The NSW Court of Appeal allows an appeal from an Owners Corporation concerning whether combustible cladding installed on its building breached the Building Code of Australia and therefore the statutory warranties under the Home Building Act 1989 (NSW).
As the owner of a 28-storey building located in Parramatta, New South Wales (Building), the Owners – Strata Plan No. 92450 (Appellant) commenced proceedings against the developer, JKN Para 1 Pty Ltd (JKN), and head contractor, Toplace Pty Ltd (Toplace) (collectively Respondents) in respect of allegedly combustible cladding installed on the Building.
Relevantly, the Appellant contended that the cladding, in this case Vitrabond FR, installed on the Building, did not comply with the BCA, and as such, was in breach of the statutory warranties provided for under s18B of the HBA.
The parties accepted that the cladding did not comply the Deemed-to-satisfy (DtS) provisions of the Building Code of Australia (BCA) as no test result under AS1530.1 was or is available to establish that Vitrabond FR cladding is not combustible. The issue was whether the cladding otherwise complied with the BCA through an alternative solution.
For more details regarding the background, see our previous article here.
Decision at First Instance
Although His Honour found that the cladding was not compliant with the BCA by way of alternative solution, that was because the Appellant had not established that an alternative solution was unavailable either prior to issuance of the construction certificate or now, as part of its evidence.
While the Court ultimately found the cladding did not comply with the DtS provisions of the BCA, and otherwise would not have been compliant by way of any alternative solution pathway, it did not mean that the cladding was therefore composed of material “not good and suitable for the purpose for which the cladding is used”, or that the cladding resulted in the Building being “not reasonably fit for occupation as a dwelling”. As such, the Respondents did not breach the statutory warranties under the HBA.
The Appeal Decision
There were two parts to the appeal, namely whether the primary judge erred:
- in finding that the Respondents did not breach the statutory warranties in s18B(1)(c), or alternatively, s18B(1)(e) or (f) of the HAB by virtue of the installation of the cladding; and
- in concluding that the Appellant was not entitled to damages for reinstatement on the basis that they had failed to establish that an alternative solution “could not then or now be performed”.
In relation to the first issue, the Respondents accepted (in oral argument) that the statutory warranty in s18B(1)(c) had been breached as the cladding did not comply with the DtS provisions, and no alternative solution was prepared before the construction certificate was issued.
The focus then turned to the second issue. The Court of Appeal confirmed that the burden of proof lies with the claimant to establish the loss. Ordinarily, the correct measure of damages in cases involving buildings built on land in accordance with a building contract, plans and specifications, is, prima facie, reinstatement. As such, and in considering various relevant authorities, the Court of Appeal re-emphasised the fact that in the case of breach of contract claims, the party in breach has the onus of displacing that prima facie rule.
The Court of Appeal found that "compliance with the performance requirements of the BCA does not distinguish between substantive and purely formal breach[es]". As it was already established that the Respondents did not comply with the BCA and breached the statutory warranty at section 18B(1)(c), it was found that the Appellant was not required to go further and as such, it was a matter for the Respondents to produce evidence that an alternative solution was available prior to the issue of a construction certificate or was currently available. As a result, the Court of Appeal found that the Respondents did not discharge the evidentiary onus of establishing that the costs of rectification (i.e. full removal and replacement) would be unreasonable.
The Court of Appeal noted that the failure of the Respondents to prepare an alternative solution for the cladding was not a mere formal or technical breach which did not warrant reinstatement damages. By installing cladding that did not meet the performance requirements of the BCA in relation to fire resistance, the Respondents provided a building that fell below the minimum standards for public safety, which they were contractually obligated to provide. In allowing the appeal, the Respondents were ordered to pay the reasonable cost of removal and replacement of the cladding.
While the decision at first instance may have provided some glimmer of hope for construction professionals and their insurers involved in cladding litigation, that now has been dispelled. The decision is a reminder of the nature of evidence parties defending cladding claims will likely need to adduce if they are to try and successfully argue for a full alternative solution. The attendant costs of doing so will undoubtedly be significant. However, whether that evidence is able to include effective signoff from a certifying authority, the Fire and Rescue NSW and/or the NSW Cladding Taskforce remains to be seen.