A consideration of the recent decision of the NSW Civil and Administrative Tribunal and subsequent Appeal Panel regarding the use of Biowood cladding on a building in NSW.
While the insurance and construction industries and indeed the public are now familiar with combustible cladding, particularly aluminium composite panels (ACP), the focus to date has largely been on ACPs with a polyethylene core - noting that the NSW Government banned all ACPs containing more than 30% polyethylene core in August 2018.
On 15 November 2019, the NSW Civil and Administrative Tribunal (Tribunal) threw more wood on the fire for the building and construction sector by determining (in The Owners – Strata Plan No. 92888 v Taylor Construction Group Pty Ltd and Frasers Putney Pty Ltd [2019] NSWCATCD) that Biowood panels (which according to the Biowood website, are made up of reconstituted timber and PVC), present an undue risk of fire spread and therefore are not fit for purpose. On 4 August 2020, the Appeal Panel subsequently issued its decision upholding the Tribunals’ original decision.
We set out below a summary of the Tribunal’s and the subsequent Appeal Panel’s decisions together with consideration of the potential implications moving forward.
Background
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), alleging that the Biowood cladding that had been installed on the Building posed an undue fire risk.
The Owners asserted that the Biowood cladding was combustible and was not compliant with the Building Code of Australia (BCA) and Australian Standards – noting it was a Type A Construction1. Therefore, the Biowood cladding breached the statutory warranties pursuant to section 18B of the Home Building Act 1989 (NSW) (HBA).2
Relevantly, and unlike Lacrosse Tower, there had been no fire incident, which led to the litigation.
The issues for determination by the Tribunal were:
- whether the Biowood, as installed, is compliant with applicable codes and standards?
- even if it is compliant, is the Biowood, as installed, a material which is fit for purpose?
In terms of issue 1, the Tribunal looked specifically at Clause 2.43 of the BCA Specification C1.14 and Clause 7 and AS/NZ 1530.3.
Clause 2.4 of the BCA requires that there be no undue risk of fire spread via the façade of the building. The Owners submitted that even if it could be argued that Biowood had a relatively slow rate of fire spread, that did not preclude it from being an undue risk of fire spread. Using Lacrosse Tower as an example, the applicant noted that that building was found to have a low rate of flame spread yet was found to be dangerously flammable.
TCG and Frasers (the respondents) insisted that consideration should be made of CSIRO’s publication entitled “Fire safety guidelines for external walls – A guide for high-rise construction in Australia” when assessing Clause 2.4 and 3.1 of Specification C1.1 of the BCA. In their view, Biowood was compliant with the BCA as it passed one of the tests required by CSIRO.
However, the Tribunal ultimately concluded that even though there is no evidence of a large scale fire testing of Biowood, “it is indisputably combustible and any risk that it will support fire spread between levels presents an undue risk”.
The respondents also submitted that the façade of the building meant the external wall only and therefore should not include an attachment to the external wall itself. The Tribunal did not accept that analysis, expressing the view that it “defies common sense”.
The Tribunal relied on the “common sense test” referred to in the Lacrosse Tower litigation. In doing so, it stated that “it must consider the purpose and type of building. The building is a multi-storey residential building of Type A construction. The common-sense test dictates that it is illogical to stipulate that the external walls must not be combustible and then allow them to be covered in combustible attachments”.5
The Tribunal, in rejecting the respondents’ argument, held that:
“combustible Biowood used as an attachment to a non-combustible external wall presents an undue risk of fire spread. As such, the Biowood attachment diminishes the fire resistance of the external walls. The evidence adduced by the applicant is that Biowood is a material that has the risk of permitting fire spread via the façade as it will allow fire spread from compartment to compartment via the exterior of the building”.6
The Tribunal therefore concluded that Biowood was not fit for purpose when used as an attachment to the Building. The use of Biowood in the Building therefore amounted to a breach of the statutory warranties in section 18B(1)(b), (c) and (f) of the HBA and was not compliant with the BCA.
The Tribunal ordered the respondents rectify the breach of the statutory warranty by removing the Biowood cladding and replacing it with a façade that complied with the relevant codes, standards and statutory warranties.
The Tribunal otherwise did not accept the respondents’ alternative argument which asserted that as a result of the issuance of the interim occupation certificate (IOC), there was an irrefutable presumption of law and is conclusive evidence that the Building complied with all relevant codes. The Tribunal concluded that it was not bound by the administrative action of a principal certifying authority issuing an IOC. If it did, the certificate “would undermine the legislative purpose of the HBA”.7
The Respondents subsequently appealed the decision.
Tribunal Appeal Panel decision
On 4 August 2020, the Appeal Panel8 issued its decision – noting it was required to determine, among other things, whether the Tribunal erred:
- in applying an improper construction of Part 4A of the Environmental Planning and Assessment Act 1979 (NSW) (EP&A) specifically that on the issuance of an IOC, the EP&A does not create an irrebuttable presumption that the building is compliant with the BCA;
- in applying an improper construction of clause 2.4(a)(iii) of the BCA specifically that any risk of fire is an undue risk of fire and by assigning no meaning to, or by disregarding, the word “undue” found in that clause;
- in applying the wrong legal test to the facts specifically by way of reversing the onus of proof and requiring TCG and Frasers to prove that there was no undue fire risk for the purposes of clause 2.4 of the BCA;
- in finding as fact that the Biowood attachment diminishes the fire resistance of the external walls in the absence of evidence of that fact;
- in finding that the Biowood attachment presented an undue fire risk;
- in applying the common sense test incorrectly with respect to sections 18B(1)(b) and (f) of the HBA; and
- in finding that the Biowood material was not reasonably fit for the specified purpose for which it was used.
The Appeal Panel rejected all of the grounds of appeal.
The Appeal Panel determined that the issue of an IOC does not create an irrebuttable presumption that the warranties under the HBA have been complied with. This is for the reason that the IOC does not preclude a claim based upon the building not complying with the BCA. In rejecting these grounds, the Appeal Panel found that such a claim does not constitute a challenge (either directly or collaterally) to the validity of the IOC.
In terms of clause 2.4(a)(iii) of the BCA, the Appeal Panel observed that it intended to refer to a level of risk of fire spread via the façade of the building, which constitutes non-compliance with the BCA because it “impairs fire resistance” (being the phrase utilised in the heading of clause 2.4). Accordingly, the Appeal Panel decided that the Tribunal’s findings did not amount to an error of law.
The Appeal Panel agreed with the Owners submissions that the Biowood used as an attachment to a non-combustible external wall presents an undue risk of fire spread and as such, diminishes the fire resistance of the external walls because it was at risk of permitting fire spread via the façade,
The Appeal Panel determined that there was sufficient evidence was provided which led the Tribunal to find that there was an undue risk of fire spread given that the Biowood is a combustible material and has a rate of fire spread and Mr Halstead’s report indicated that the Biowood extends up the façade in numerous locations and in many cases, extends over three storeys.
In rejecting the matters raised in respect of the HBA, the Appeal Panel found that the Tribunal was correct in determining that the Biowood did not comply with the provisions of the BCA and therefore:
- upheld the Tribunal’s view that a breach occurred pursuant to section 18B(1)(b) of the HBA;
- upheld the Tribunal’s view that a breach occurred pursuant to section 18B(1)(f) of the HBA as it was reasonable for it to infer that the contract was a standard design construct contract and as such, could conclude that it was made known to TCG and Frasers that the purpose for the use of the Biowood was as a cladding for a residential building; and
The Appeal Panel noted in the context of the HBA that:
“The Appellants were the builder and developer of a multi-storey residential tower. There is an air of unreality to a submission that the builder, entering into a contract identified by its front page as a design and construct contract, was not thereby informed of the purpose for which all of the building work which it contracted to carry out was intended, that is a multi-storey residential tower, or did not know the purpose for which material which it installed on the façade of that tower was intended”.
The Appeal Panel subsequently dismissed the appeal and affirmed the orders of the Tribunal. Whether the parties seek to appeal to the NSW Supreme Court remains to be seen.
Implications
Notifications
The decision at first instance and on appeal is obviously another wake up call for the construction and building industry and has potential far reaching consequences. On the back of this decision, insurers can expect an influx of new notifications from contractors / consultants involved in the construction of buildings involving Biowood cladding – noting that according to the New Daily article, “[t]housands of buildings across the country use the [Biowood] material”.9 There will also likely be clarifications sought from insureds/brokers regarding previous cladding notifications.
The precise wording of prior notifications made will likely dictate whether they are broad enough to include Biowood. By way of example, if the notifications were said to be limited to projects where ACPs, such as Alucobond or Alucobest, were specified or used, then an insurer will have grounds to push back on any claim by the broker that those notifications ought to cover Biowood as well. However, if the notifications can be said to be limited to projects where, say, external cladding was specified or used, then the contrary view may prevail.
It remains unclear exactly what Biowood product was the subject of the proceedings – noting that the decision indicates it was comprised “70 per sent reconstituted timber and 23 per cent PVC”. What the remaining 7% constituted is unclear or how different ratios of timber and PVC might alter the combustible nature of the product. The Appeal did not elaborate on that.
Cladding exclusions
One issue that insurers should look at, in light of this decision, is the adequacy of their cladding exclusions.
Insurance policies, particularly PI policies, in recent times tend to include a cladding exclusion as standard. Some wordings are fairly broad, for example, they exclude “all liability in connection with or arising out of or any building material that is non-conforming or non-compliant with the National Construction Code, the Building Code of Australia, the Australian Standards or any other applicable laws or regulations”.
On the back of this case, there is certainly an argument that a broadly worded exclusion like the above would likely operate to exclude claims involving Biowood. However, we will need to see the actual decision before coming to a concluded view on the issue.
Having said that, there are narrower exclusions used in the market which seek to exclude claims arising only from the use of non-compliant ACPs, and yet other exclusions which just exclude ACPs with a polyethylene core. Insurers should therefore review the wording of their cladding exclusions to satisfy themselves that their exclusions will be sufficient to pick up non-ACP cladding claims.
1The National Construction Code (NCC) sets out the building performance requirements to be met for each class of building. The NCC considers many elements of the building construction including external walls. External walls can have a number of components. Cladding can be used as a component which forms part of the load bearing wall, or as an attachment to a load bearing wall. To determine the fire resistance requirements of an element of a building you must know the class of the building and its rise in storeys. Buildings come in classes from 1 through to 10A. The matrix is a combination of the class of the building and its rise in storeys resulting in the type of construction (A, B or C). Type A, B and C each have their own fire resistance requirements. For buildings requiring Type A fire-resisting construction the NCC Deemed to Satisfy addresses two common cases. Firstly, the cladding forms part of the external wall (part of the wall but more than simply an attachment) - in this case the cladding must be non-combustible in accordance with the relevant Australian Standards (AS 1530.1:1994). Secondly, the cladding is an attachment to an external wall. The external wall is required to meet the specified fire resistance level (FRL). In this case advice should be sought from a specialist to determine if the cladding complies.
2The claim was pursued on the basis that the Biowood cladding was a “major defect”, thereby attracting a 6 year limitation period.
3Clause 2.4, Attachments not to impair fire-resistance provides that:
“(a) A combustible material may be used as a finish or lining to a wall or roof, or in a sign, sunscreen or blind, awning, or other attachment to a building element which has the required FRL if—
(i)the material is exempted under C1.10 or complies with the fire hazard properties prescribed in Specification C1.10; and
(ii)it is not located near or directly above a required exit so as to make the exit unusable in a fire; and
(iii)it does not otherwise constitute an undue risk of fire spread via the facade of the building;
(b)The attachment of a facing or finish, or the installation of ducting or any other service, to a part of a building required to have an FRL must not impair the required FRL of that part”.
4That should read Specification C1.10 and clause 7 relates to the relevant fire hazard properties.
5[At 156].
6[At 153].
7[At 119].
8Taylor Construction Group Pty Ltd v The Owners – Strata Plan No 92888 [2020] NSWCATAP 163.
9 https://thenewdaily.com.au/finance/property/2019/12/05/biowood-cladding-unsafe/
