Australia: Victorian Supreme Court decision on Directions to Fix allows builders to avoid the heat

Liability for cladding removal is a vexed question. A range of parties are exposed to liability – including Government Departments. In a recent decision1 that will have significant implications for building owners, Government Departments and others, the Victorian Supreme Court has determined that the Victorian Building Authority (VBA) is not entitled to issue a 'direction to fix' building work after a certificate of final inspection or occupancy permit has been issued.

The decision comes in the wake of numerous buildings around the world shooting into flames, partially as a result of the use of flammable wall cladding.

Following incidents such as the fires at the Lacrosse apartment building in Melbourne and the Grenfell Tower in London, the use of building products which do not comply with building standards has become a fiery hot topic.

Amongst other things, these fires have put a spotlight on the question of rectification costs – who is responsible? While the Supreme Court's decision in LU Simon Builders Pty Ltd & Ors v Victorian Building Authority (LU Simon v VBA)2 did not directly deal with this question, it did clarify that there are limits on the regulator's powers to make the builder responsible for rectification of non-compliant buildings. From this decision, the conclusion can be drawn that owners are likely to be the primary party left to explore the complicated legal position of liability for (and quantification of) rectification solutions.

Below, we offer an overview of the power to issue 'directions to fix', and consider the implications of the Supreme Court's decision in LU Simon v VBA for owner's corporations, building owners and Government Departments.

THE POWER TO ISSUE 'DIRECTIONS TO FIX': AN OVERVIEW

Owners have always been the party with a primary obligation to ensure the safety of a building. This position is reinforced by:

  • the Metropolitan Fire Brigade's powers to issue fire prevention notices; and
  • municipal building surveyors' powers to issue emergency orders.

Both of the above powers place responsibility for rectification on the building owner.

However, the VBA has the power to issue a builder a 'direction to fix' building work under s 37B of the Building Act 1993 (Vic) (Building Act) if, after inspection of the building work, it believes on reasonable grounds that the building work does not comply with the Building Act, the Building Regulations or the building permit.

Issuance of a 'direction to fix' is a powerful way for the rectification of non-compliant buildings to be enforced against a party that is not the building owner.

However, the power of this enforcement mechanism has been notably limited following the Supreme Court's decision in LU Simon v VBA.

LU SIMON V VBA: FACTS AND FINDINGS OF THE CASE

The VBA issued LU Simon Builders (LU Simon) directions to fix building work with respect to six apartment buildings for which LU Simon was specified as the 'builder' in the relevant building permits.

One of these buildings was the Lacrosse apartment building in the Docklands in Melbourne, which was clad in flammable (and non-compliant) aluminium composite panels.

For each of the buildings, occupancy permits and certificates of final inspection had been issued prior to the VBA issuing the relevant direction to fix – in some cases, occupancy permits had been issued as many as nine years earlier.

LU Simon sought a declaration in the Supreme Court that the VBA was not entitled to issue directions to fix with respect to the six apartment buildings. It claimed that according to the text and context of s 37B of the Building Act, it was clear that the power to issue a direction to fix was unavailable after a certificate of final inspection or an occupancy permit was issued (as the case may be).

The VBA unsuccessfully attempted to claim that the ambit of its power under s 37B was so wide that it could give a builder a direction to fix "at any time at all, even 50 or 100 years after the building work in question was completed" and an occupancy permit or certificate of final inspection had been issued.

The Supreme Court accepted LU Simon's arguments and found that the VBA only has a finite time – being the time prior to a certificate of final inspection or occupancy permit is issued – to issue a direction to fix building works.

It followed that the VBA could not enforce the six directions to fix in question.

LU SIMON V VBA: IMPLICATIONS OF THE DECISION

The Supreme Court's decision in LU Simon v VBA will have significant implications for owner's corporations and building owners generally.

Now that the opportunities for the VBA to issue a direction to fix on builders is limited by a clear time-bar, it is foreseeable that there will be more instances in which builders 'push back' on liability (particularly around cladding issues) for rectification costs. This will leave building owners to wear that hefty burden or otherwise fight to recover the rectification costs from responsible parties via litigation.

In this sense, the Supreme Court's decision has left building owners to fend for themselves.

There is a view that settlements reached to date with builders over cladding rectification have occurred under the understanding that the VBA could direct rectification. With that risk removed, it is not yet clear how the building industry will respond.

However, with the Victorian Cladding Task Force acknowledging that Government should act as an exemplar in auditing and then removing suspect cladding from its buildings, there will likely be significant risk of expensive disputes arising.

This then raises the question of whether legislative amendment of s 37B of the Building Act could be appropriate.

Footnotes

1 LU Simon Builders Pty Ltd & Ors v Victorian Building Authority [2017] VSC 805.

2 [2017] VSC 805.

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.

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