Overview
In the recent decision in State of Victoria (Department of Transport and Planning) v L.U. Simon Builders Pty Ltd & Ors [2025] VSCA 52, the Court of Appeal held that State of Victoria can recover from a builder funds paid to an Owners Corporation under the Cladding Safety Victoria program to replace combustible cladding, even though part of the cladding was owned by individual lot owners.
Background
This case arose from the State's efforts to recover funds spent on rectifying non-compliant cladding on the Atlantis Towers in Melbourne as part of the Cladding Safety Victoria program. The State, through the Victorian Building Authority (VBA) and Cladding Safety Victoria (CSV), had funded the Owners Corporation to remove and replacement of combustible cladding on the building.
The State commenced proceedings in the County Court of Victoria seeking to subrogate to the rights of the Owners Corporation to recover these costs from LU Simon Builders Pty Ltd (Builder) and its directors, who, in turn, joined other parties involved in the construction and design of the building.
During these proceedings, it was discovered that only a small proportion of the external cladding was owned by the Owners Corporation, with individual lot owners owning the balance. The Builder contended that the State's obligation (via the VBA and CSV) to pay the owners of the cladding was to the Owners Corporation, as the Owners Corporation was a party to the financial assistance agreement, not the lot owners.
The County Court referred this issue for determination to the Court of Appeal.
Decision
The Court of Appeal rejected the Builder's argument that the State could not be subrogated to the rights of individual lot owners because they had not directly received financial assistance. The Court held that section 137F(1) of the Building Act 1993 (Vic) encompasses payments made by the VBA or CSV to an Owners Corporation, even if the non-compliant cladding was owned by both the Owners Corporation and individual lot owners.
Implications
While we expect that, in most instances, Owners Corporations will be the owners of the cladding, even where they are not (or not wholly), this decision will provide momentum to the State in pursuing subrogated recovery actions against contractors, their officers, and others where the State has paid for the remediation of non-compliant cladding.
With the 15-year limitation period for cladding-related building actions having either expired or nearing expiration, we expect the State of Victoria will be quick to initiate all remaining subrogated recovery actions very soon, which means insurers could more claims emerging in the short-term.
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.
