Burning Obligations: Contractual rights and responsibilities

There are a large number of buildings in Australia covered in cladding, from residential towers to corporate high-rise buildings. The cladding may be aesthetically pleasing and price effective for use by contractors, but this is where the benefits seem to cease.

As has become apparent from the Grenfell Tower fire in London and the closer to home Lacrosse tower fire in Melbourne, some cladding materials being used are in fact highly combustible. This in turn has raised numerous issues, particularly for the contractors involved with the design and safety of the tower. The recent landmark case of Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286 (Lacrosse case) in the Victorian Civil and Administrative Tribunal (Tribunal) is testament to this.

Background

In the very early hours of a November morning in 2014, the remnants of a quick cigarette by an occupant of apartment 805 of the Lacrosse Tower in Melbourne’s Docklands, soon turned into a raging fire climbing up the façade of the building. The tenants of the building were all thankfully safely evacuated from the building, but the tower had received extensive damage. As a result, all 211 owners of the apartments and commercial spaces within the tower commenced an action against the builder of the tower; the building surveyor, architects, and fire engineer involved in the building of the tower (Contractors); the occupants of the apartment; and the superintendent of the tower.

The primary action was against LU Simon as the builder of the tower, but the other respondents were joined to the proceedings as potential concurrent wrongdoers. This ended up being a huge win for LU Simon even though the Tribunal did not find in their favour.

Decision

After detailed consideration of the contract between the developer of the tower and LU Simon the Tribunal found that LU Simon had breached the warranties of suitability of materials, compliance with the law, and suitability of purpose and were therefore primarily liable to pay damages to the Applicants. However, the Tribunal also considered the contracts in place between LU Simon and the Contractors and found that in fact, LU Simon had not failed to exercise reasonable care with respect to the warranties. LU Simon had engaged suitably qualified professionals, the Contractors, which meant that the damages payable by LU Simon could be apportioned to the Contractors by reason of the Wrongs Act 1958 (Vic).

The Tribunal found the lion’s share of responsibility sat with the fire engineer, Thomas Nicholas (TN), at 39%. TN had contracted with LU Simon to provide fire engineering design for the tower project which included compliance with the Building Code of Australia (BCA). Under the BCA TN was obliged to inform LU Simon of the suitability of products being used for the project, including, relevant to this case, the cladding. From evidence adduced at trial it became apparent that TN was aware that potentially flammable cladding was being used for the façade of the building, but they did not notify any one of this issue.

The building surveyor and the company he worked for, Gardiner Group, and the architect were also found to be concurrent wrongdoers with liability apportioned to them at a rate of 33% and 25% respectively. Again, the Tribunal found that by virtue of the contracts these parties had entered with LU Simon they could not deny liability. The Tribunal found that possibly the largest error by these parties was that they had not fully understood their contractual requirements. They had likely entered into contracts that contained a number of ‘boilerplate’ provisions, standard provisions that are routinely included in contracts, and not fully contemplated the effect they would have. These provisions required the building surveyor and the architect to be aware of products being used and to inform LU Simon if there were issues. Again, evidence became available that throughout the project these parties would have become aware of the cladding issue and they too did not do anything in response.

The final concurrent wrongdoer was Mr Gubitta, the smoker. Mr Gubitta was apportioned 3% of the liability as the one who did not put the cigarette out properly and the initial cause of the fire. However, Mr Gubitta did not take part in the proceedings and no party sought judgment against him, LU Simon was not able to recoup this percentage of the total judgment.

Lavan Comment

The importance of being fully aware of contractual rights and responsibilities is paramount. This case has shown that where a party is aware of their rights and responsibilities, like LU Simon, they can greatly reduce their exposure. Whereas, parties that rely on boilerplate provisions or usual industry practice are leaving themselves subject to possible litigation.

If you require assistance with interpretation and understanding of contracts, or drafting new contracts to limit your potential exposure, contact Lavan’s Litigation and Dispute Resolution team.