was emphasised by the report “Building Confidence” by Professor Peter Shergold and Bronwyn Weir, released in April last year (explored in our previous article here).

In response to these issues, ongoing but piecemeal reforms have been implemented in various jurisdictions, including blanket bans on certain non-conforming products. The New South Wales Government wasted no time in using the Opal Tower crisis to spruik its new Building and Development Certifiers Act 2018 (NSW) (yet to be brought into force) and this is unlikely to be the last we hear of the matter – it is an election year after all.

Whilst the new legislation includes some much needed improvements to the system, regrettably, we consider that the focus on certifiers is unlikely to be sufficient to prevent a repeat of the issues that have afflicted the Opal Tower.

With some nostalgia, many industry commentators are now reflecting on the old days where a dedicated clerk of works with robust and more regular oversight was commonplace on a construction site. That system is far-removed from the current private certification regime, which is largely paper-based, marred by conflicts of interest (perceived, if not actual), and with very limited inspection abilities over actual construction work and methodologies, with inspections and sign-offs often occurring too late in the project.

Despite the best efforts of some lawyers to suggest otherwise, the Courts have recognised that the statutory function of private certifying authorities (or surveyors as they are called in Victoria) is fairly limited in its scope and the Courts have been loathe to identify that any duty of care is owed by certifiers to prospective purchasers.

It is clear that tinkering around the edges of the certification regime is unlikely to garner significant improvements in building practices.

There is also the problem for claimants of various legal limitation periods which act to significantly constrict the ability of plaintiffs to bring actions against building professionals for defects that may only manifest many years after the completion of the work. Imagine for a moment that this cracking occurred more than 6 years after completion of the Opal Tower – under present laws the owners would likely have no viable recourse against the builder.

The Shergold and Weir report made 24 recommendations, many of which would no doubt assist in preventing another Opal Tower. These included improvements to the training and accreditation of all building practitioners, not just certifiers, improvements in the quality and availability of design and other building documentation (including verification of a building’s compliance with the National Construction Code), and the strengthening of project inspection regimes.

Perhaps most importantly, the authors stressed that their recommendations should be implemented as a package, without cherry picking. A lofty goal perhaps, but an indication that root and branch reform is required and that there is no “quick fix”.

The terms of reference governing the interim report into the Opal Tower cracking include a request that the authors of the report provide recommendations “…to avoid incidents like this in the future.” It will be interesting to see what the authors recommend in their final report in terms of regulatory or other reforms to improve checks and balances in the design and construction process.

Mills Oakley will continue to keep you updated of developments. If you would like to discuss any of the issues mentioned in this article please don’t hesitate to contact the authors.