Apartment cladding insurance battle to possibly head to High Court

Victoria’s appeal court ruled that builder LU Simon does not have to pay damages for combustible cladding installed on the Lacrosse tower prior to its June 2012 completion

Apartment cladding insurance battle to possibly head to High Court
Apartment cladding insurance battle to possibly head to High Court

Victoria’s appeal court has ruled that builder LU Simon does not have to pay damages for combustible cladding installed on the Lacrosse tower in Melbourne's Docklands

The appeals court made the ruling on Friday following a three day hearing in February by Justices David Beach, Kathryn Stynes and Robert Osborn.

The appeal was undertaken by architecture firm Elenberg Fraser, fire engineering consultancy Thomas Nicolas and building surveyor Gardner Group, who sought to overturn a 2019 judgment that saw them hit with a $12 million damages responsibility for use of polyethylene-core panels on the Melbourne apartment tower.

The matter centred whether LU Simon had responsibility arising from having breached the implied warranty of Victoria’s Domestic Building Contract Act and also the state’s Building Act when its constructed the apartment building that did not comply with the Building Code of Australia.

The appeals court ruled the builder was not negligent under separate legislation, the Wrongs Act.

The polyethylene-core panels in the Lacrosse tower saw fire affect 13 levels of the 21-storey building in its November 2014 fire. The fire broke out shortly before 2:23am on 24 November 2014 on the balcony of apartment 805 of the Latrobe Street complex with the source of the ignition being an incompletely extinguished cigarette butt left in a plastic container on a table with a timber top.

The cladding through which the fire spread was constructed with an aluminium composite panel (‘ACP’) known as Alucobest, which contained a polyethylene core. Alucobest ACPs had been installed as the external panel cladding on the eastern and western facades of the building.

The Victorian Court of appeal ruled a builder could rely on consultants’ understanding on things that are technical and outside their knowledge as builders can’t be expected to know the intricacies of products.

"The fact that they (the panels) did not meet the statutory warranties given by LU Simon, because they were not compliant or fit for purpose, does not of itself constitute a lack of reasonable care," the judgement noted.

The court judgement noted LU Simon "like so many others in the industry" had been "misinformed" by the material which Alucobond published at that time.

It referenced the Alucobond brochure ‘Alucobond — 40 years of excellence — From a Pioneer to the Synonym’ and similar comforting statements were made in the Alucobest brochure where in addition to reference to various ASTM test results, it is stated that Alucobest has ‘Outstanding characteristics of fireproofing’ next to an image of a flaming match.

It is not known if the consultants, and the insurers funding their cases, will now seek leave to appeal the issue to the High Court.

The risk remains that apartment owners and residents will be left without a meaningful remedy for their costs, Matthew Bell, a senior lecturer at Melbourne Law School, told the Australian Financial Review.

The AFR advised the appeals court judgment did offer hope to apartment owners as the ruling went beyond the Lacrosse-specific findings of the VCAT ruling and said the use of aluminium composite panels on all buildings built around that time contravened the building code.

The 2019 VCAT ruling had allocated 33 per cent of the liability to Gardner Group, 39 per cent to fire engineer Thomas Nicolas and 25 per cent to Elenberg Fraser. The apartment occupier was found to share a 3% responsibility.

Last month the Victorian state government changed the Building Act to ban dangerous cladding on new multi-storey properties.

Planning Minister Richard Wynne announced a prohibition with non-compliant builders now risking fines of up to $400,000.

The Building Act change was a recommendation in 2019 from the Victorian Cladding Taskforce co-chaired by former premier Ted Baillieu and former deputy premier John Thwaites.

More than 500 buildings were identified by the Victorian Building Authority as being at high risk of a cladding fire. 

The state government committed $600 million to rectify dangerous cladding on hundreds of high-risk buildings.

Apartment sales that stalled in Lacrosse have picked up with eight sales since last November, with the priciest being $582,500.

The 92 sqm two bedroom unit had last sold in December 2014 at $505,000 having first sold off the plan in 2008 at $522,500.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

LU Simon Combustible cladding Lacrosse Tower

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