Fix now, litigate later: Building Amendment (Cladding Rectification) Bill 2019 (Vic)

The Building Amendment (Cladding Rectification) Bill 2019

On Tuesday, 15 October 2019, the Victorian State Government introduced into the Legislative Assembly the Building Amendment (Cladding Rectification) Bill 2019 (Bill) – a bill aimed in part at furthering the Government’s apparent mandate of holding “dodgy building practitioners”¹ to account for the use and installation of combustible cladding.

The Bill primarily relates to proposed reforms relating to the Government’s funding of “cladding rectification work”² associated with “non-compliant or non-conforming external wall cladding products”³. Indeed, one of the key purposes of the Bill is to continue to provide financial assistance for building work associated with cladding rectification⁴, and to provide subrogation of the Crown to the rights and remedies of an owner who receives financial assistance⁵ from the Government.

The proposed subrogation provisions would apply retrospectively to funds previously paid by the Government, as well as to future payments by the Government.

Practically, this means that the Crown would “stand in the shoes” of an owner who receives or received funding from the Government to bring recovery claims against any person involved in the installation or use of non-compliant cladding that required cladding rectification work to be undertaken. The Bill gives the Crown the right to choose whether to bring the proceedings in its own name, or in the name of the owners (payees).

Consumer Protection

There is a clear consumer protection element to the Government’s continued funding of cladding rectification work. This is particularly important given the potential safety implications arising from the use of combustible cladding. Having consumer protection at the forefront in decision making appears to have led the Government to “fix the buildings” first, and to worry about the “rest” later. The “rest”, of course being, to work out who pays the repair bill.

Now that the Government has turned its mind to the “rest”, it has continued its consumer protection focus by including safeguards in the Bill, including in relation to subrogation. To that end, it is proposed that:

• if the Crown brings proceedings under the name of the owner, the Crown will indemnify the owner against any costs awarded against the owner in the proceedings; and
• if the Crown brings proceedings in the name of the owner and the Crown recovers more than the amount of financial assistance the Government provided to the owner, the Crown is required to pay the difference to the owner after deducting its costs associated with recovering the money.

Owners are otherwise prevented from double-dipping as part of the proposed amendments – meaning that if they receive financial assistance from the Government and subsequently recover from another source/s an amount in relation to the use or installation of the non-compliant cladding, they are required to repay the Government.

Concerns for the Industry - A Liability Perspective

While we can see the clear consumer benefits arising from the Bill, the Bill appears to create a myriad of potential problems for builders and consultants who were previously involved in projects with non-compliant cladding.

Anticipated delays

From all the talk of “getting in there to fix the problem” – it appears that the cladding crisis will not be over for many years.

Noting with the plethora of current cladding related demands, and now anticipated further wave of proceedings, delays in recovery proceedings appear inevitable.

Indeed, we anticipate delays will arise from pressures on the Courts and the Victorian Civil and Administrative Tribunal due to the sheer number of claims, and also due to the limited number of experts (such as fire engineers) able to provide expert evidence in cladding related disputes. In circumstances where each case “turns on its facts”⁶ – expert evidence is crucial to resolving cladding disputes.

Liability of consultants and suppliers

While we suspect the primary target of the exercise of rights and remedies by the Crown is builder, the ability to recover against “any person in relation to the installation or use of any non-compliant or non-conforming external wall cladding product, or other building work, that required the cladding rectification work to be undertaken”⁷ clearly extends the scope of potential targets of anticipated recovery proceedings. This approach is consistent with what we have seen from a liability perspective in terms of claims against builders and consultants more broadly.

Further, the scope of the right to recover may possibly also extend to claims against the suppliers or manufacturers of the products – assuming that is, that the word “use” in the Bill is broad enough to extend to that camp. To that end, neither the Bill nor the explanatory memorandum provides guidance on the term.

Insurance implications

Consultants, particularly registered building surveyors, will be aware of the difficulties of obtaining professional indemnity insurance free from exclusions relating to cladding. To overcome the problem (and in an effort to avoid the construction industry grinding to a dramatic halt), from 12 August 2019 the Victorian Building Authority (VBA) accepts professional indemnity insurance policies containing exclusions for cladding.

In the lead up to the change, many building surveyors sought to “bulk notify” circumstances which might give rise to a claim under their then current policies.

Many brokers assisted their clients to cross-reference notifications with specific buildings, identifying the specific cladding material used, and concerns raised by the VBA as part of its cladding audit.

Where less specific bulk notifications were made, some insurers have reserved their positions regarding the treatment of the notifications as a circumstance which might give rise to a claim. It is therefore possible that if the Crown subrogates claims against:

• builders, who look to apportion liability to consultants; or
• builders and consultants jointly,

in some instances, there may be no insurance cover available for the claims.

On the whole, perhaps the only real “winners” from the Bill are lawyers, who will no doubt be kept busy in the months and years to come.