David GlinatsisDirector

Safe Cladding and Buildings

Conference 28 February 2018

Sydney

Answering Some Hard Questions

Cladding Liability Issues and Legal Risks

Who could be liable?

What are the key legal issues and risks arising from the latest

reforms?

How to manage the legal risks?

Overview

Introduction

This presentation has been prepared for general information.You should not rely on the contents of the presentation. It is not legal advice and should not be regarded as a substitute for legal advice.

The contents of the presentation contains copyright.

Part 1: Who could be liable?

Lacrosse Fire – A case study

Part 1: Who could be liable?

"the risk posed by the current cladding is so serious that it is

necessary to have a building order which requires the owners to remedy the situation.."

Shireen Bangah & Ors v Municipal Building Surveyor, City of Melbourne [2017] Building Appeals Board Victoria, 16 January 2017

"Determining who is at fault and who is liable for the cost of

remediation is going to remain a vexing issue not just for the Lacrosse

building, but for many body corporates into the future who

have PE core ACP cladding on their buildings. "

Senate committee para 2.10 page 8

Lacrosse Fire – A case study

Part 1: Who could be liable ?

http://www.docklandsnews.com.au/editions/article/lacrosse-cladding-dispute-drags-on_13602/

http://www.afr.com/real-estate/lacrosse-builder-lu-simon-says-architect-elenberg-fraser-failed-on-cladding-20170929-gyrldk

http://www.abc.net.au/news/2017-09-16/docklands-cladding-fire-apartment-owners-in-legal-minefield/8948374

http://www.afr.com/real-estate/lacrosse-builder-lu-simon-to-pay-recladding-costs-as-gesture-of-good-faith-20171122-gzqlga

http://www.abc.net.au/news/2017-09-16/docklands-cladding-fire-apartment-owners-in-legal-minefield/8948374 https://www.theaustralian.com.au/news/nation/lacrosse-builder-blames-tenant-for-fire/news-story/8df15e3229623d928f596e2e97d81cd7

https://sourceable.net/lacrosse-builder-finally-agrees-replace-flammable-cladding/

http://www.afr.com/real-estate/lacrosse-building-owners-have-to-replace-cladding-before-case-starts-20171024-gz7f34

Part 1: Who could be liable?

• Approved use of Alucobest

• Issued Building Permit

• Failed to stipulate no storage on balcony

surveyor

• Was responsible for choosing claddingarchitect

• Failed to “exercise reasonable care not to create a fire hazard in the use and occupation of the

unit.”

tenantBuilder

Owners Corporation

Orders to rectify

Builder is reported to have alleged that:

Lacrosse Fire – A case study

http://www.afr.com/real-estate/lacrosse-builder-lu-simon-says-architect-elenberg-fraser-failed-on-cladding-20170929-gyrldk

http://www.abc.net.au/news/2017-09-16/docklands-cladding-fire-apartment-owners-in-legal-minefield/8948374

The Grenfell fire

Part 1: Who could be liable?

https://www.standard.co.uk/news/london/individuals-may-face-criminal-grenfell-charges-says-prosecutor-a3605581.html

Corporate Manslaughter

Gross Negligent Manslaughter

Civil claims – wide range of categories

May include breach of contract, insurance claims, tort, breaches of statutory duties (under health and safety laws) against individuals or corporate bodies brought by victims or their estates or former tenants.

Part 2: National Response and Reforms

Jurisdiction Status snapshot

Federal • An existing Senate Inquiry into building products was expanded following Grenfell to focus on non-compliant cladding.

• Senate Economics Reference Committee interim Report released on 6 Sept 2017 with 8 recommendations.

• Recommendations included a ban on ACM panels and increased monitoring to prevent non compliant products being used in the future. Final Report due 30 April 2018.

• Customs Amendment (Safer Cladding) Bill 2017 on 11 September 2017 to prohibit “importation into Australia of polyethylene core

aluminium composite panels” Bill has not yet progressed past the second reading speech stage since its introduction.

• October 2017 – announcement by Building Ministers Forum (BMF) that Ministers agreed that:

(a) They will prevent the use of aluminium composite cladding with polyethylene core for classes of building.(b) The powers set out in Queensland chain of responsibility legislation set a model of jurisdictions to consider.

NSW • 10 Point plan setting out Government Response.• An inter-agency Fire Safety and External Wall Cladding Taskforce (the Taskforce) established.

• Individual councils have introduced audits to identify buildings with non compliant cladding.

• Environmental Planning and Assessment Amendment (Fire Safety and Building Certification) Regulation 2017 (NSW) came into effect on 1 October 2017 introducing reforms to improve fire safety for new and existing complex buildings.

• On 1 December 2017, the Secretary of the Department of Planning and Environment approved new forms of fire safety certificate required under the amending regulation.

• On 18 December 2017 Building Products (Safety Act 2017) commenced to prevent the unsafe use of building products in buildings and to provide for rectification of affected buildings.

• Environmental Planning and Assessment Amendment (Identification of Buildings with Combustible Cladding) Regulation 2017 -DRAFT

Part 2: National Response and Reforms

Jurisdiction Status snapshot

WA • WA Building Commission conducting audit which has broadened to include high risk, high rise buildings in WA.

SA • Department of Planning, Transport and Infrastructure is leading a building audit aimed at identifying aluminium composite panel cladding. The audit is to be delivered in 3 phases.

VIC • Expert task force appointed to investigate the extent of use of non compliant cladding.

• Taskforce to oversee the continuing audit by VBA and make recommendations to the Government on how to improve compliance and enforcement.

• 1 December 2017 interim Report of Taskforce – found systems failures have led to major safety risks and non compliant use of combustible cladding – 27 recommendations.

QLD • Non-Conforming Building Products Audit Taskforce established to identify Queensland buildings with a potential fire risk in relation to external wall cladding through targeted audits.

• Building and Construction Legislation (Non-Conforming Building Products ‒ Chain of Responsibility and Other Matters) Amendment Act 2017 (QLD) which amends the Queensland Building and Construction Commission Act 1991 (QLD).

• Audit taskforce established primarily focusing on buildings constructed between 1994and 2004 using aluminium composite cladding.

TAS • Audit. • Proposed that use of ACP for any commercial building above 2 storeys or 3 storeys will require approval under a product accreditation

scheme expected to be implemented by 1 February 2018.

ACT • All ACT Government owned and tenanted buildings are being audited for non-complying use of ACPs and further work will focus on private properties.

Part 2: National Response - Audit

• Audit Scheme

• Self audits

http://monthlychronicle.com.au/2017/08/07/dangerous-fire-cladding-audit-in-ku-ring-gai-apartment-buildings/

https://www.theaustralian.com.au/national-affairs/developers-offer-to-audit-their-own-towers-for-risky-cladding/news-story/b449ee2b42cc5caa487fd4d97bc62309

Part 2: National Response – Audit

NSW Qld SA WA NT Vic ACT TAS

Taskforce established

Dept of PlanningTransp. and Infrast.

Building Comm.

No

AUDIT

No. of buildingspotentially affected so far/warrant further consideration /priority

Over 1,000

Note 1

Focus on 1994-2004

Note 2

77

Note 3

229

as at02/18

Note 4

1400

Note 5

43

[42 of 43 – low risk]

As at Jan 2018

Note 6

NewLegislation

No No No No No

Notes

1 http://www.fairtrading.nsw.gov.au/biz_res/ftweb/pdfs/About_us/Whats_new/NSW_Gov_Fire_Safety_and_External_Wall_Cladding_Fact_Sheet.pdf

4 https://www.commerce.wa.gov.au/publications/state-wide-cladding-audit-status-update

2 http://statements.qld.gov.au/Statement/2017/6/30/queensland-stands-up-audit-taskforce-to-conduct-targeted-investigations-of-buildings

5 http://www.vba.vic.gov.au/cladding

3 4,500 buildings of two storeys or more, with 77 buildings listed for further checksSee para 2.36 Senate Economics References Committee Non conforming building products Interim report: Aluminium composite cladding page 14

6 http://www.justice.tas.gov.au/__data/assets/pdf_file/0018/403029/Tasmanian-Aluminium-Composite-Panel-Audit-Summary-2018.pdf

Overview

Commenced 1 November 2017

• Amends Queensland Building and Construction Commission Act 1991 (QBCC Act) and other Acts and Regulations

• Non conforming Building Products Code provides guidance

• Expands compliance and enforcement powers of QBCC

• Chain of responsibility

• Non transferable duties

• Notification requirements

• New offences of up to $126,150

Key concepts

• Building product – s74AB(1)

• Non conforming building product for intended use – s74AB(2)

• Safe – s74AA

• Safety risk – s74AA

• Reasonably practicable – s74AA

Likelihood, harm, knowledge, availability and suitability, costs

• Persons in the chain of responsibility

Designers

Manufacturers

Importers

Suppliers

What are the key duties under the Act?

• (Primary duty) that product is not non conforming for intended use as far as reasonably practicable.

• (Additional duty) - provision of “required information”

• Comply with recall requirements

• Due diligence on Executive Officers

• Not make false and misleading representations

• Notification to QBCC of:

Non conforming product

Safety related incidents or concerns

Building and Construction Legislation (Non conforming Building Products – Chain of Responsibility and Other Matters Amendment Act (2017) (Qld)

Part 2: QLD Reform - Supply Chain

Part 2: QLD Reform - Supply Chain

Primary duty

That product is not non conforming for intended use as far as reasonably practicable

designer Manufacturer importer supplier installer

Additional duties - to provide “required information” for the product – see Code

Other duties • comply with recall;• due diligence on Executive Officers;• not to make false and misleading representation; and• notify QBCC – notifiable incidents

What is Intended use ?

Ref. Code

Step 1 - all aspects of the intended use

Step 2 - seek evidence that building product meets “deemed to satisfy”

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Part 2: NSW Reform – Building Fire Regulations

Environmental Planning and Assessment Amendment (Fire Safety and Building Certification) Regulation 2017

Commenced 1 October 2017

1. Part of statutory review of Building Professionals Act 2005.

2. Coroners recommendation – Bankstown Fire.

3. Part of 10 point plan & Lambert Review.

4. Amendments introduce stricter requitements for design,

installation, maintenance of building fire safety systems .

5. Key amendments:

Requirement for “competent fire safety practitioner.”

Limited exemptions from compliance with the BCS for

minor protection system.

Two critical stage inspections.

Expansion of Fire and Rescue NSW current inspection

role to cover multi residential building construction.

Part 2: Building Products (Safety Act) 2017 - NSW

Key objectives

• prevent unsafe use of building products

• identify buildings using prohibited products

• require rectification of affected buildings

• Act prevails over NCC

Key terms

• “unsafe” safety risk

• “Safety risk” - if any occupants of the building are or will likely be a risk of death or serious injury from the use of the building product in the building

• “Building product”- any product or thing that could be used in a building

• Affected building – banned building product has been used in a building

• A Building is made safe if safety risk in affected building notice is eliminated as far as practicable

Key provisions

Increased powers to NSW Fair Trading

NSW Fair Trading may issue:• Product use ban• Affected building notices• General building safety notice

Rectification orders can be issued on owners of affected buildings

Amendments to other Acts and Regulations

• Home Building Act 1989 • Conveyancing (Sale of Land)

Regulation 2017• Strata Schemes Management Act • EP & A Act

Penalties

Corporation Individuals

Max $1.1m

$22,000 for directors

$220,000 or 2 years

imprisonment or both

$110,000 per day

offence continues

$44,000 per day for

individual

Background

• Act forms part of 10 point plan

• Commenced on 18 December 2017

• Part of wider reforms in NSW

Part 2: Building Products (Safety Act) 2017 - NSW

Secretary NSW

Fair Trading

Product

ban

Investigation and

assessment of

Building products

Enforcement

Agency/Council

Owners corporation

Owner

Commissioner

of Fire

New obligations

• Contract for sale

• Strata Statement

• S149

Affected

building

Notice

Affected

building

Ban

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Inv

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Rectification

OrderGeneral

Order

Corporation Individuals

Max $1.1m

$22,000 for

directors

$220,000 or 2 years

imprisonment or both

$110,000 per day

offence continues

$44,000 per day for

individual

Environmental Planning and Assessment Amendment (Identification of Buildings with Combustible Cladding Regulation 2017 - DRAFT

Public Consultation Draft

Department of Planning and Environment (DPS) release of consultation draft.

Establish a scheme for collection of information of buildings that have combustible cladding.

Will apply to all multi storey building except residential buildings under 2 storeys and non residential buildings under 3 storeys.

Definition of combustible cladding

“any cladding comprised of materials that are capable of readily burning (such as timber polystyrene, vinyl or polyethylene) and includes any cladding system that incorporates elements that are capable of readily burning (such as combustible framing or insulation behind the

surface cladding)”.

A building with combustible cladding is a:

“building that has combustible cladding applied to any of its external walls or to any other area of the building, other than a roof”

• Owners of buildings with combustible cladding are required to:

At Registration stage

Register with DPE and provide details about the building and its cladding

Statement Stage

Have the Building inspected by a properly qualified person (inspector)

Provide a Cladding Statement to the Secretary

• Cladding Statement to set out prescribed information

• Penalties for failure to register and provide a cladding statement

• Information will enable Fire and Rescue NSW to prepare pre incident plans and assist Council in issue of fire safety orders.

• Proposed changes to Exempt Development to reduce risk of installation of non compliant cladding on high risk buildings

Part 3: Managing the Legal risks

Potential Owner Losses

• Statutory breaches

• Personal injury and property damage

• Costs of remediation

• Required to rectify even if unsafe building product was installed prior to implementation of building product ban

• Alternative accommodation and relocation costs during remediation

• Loss of value of asset

• Compliance costs

• Loss of rental income

• Increased costs of insurance premiums/excesses and potential loss/reduction of cover

• Costs of complying with self auditing

Legal duties and risks

• Breach of contract

• Negligence and breach of duty of care

• Statutory warranties

• Australian Consumer Law

• Work Health and Safety legislation

• Environmental and Planning legislation

• QLD supply chain

• Increase regulation of Building Certifiers in NSW

• Compliance with National Code of Construction

• New Testing standards

Potential targets

• Manufacturer

• Importer

• Distributor/retailer

• Engineer/Architect (Specifier)

• Builder

• Certifier

• Building Owner and Owners Corporation

• Insurer

• Valuer

Importer

Part 3: Managing the Legal Risks

Designer Manufacturer Supplier Certifier

Qld - Multiple duties for designer, manufacturer, importer, supplier and installer

Installer

Specifier,Designerspecification Certifier

SaleProduct to site

suitabilityBuilding Work

Defect Liability Period

Relevant state and territory legislation governing the building approval process including licensing and WHS requirements

Home

warranty

schemes

National Construction Code and relevant jurisdictional requirements

Elements of the Australian Consumer Law (generally deceptive or misleading product provisions) – these can be privately litigated and also litigated by ACL

regulators or the ACCC

Builders, design professionals – duty to act with reasonable care and skill, breach of contract, breach of statute, breach of professional regulations

Modified from EESS “Non Conforming Building Products Report” App.3 – “Building Product Supply Chain Strategies to Address Risks related to Non Conforming Building Products"

Border

Legislation

• Examine insurance policies to consider implications if no compliant cladding has been used

• Strata information certificate under Strata Schemes Management Act 2015 needs particulars of

outstanding building product rectification order

• Identify and act early to meet warranty timeframes

• Seek advice on receipt of affected building notice or rectification order

• Engage an expert to check whether cladding is not non conforming

• Review insurance policies

Part 3: Managing the Legal Risks

Owners Developers

Owners Corporations

• Implied warranties at point of sale if served with affected building notice

• Seek advice in relation to any cladding non compliance, affected building notice or rectification

notice

• Increase retention and security from contractors for new building works

• Undertake self audit for residential and commercial high rise where aluminium cladding has

been used

• Review insurance policies

Part 3: Managing the Legal Risks

Developers

• Require the builder to provide sample of each significant component of the building's material for testing

• Engage independent fire engineer certify the initial design of the building and also the construction when

completed to certify that the construction accords with the design

• Check whether the material or panel has been certified by the supplier or independent certification bodies

• Review duties and compliance under amended QBCC Act and Code

• Obtain conformance information including any limitations for each product and materialSupply Chain

• Ensure products, materials or systems specified or approved for use are appropriately approved, ‘fit for

purpose’, and meet the performance requirements of the building elements in which they are used

• If a specific product or product standard is required in a particular element, this is clearly specified this and

made any inspection or verifications requirements clear

Architects, Designers, Engineers

and Specifiers

• Only deal with suppliers of good reputation

• Look for materials, products and systems that have widely recognised industry certification or accreditation

• Undertake inspection or testing of products if evidence of conformity is not available

• Increase indemnities provided by subcontractors and suppliers

Contractors

Conclusion