Australia: Cladding and insurance implications

Recent fire events such as the Melbourne Lacrosse Building fire in November 2014 and the London Grenfell Tower fire in June 2017 have brought to the forefront the risks associated with combustible Aluminium Composite Panelling (ACP), commonly referred to as 'cladding'.

The number of buildings in Queensland or Australia that are cladded with ACP is presently unknown, however it is understood to be a significant number. Clearly, removal of unsafe, fire spreading material is essential, but who is liable to pay for this removal and what are the insurance implications?

Who will pay for the removal of non-compliant ACP?

Position at common law

The Australian courts have demonstrated a general reluctance to recognise the duty of care of a builder to subsequent purchasers in pure economic loss cases involving transactions concerning commercial buildings. This has been highlighted in the High Court decisions of Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 (Brookfield) and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 (Woolcock).

The cases of Woolcock and Brookfield have confirmed that subsequent purchasers of commercial buildings cannot sue builders, engineers, designers and the like for pure economic loss arising from rectification works required to remedy latent defects that are discovered after purchase. The High Court in both Woolcock and Brookfield reasoned that this is due to subsequent purchasers not being in a position of 'vulnerability' and being able to negotiate protection in contract law by way of a warranty from the seller. In these cases, it was the subsequent purchaser who ultimately had to pay to rectify the latent defects.

In relation to residential properties, the High Court has previously determined in the case of Bryan v Maloney (1995) 128 ALR 163 (Bryan) that a subsequent purchaser of a residential property is in a position of vulnerability such that the builder of the property owes a duty of care for pure economic loss suffered by the subsequent purchaser for latent defects. However, in recent cases before lower courts, such as Ku-ring-gai Council v Chan (2017) NSWCA 226 (Chan) it has been determined that, due to legislative changes since Bryan that provide statutory warranties for latent defects, subsequent purchasers of residential properties are no longer in a position of vulnerability.

Despite the availability of statutory warranties for defects that can be enforced by subsequent purchasers, pursuant to the Queensland Building and Construction Commission Regulation 2003 (Qld), these warranties apply for a maximum of 6 years and 6 months from the commencement of construction, and many owners of residential buildings may find themselves outside this time period, leaving them essentially with no recourse against those responsible for the installation of non-compliant ACP.

The position of the High Court in Brookfield is directly applicable to body corporates seeking compensation for pure economic loss to replace non-compliant ACP on common property. In other words, a builder will not owe a duty of care to a body corporate, as agent of the owners of residential lots in a building. In these circumstances, the required element of vulnerability will not be present (applying the principles from Brookfield). This is because the first purchasers of lots in residential buildings are purchasing their lot from a developer and as such, it will be deemed that they had the opportunity to negotiate warranties into the contract with the developer. In essence, body corporates are in the same position as subsequent owners of commercial properties when it comes to pursuing an action against builders for pure economic loss, as outlined earlier in this article.

Despite the above, the consideration of ACP as being a latent defect remains untested by the courts and it is not presently known whether a case involving ACP would be determined strictly along the same lines as Woolcock, Brookfield and Chan. However, given any loss suffered in relation to the removal and replacement of non-compliant ACP will be pure economic loss, it is likely that subsequent purchasers of both commercial and residential properties will have difficulty in progressing claims against builders, architects and construction companies for the removal of non-compliant ACP from their buildings.

Amendments to the Queensland Building and Construction Commission Act 1991 (Qld)

Recent amendments to the Queensland Building and Construction Commission Act 1991 (Qld) (QBCCA) have made it an offence for any person involved with the design, manufacture, import or supply of a building product to install a product when it 'knows or is reasonably expected to have known' that the product does not comply with the relevant regulatory provisions. Combustible ACP is non-compliant with the Building Code of Australia (BCA) and would fall foul of the recent QBCCA amendments. A particular penalty under the QBCCA is the requirement that the offending party remedy the contravention of the QBCCA (which would involve the removal and replacement of ACP).

The recent amendments to the QBCCA may provide recourse for building owners to have non-compliant ACP on their buildings replaced, however, it may take considerable time for the proper investigation of who the responsible parties are and correct apportionment of the responsibility between multiple responsible parties before rectification occurs.

In this intervening time, responsible parties such as body corporates run the risk of a catastrophic fire event occurring, when they know of the relevant risk posed by the ACP.

If those parties who are responsible for the design, manufacture, import or supply of the non-compliant ACP do not have any insurance cover, the building owner may still be left in a position where it needs to pay for the rectification work itself.

Additionally, the maximum penalty for failing to comply with an order to remedy the contravention is 1,000 penalty units or $126,150. This penalty is significantly lower than the likely costs to remove and replace non-compliant ACP from high-rise buildings, which in the case of the Lacrosse Building in Melbourne are estimated to be in excess of $15 million.

The amendments to the QBCCA commenced on 1 November 2017 and will therefore only apply to cladding installed on or after this date.

Building owners and body corporates who discover that their buildings are clad with non-compliant ACP installed before 1 November 2017 may be left without any statutory remedy against those parties who were responsible for the design, manufacture, import or supply of the ACP.

Interestingly, recent media articles indicate that certain builders of buildings covered in non-compliant ACP have been volunteering to replace the cladding at their cost. Without any legal liability to do so, this approach by builders may be viewed as a commercial decision, made with a view to preserving their reputations in the building industry in light of the level of media and other scrutiny. However, this is entirely voluntary and no doubt some (particularly smaller) builders will not voluntarily undertake such work in the absence of a legal obligation to do so.

Insurance implications

Insurance implications flowing from non-compliant ACP relate both to building owners and those parties who are responsible for the design, manufacture, import or supply of the non-compliant ACP.

It is therefore critical that businesses revisit their insurance programs to ensure they comply with the conditions of their insurance policy and have the right level of cover in place. Some of the key considerations are outlined below.

Building owners and body corporates

Should a building owner become aware that its building is cladded with non-compliant ACP, it is obliged to disclose this heightened risk factor to its insurer in accordance with the Insurance Contracts Act 1984 (Cth).

This is because insurers may otherwise decline indemnity for a claim due to non-disclosure.

This may be relevant in the event of property damage and consequential loss claim or a public liability claim.

Notification of non-compliant ACP may represent a 'Catch 22' for some owners, in that, as a result of notifying their insurer, the insurer may be:

  • unwilling to renew cover
  • only willing to insure at a higher cost, and/or
  • only willing to insure for limited circumstances, which exclude the adverse outcome from the ACP remaining in situ.

Further, if a building owner is refused cover by one insurer, that information and the reason for the denial of cover, is required to be disclosed on applications to another insurer. Building owners may have difficulty securing appropriate cover.

For body corporates, failure to obtain insurance cover for the common property is a breach of the Body Corporate and Community Management Act 1997 (Qld).

Companies who design, manufacture, import or supply non-compliant ACP

Professional indemnity

Subject to disclosure obligations and other terms and conditions of insurance policies being complied with, professional indemnity insurers may be required to indemnify those required to perform remedial works, such as replacement of non-compliant ACP, pursuant to the QBCCA.

If you operate in this space post the amendments of 1 November 2017, we recommend an urgent review of your professional indemnity insurance to confirm that cover is available. It not, Allegiant IRS may be able to assist in procuring appropriate cover.

Statutory liability

In the regulatory space, businesses must also consider the impact of the introduction of penalties under the QBCCA.

A responsive Statutory Liability Insurance program is becoming increasingly important in ensuring that businesses are insured for costs of defending regulatory claims.

One of the widest insurance covers available to businesses is the Statutory Liability+ Policy developed by McCullough Robertson and Allegiant IRS. For further information please contact a member of our team.


Despite the recent amendments to the QBCCA, there remains uncertainty in this area, particularly in relation to who will be liable to cover the costs of replacing non-compliant ACP on buildings and practically, who will actually pay.

Each case will turn upon its own facts in this regard and if you think you may be affected by non-compliant ACP or the amendments to the QBCCA, we encourage you to contact McCullough Robertson or Allegiant IRS for further advice regarding your potential exposure and the best response to this emerging risk for your particular circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions