Supreme Court endorses the finding of the NSW Civil and Administrative Tribunal (Tribunal) Appeal Panel’s decision that Biowood installed on a residential building in Ryde constitutes in an “undue risk” of fire under the Building Code of Australia and is otherwise in breach of statutory warranties under the Home Building Act 1989 (NSW).
The background and decision at first glance
The Owners – Strata Plan No. 92888 (Owners), the registered proprietor of the common parts of a building located at Lardelli Drive, Ryde, NSW (Building), brought a claim against the builder, Taylor Construction Group Pty Ltd (TCG) and the developer, Frasers Putney Pty Ltd (Frasers) (collectively, the Builders), alleging that the Biowood cladding that had been installed on the Building posed an undue fire risk.
On 15 November 2019, the Tribunal determined that the Biowood1 cladding attached to the Building did not comply with the Building Code of Australia (BCA)2 as it constituted an “undue risk” of fire, and was therefore in breach of statutory warranties implied into residential building contracts under the Home Building Act 1989 (NSW) (HBA). The Tribunal ordered the Builders to remove the Biowood attachments, and to replace them with attachments that were compliant with codes, standards and statutory warranties (Tribunal Decision).3
The Builders subsequently appealed the Tribunal Decision.4 On 4 August 2020, the Tribunals’ Appeal Panel (Appeal Panel) issued its decision (AP Decision). In dismissing the appeal, the Appeal Panel concluded that the use of Biowood cladding on the Building:
- constituted an “undue risk” of fire spread under the BCA; and
- in applying a “common sense test” involving a consideration of the purpose and type of the Buildings), was not fit for purpose under the HBA.
The Builders subsequently sought leave to appeal the AP Decision from the NSW Supreme Court (Supreme Court). On 18 November 2021, the Supreme Court handed down its decision, which we discuss below. 5
The decision on appeal
Leave to appeal
The Court began by considering whether the Builders should first be granted leave to appeal the AP Decision.
Her Honour concluded that leave ought to be granted as the appeal raised “issues of principle that may have some broader application to other cladding cases” [at 112], in addition to questions of law including whether the Appeal Panel identified and applied the correct legal test, matters of evidence and whether the facts fell within the ambit of the BCA.
The Court then went on to consider the grounds of appeal.
Grounds of Appeal
The Builders raised the following six grounds of appeal:
- whether the Appeal Panel erred in its formulation of the test when determining whether Biowood constituted an “undue risk” of fire spreading via the facade of the Building;
- whether the Appeal Panel erred in its application of the proper test to the facts, giving rise to an incorrect conclusion;
- whether the Appeal Panel erred in its application of the BCA to the facts, giving rise to an incorrect conclusion;
- whether the Appeal Panel found the existence of “undue risk” in the absence of evidence;
- whether the Appeal Panel erred in finding that the use of “Biowood” breached the statutory warranties in the HBA in the absence of evidence and/or by application of the errors identified in grounds 1 to 4 above; and
- whether the Appeal Panel failed to provide adequate reasons.
Ground 1 - Biowood as an “undue risk” of fire spread
On the issue of whether the Biowood cladding was non-compliant with the BCA, the Court considered cl 2.4(a)(iii) of Specification C1.1 of the BCA, which provided that a combustible material could be used as a finish to an external wall if certain conditions had been met – the most relevant condition being that the material did not constitute an “undue risk” of fire spread via the facade of the building.
It was not a contentious issue that Biowood is considered a combustible material. Accordingly, the primary issue in dispute was whether the cladding constituted an “undue risk” and (as a precursory matter), the proper test involved in determining the answer to that (noting that the BCA does not define the phrase).
The Builders argued that the BCA mandated a test that the Owners did not adopt when determining that the cladding presented an “undue risk” of fire. That test, according to the Builders, involved a “comparative multi-factorial exercise which asks whether Biowood cladding presents an undue….risk….having regard to at least the following factors:
a) combustibility of material, that is, not that the material is combustible but how it is combustible and to what extent;
b) the material’s rate of flame spread; and
c) other factors that ameliorate or exacerbate risk.”6
The Owners on the other hand, insisted that the phrase “undue risk” was to be interpreted according to its natural and ordinary meaning, and not in any special or unusual sense.7 Further, that the test involved a question of fact (as opposed to a question of law) and accounts for matters such as “the combustibility of the material, its location, the gravity of consequences in the event of fire spread, and issues of degree, possibility and likelihood”.8
In consideration of those arguments, Henry J indicated that the word “risk” referred to the possibility of fire spread occurring via the external facade of the Building, consistent with the ordinary meaning of the word.9 The word “undue” referred to “unwarranted or excessive”, in accordance with its usual meaning (as opposed to an unusual or technical meaning).10
Accordingly, in the case of Biowood cladding on the Building, to determine whether the risk was undue (or unwarranted or excessive), Her Honour was of the view that since the BCA did not specify the precise parameters, it involved an evaluative exercise taking into account the circumstances and context in which the cladding was used on the Building, the possibility of fire spread eventuating, the gravity of that risk and a range of other factors.11
In answering these questions, the Court ultimately took the same view as the Appeal Panel, determining that the cladding did pose an “unwarranted or excessive risk” of fire, and as such, did not comply with the requirements of the BCA.
Grounds 2 & 3 – Application of the proper test / BCA to the facts
The Builders approached Grounds 2 and 3 of the Appeal by grouping them together. In response, the Court noted that such grouping made it difficult to properly discern what the alleged errors of law were in respect of those grounds, and also agreed with the Owners’ submission that the way in which grounds 2 and 3 were framed did not identify a question of law but, rather, merely asserted the existence of an error.
Further, the Court viewed that the grounds as formulated did not adequately identify the legal rule, test or part of the BCA that should have been employed but was misapplied to the facts, nor identify the questions of law that were the subject matter of the grounds.
Ground 4 – Finding of “undue risk” in the absence of evidence
The fourth ground of appeal saw the Builders submit that there was no evidence to support findings that:
a) there is a risk that burning Biowood supports fire spread; and
b) Biowood would support fire spread between levels along the façade of the Building.
In disagreeing with those submissions, the Court indicated that in addition to the fact that Biowood is a combustible material, the evidence provided by both the Builders’ and Owners’ experts in the matter supported those findings.12
Relevantly, Mr Nathan Halstead (for the Owners) indicated that the risk of fire spread arises from both the Biowood being heated by the burning of adjacent Biowood and the original source of fire, while Mr Etienne Jordaan (for the Builders) suggested that a low level of fire spread could occur (although he considered that Biowood is unlikely to support rapid fire spread).
Ground 5 - Statutory warranties under the HBA
On the issue of whether the use of the Biowood cladding was in breach of implied residential building contract warranties, the Court considered ss 18B(b), (c) and (f) of the HBA, which relevantly provide that the following warranties are implied into every residential building contract:
(b) all materials supplied by the builder will be good and fit for purpose;
(c) building work will be done in accordance with the law; and
(f) building work and any materials used will be reasonably fit for purpose.
The Court determined that the outcome of this ground of appeal was intrinsically linked with the finding of “undue risk”. As such, given the Court’s finding that the Biowood cladding did pose an “undue risk” of fire, the Court again favoured the Appeal Panel’s decision on the issue of implied warranties, finding that the cladding was not fit for purpose nor in accordance with relevant laws.
Ground 6 – Provision of adequate reasons
Finally, in determining whether the Appeal Panel failed to provide adequate reasons13 for reaching its decision, the Court found that such reasoning was discernible when read as a whole and applying a “beneficial construction”.14 Further, that the Appeal Panel’s acceptance of the NCAT Decision was made,
“having regard to the applicable codes and standards, key findings, the evidence in support, other matters relevant to the evaluative exercise of assessing whether the risk was undue (such as location, extent and relationship of the materials to the buildings, the ignitability and speed of flame spread), the [Builder’s] submissions as to why the Senior Member had erred, and the Appeal Panel’s responses to those submissions.”15
Her Honour also noted that the Court’s own role was not to determine the optimal level of detail required in reasons for a decision but, rather, the minimum acceptable standard. Accordingly, since the Appeal involved only a question of law, reasons for a finding of fact could be treated less elaborately than those on an issue involving a question of law or mixed fact and law.16
Final decision
The Court ultimately concluded that the Builder and the Developer failed in establishing any grounds of appeal against the Tribunal Decision or the AP Decision. As a result, the appeal was dismissed on all six grounds with costs to the Owners. We will have to watch this space on whether any further appeals are forthcoming.
Implications for you
As we have previously indicated, the consequences of the decision could have a significant impact on the construction industry where Biowood is widely used as an external cladding. It is certainly a win for owners’ corporations, and you would expect that the decision will be relied on in relation to similar cladding claims. Although, of course, the Court was looking at whether there were errors of law and fact on appeal, rather than hearing the whole matter again.
If any contractors and consultants involved in projects where Biowood has been designed, specified, installed and/or certified had not already notified those projects pending this appeal, they had better do so now.
For insurers, the previous Tribunal decisions should have already put them on notice to consider the wording of their cladding exclusions to ensure that they are sufficient to pick up non-ACP cladding, such as Biowood.
1 Biowood is a combustible material made from 70% reconstituted timber and 23% polyvinyl chloride (or “PVC”).
2 The 2014 version of the BCA was applicable to the Building at the time.
3 The Owners Strata Plan No 92888 v Taylor Construction Group Pty Ltd and Frasers Putney Pty Ltd [2019] NSWCATCD 63 at [167].
4 Taylor Construction Group Pty Ltd v The Owners – Strata Plan No 92888 [2020] NSWCATAP 163. See also Barry Nilsson’s article “Separating the Biowood from the ACP's” dated 11 August 2020, which summarised the AP Decision.
5 Taylor Construction Group Pty Ltd v The Owners – Strata Plan No 92888 [2021] NSWSC 1315.
6 Ibid at [127].
7 Ibid at [130].
8 Ibid at [131].
9 Ibid at [139].
10 Ibid at [140].
11 Ibid at [151].
12 Ibid at [197].
13 Notably, s 62 of the Civil and Administrative Tribunal Act 2013 (NSW) provides that the NCAT is to provide reasons for its decision on request of a party. The Court specifically considered s 62(3), which states what such reasoning must include.
14 Ibid at [174].
15 Ibid at [181].
16 Ibid at [173].
