Who is responsible when wall cladding catches fire? The Lacrosse apartments decision

The fire began in an ashtray on the balcony of apartment 805. It travelled rapidly up the external wall cladding. It took only 11 minutes to climb from level 8 to reach the roof above level 21 of the Lacrosse apartments at 673-675 La Trobe Street, Docklands at 2:35 am on 25 November 2014. Fortunately, all 400 occupants were evacuated safely, and there was no loss of life.

The cladding was highly flammable because it had a polyethylene core, described as equivalent to diesel fuel sandwiched between two paper thin sheets of aluminium.

The Owners Corporations and the Apartment Owners commenced legal proceedings in 2016 to recover damages not only for the fire damage but to replace all of the undamaged external cladding on the building.

After 22 days of hearings, Judge Woodward handed down a comprehensive 227 page decision in which he found the builder, the architect, the quantity surveyor and the fire engineer responsible to pay damages of $5.748 million (so far).

The decision is Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286 (28 February 2019).

How did the fire start and cause the damage?

At about midnight on 24 November 2014, Jean-Francois Gubitta returned home from work. He was on a working holiday from France. He shared the 2 bedroom apartment (805) with 6 others. He dropped his backpack on his bed. He went out to the balcony to check if his clothes were dry and to smoke.

He stubbed out his cigarette butt in a plastic food container that was used as an ashtray and went inside to bed.

According to the expert reports, the incompletely extinguished cigarette butt came into contact with some organic seeds wrapped in aluminium foil, which set the plastic container alight, then a wire washing basket half full of clothing alight, both resting on a timber table on the balcony. The table began to burn and the flames spread to a folded blanket on top of the air conditioning unit. The direct flame exceeded 450°C which degraded the aluminium skin of the aluminium composite panels affixed as cladding to the building, setting the polyethylene core alight. The panels on the building wall provided a vertical fuel load for the fire to travel up to the roof.

The Tribunal found that the ignition of the fire, its rapid spread and the damage were caused by:

• the failure by Mr Gubitta to fully extinguish his cigarette: and
• the installation of Aluminium Composite Panels with a 100% polyethylene core on the external walls of the Lacrosse tower.

The Tribunal found that the table, chairs and other items ‘stored’ on the balcony did not contribute to the fire spread.

Who was responsible and why

The Owners Corporations and the 209 owners of the individual apartments sued the builder for damages. The builder joined its consultants - the building surveyor, the architect and the fire engineer to indemnify it under their Consultant Agreements for any damages payable. This is a summary of the findings:

The builder – LU Simon

The builder entered into a Design and Construct Contract with the developer in 2010.

Warranties of suitability of materials, compliance with the law and fitness for purpose were implied into the contract by s 8(b), (c) and (f) of the Domestic Building Contracts Act 1995 (Vic). The warranties are ‘absolute’ – they apply even if reasonable care is demonstrated. They run with the building, enabling the owners to proceed against LU Simon for breach.

Once the unsuitability of the panels was established, LU Simon was liable for breach of the warranties. It was primarily liable to pay damages to the owners for all foreseeable losses.

LU Simon was not negligent (in addition to the breach of warranties) because it was not aware of the fire risks, and it had acted as a reasonably competent builder would act, engaging professional consultants to rely upon.

The building surveyor – Gardner Group

The building surveyor (in NSW & Qld called a building certifier) entered into a Consultant Agreement with LU Simon in 2010. It failed to exercise reasonable care in carrying out the agreement by:

1. Issuing a Building Permit for Stage 7 of the construction of the Lacrosse tower, approving the use of an ‘Alucobond Specification’ cladding, which did not comply with the Fire Resistance specifications in Section C of the Building Code of Australia (BCA) in 2011, which specifies that external walls must be non-combustible; and
    
2. Failing to query the incomplete description of the cladding systems in the fifth iteration of the Fire Engineering Report prepared by the Fire Engineer.

The Tribunal also found that the Building Permit was misleading and deceptive in contravention of the Australian Consumer Law.

The architect – Elenberg Fraser

The architect entered into a Consultant Agreement with LU Simon in 2010. It failed to exercise reasonable care in carrying out the agreement by:

1. Failing to remedy the defects in its design of the tower to make it compliant with the BCA; and
    
2. Failing to ensure that the aluminium composite panel sample it was given was compliant with the BCA – the sample was an Alucobest panel, made in Shanghai, with a 100% polyurethane core.

It could not escape liability by arguing that the builder had taken on its role because it had been appointed head design consultant under the Consultant Agreement.

The fire engineer – Thomas Nicolas

The fire engineer entered into a Consultant Agreement with LU Simon in 2010. It failed to exercise reasonable care in carrying out the agreement by:

1. Failing to conduct a full engineering assessment of the tower to the level required by the International Fire Engineering Guidelines and to include it in the fifth Fire Engineering Report – this led to the deletion of sprinklers on balconies without an alternative solution; and
    
2. Failing to recognise that the panels proposed did not comply with the fire-resisting construction specifications of the BCA (on a deemed to satisfy basis) and failing to warn the builder and the other professional consultants of that fact, and failure to advise about a solution.

The Tribunal also found that the fifth Fire Engineering Report was misleading and deceptive in contravention of the Australian Consumer Law.

The damages payable

The Tribunal ordered LU Simon to pay a total of $5,748,233.28 to the Owners, including:

• $4,851,937.19 for reinstatement works
• $701,270.16 for additional insurance premiums (because of the fire)

The Tribunal ordered that the professional consultants pay LU Simon that amount, in these proportions:

• Gardner Group (the building surveyor): 33%
•  Elenberg Fraser (the architect): 25%
• Thomas Nicolas (the fire engineer): 39%
• The remaining 3% was Mr Gubitta’s proportion (for damage to the balcony), which LU Simon was to bear.

Further sums totalling $6,823,165.65 for compliance costs (removal and replacement of the unburnt cladding), loss of rent and alternative accommodation claims are yet to be resolved in terms of amounts payable.

Does this decision apply to other buildings clad with aluminium composite panels?

Fire Brigades estimate there are 10,000 buildings in the eastern states of Australia with suspected highly flammable cladding. This decision is the first on the legal consequences, which makes it highly significant.

Judge Woodward has sought to ‘hose down’ its value as a precedent, by saying:

Given the widespread interest in many of the issues … these reasons should not be read as a commentary generally on the safety or otherwise of Aluminium Composite Panels and their uses. … on the Lacrosse tower, [there was] large scale contiguous installation of panels with a 100% polyethylene core on the external walls of a high rise building, including on unsprinklered balconies … in close contact with potential ignition sources such as smouldering cigarettes, barbeques, items carelessly stored on airconditioner compressor units, and the like.

Judge Woodward’s decision will almost certainly be appealed, given that the builder and the consultants were held responsible to fully compensate the owners.

What should apartment owners in buildings with flammable cladding do?

They cannot count on the State Governments to assist them to recover the cost of removing and replacing the non-compliant cladding.

As a practical matter, the decision gives the green light to owners corporations and owners to recover compensation if their panels were non-compliant with the code (the BCA) and they make their claim within 6 years of the Certificate of Occupancy / Certificate of Final Inspection (Domestic Building Contracts Act 1995 (Vic)).
 

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