Court Clears Up Cladding Construction Confusion
From, a guest writer's strata musings ...
In today’s guest-writer article by lawyers, Christopher Kerin & Mia Haas, they explain the results and impacts on strata title stakeholders of a recent NSW Court of Appeal decision on our old favourites: strata building defects, combustible cladding, and Toplace. It’s a timely reminder that hard legal cases sometimes need to be pursued properly and completely s to get the right results, as this strata building successfully demonstrates.
[9.50 minutes estimated reading time, 1908 words]
Introduction
From time to time, I publish articles from guest writers who have different perspectives and ideas on strata issues to expand and challenge our knowledge and thinking.
I hope you enjoy today’s legal article.
October 19, 2023
Francesco ...
WHEN BUILDING WORK IS NOT IRON CLAD
by Christopher Kerin & Mia Haas
The Owners – Strata Plan No 92450 v JKN Para 1 Pty Limited & Anor [2023] NSWCA 114
The recent decision in The Owners – Strata Plan No 92450 v JKN Para 1 Pty Limited & Anor [2023] NSWCA 114 provides clear guidance on who bears the evidentiary onus of establishing loss in combustible cladding disputes.
On 26 May 2023, the NSW Court of Appeal handed down its decision in The Owners – Strata Plan No 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114 regarding a claim made by the owners corporation (“the Plaintiff”) of “Parramatta Rise” a 28-storey mixed-use tower in Parramatta (“the Building”) against JKN Para 1 Pty Ltd (“the Developer” and “First Respondent”) and Toplace Pty Ltd (“the Builder” and “Second Respondent”) in connection with the installation of non-compliant cladding on the Building. The cladding used was aluminium composite panels known as Vitrabond FR (“the Cladding”).
After the interim occupation certificate was issued, Fire & Rescue NSW provided a Final Fire Safety report to the certifier recommending that the Cladding be certified compliant with an internationally recognised fire protection listing for full scale façade tests. Indeed, Fire & Rescue NSW requested written confirmation once the necessary rectification works had been completed. A final occupation certificate was issued without this certification.
The Plaintiff sought rectification damages in the order of $5 million to replace the Cladding.
Building Code Australia (BCA)
The BCA is a ‘performance-based’ building code. Each section of the BCA has minimum mandatory levels of compliance. At the time of construction of the Building, the 2013 version of the BCA required that the Cladding be non-combustible. Compliance could be achieved by way of the Cladding complying with the Deemed to Satisfy performance requirements of the BCA (ie tested to AS1530.1:1994) or via an Alternative Solution, assessed and certified by a fire engineer or a combination of both.
The parties agreed that the Cladding did not meet the Deemed to Satisfy requirements and neither had established that there was an Alternative Solution compliant with the performance requirements of the BCA with respect to fire resistance.
Additionally, the Parties agreed that the Cladding product used was banned under the Building Products (Safety) Act 2017 (“BPA”) by reason of it being combustible.
It was therefore clear that the Respondents had breached the requirements set out in the BCA.
Home Building Act 1989 (HBA)
With respect to the proceedings, the Plaintiff claimed that the Respondents had breached the statutory warranties under section 18B of the HBA (‘Statutory Warranties’) given:
the Cladding did not comply with the HBA or “any other law” (including the Environmental Planning and Assessment Act 1979 and its associated regulations which gave legal effect to the BCA);
the Cladding was not “good and suitable” material as it was combustible; and
the units were not fit for occupation because they were combustible.
The Plaintiff could rely on the Statutory Warranties as these were implied into the contract for the construction of the Building between the Builder and Developer because the construction of the Building amounted to “residential building work” within the meaning of the HBA. Additionally, the Plaintiff was a “successor in title” to the developer.
The Plaintiff’s entitlement to the Statutory Warranties was not disputed.
New South Wales Supreme Court
At first instance, the Court found against the Plaintiff.
The Court made three main findings:
the Cladding did not comply with the Deemed to Satisfy provisions of the BCA;
there was no evidence to show that the Cladding on the Building had been tested in accordance with the relevant standard under the BCA to demonstrate its combustibility or otherwise. The Plaintiff’s expert had mistakenly relied on a CSIRO test indicating that the Cladding was combustible which was based on a Vitrabond product different from that used on the building; and
it was not known whether the Cladding was compliant by way of Alternative Solution pursuant to the performance requirements of the BCA because no attempt had been made to show that there was an Alternative Solution before the certificate of construction was issued or at the time of the hearing. The Plaintiff failed to prove that there was no Alternative Solution and the Respondent failed to prove that one existed.
Moreover, the Court rejected the argument that the Cladding material was “not good and suitable” simply by virtue of being a banned product under the BPA and that the Cladding resulted in the Building not being reasonably fit for occupation.
On the question of loss, the Court declined to award reinstatement damages given that the Plaintiff failed to show that an Alternative Solution "could not then (at the time of the construction certificate) or now be performed".
NSW Court of Appeal
On appeal, the first instance decision was overturned.
The central issues addressed were:
whether the Primary Judge erred in finding that the installation of the Cladding did not breach the Statutory Warranties under section 18B(1)(c) of the HBA or alternatively, section 18(1)(e) or section 18(1)(b); and
the issue of loss and damage.
With respect to the first issue, the Court found that showing non-compliance through the Deemed to Satisfy provisions was sufficient to show non-compliance with the performance requirements of the BCA with respect to fire resistance (since no alternative solution was prepared prior to the issue of the construction certificate). This amounted to a breach of the warranty under section 18B(1)(c) of the HBA which the Respondents accepted in oral argument.
On the second issue, the Court reviewed the law in relation assessing loss and damage noting that “where the claimant is entitled to have a building erected upon its land in accordance with the contract and the plans and specifications which formed part of it, the prima facie measure of damages is the cost of reinstatement, not the diminution in value of the defective building”. However, there was a qualification to this rule being that “not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt”.
In this case, the burden of proof for establishing loss lies on the Plaintiff and by contrast, “the party in breach of contract has the onus of displacing the prima facie rule for assessing damages as the cost of reinstatement”. The Court accepted that the Respondents bore an evidentiary onus of displacing the prima facie rule for assessing damages as the cost of reinstatement and held that His Honour had erred in finding that the Plaintiff had the onus of establishing that an alternative solution “could not then or now be performed” …. Having established that the Respondents did not comply with the BCA, the owners corporation were not required to go further by proving that the Respondents could not have complied by acting differently with respect to an alternative solution”.
In short, on the question of the unreasonableness of the rectification costs, the Respondents had the onus to show that what the Plaintiffs were asking for was unreasonable and failed to do so.
Conclusion
Overall, this decision provides clarity as to what evidence is required to be provided by whom in cladding disputes. While there were issues in establishing whether an alternative solution was possible in this case, parties in similar cladding litigation should consider whether alternative solutions to full replacement are possible.
Given the fact that Fire & Rescue NSW had raised concerns in relation to the Cladding, this case raises serious issues in connection with the conduct of the certifier - if the certifier for Parramatta Rise had taken the Cladding issue more seriously, not only could the owners corporation have avoided the stress and expense of the litigation, it would not now be sitting as an unsecured creditor in the administrations of Toplace Pty Ltd and JKN Para 1 Pty Ltd with poor prospects of recovering the entirety of the judgement amount awarded.
Finally, this owners corporation was also unfortunate in that it was completed prior to the establishment of the strata building bond scheme on 1 January 2018. Further, even if the Building Commissioner had been disposed to issue a Building Work Rectification Order pursuant to the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (as he has done in relation to a number of other Toplace related buildings in Sydney), the administration of Toplace Pty Ltd and JKN Para 1 Pty Ltd as well as the continuing absence of Mr Jean Nassif overseas mean that even these relatively new and powerful remedies do not assist the owners of Parramatta Rise.
About Christopher & Mia
Christopher worked for many years in leading commercial construction law practices acting for the government, developers, and contractors in the building, transport infrastructure, and resources sectors.
He has been involved in all forms of dispute resolution including litigation, arbitration, and alternative dispute resolution in a range of jurisdictions in Australia. Christopher also has a number of years’ experience in contract drafting, risk analysis, and providing general construction advice having been involved in a whole range of construction projects, from minor works to projects worth billions of dollars.
Christopher holds a Masters of Laws, is a Law Society of NSW accredited specialist in commercial litigation, and is a member of the National Editorial Panel of the Australian Construction Law Newsletter. He has published in a range of law journals and associated publications.
In the last few years, he has brought his specialist construction industry knowledge to the strata sector and now only acts for owners corporations in a range of jurisdictions.
Christopher has also developed a specialization in ACT strata law, acting for ACT owners corporations in a range of matters. He has provided training to most ACT strata managers and is the author of the Kerin Benson Lawyers Guide to ACT Strata Law which is intended to become the standard reference for strata law in the ACT.
Mia works with Chris as a lawyer at Kerin Benson Lawyers on strata title and related legal matters.
In 2022, Mia graduated from the University of New South Wales with a Bachelor of Laws and a Bachelor of Economics (majoring in Financial Economics). She completed a Graduate Diploma of Legal Professional Practice at the College of Law in September 2023 and is soon to be admitted as a lawyer of the Supreme Court of NSW.
Mia is on the Building and Construction Team at Kerin Benson Lawyers. She is responsible for assisting with matters such as building & construction disputes, fire and life safety issues, and strata law advice both in NSW and in the ACT.
Prior to working at Kerin Benson Lawyers, Mia worked as a Trainee Strata Manager at a national strata management company. She has 3 years of experience in strata management.
Get in touch with Chris or Mia at the Kerin Benson Lawyers via their website.