Legal liability for combustible cladding: have you assessed your risk?

There has been significant attention directed to the issues surrounding combustible cladding since the deadly fire in London’s Grenfell Tower in 2017. With the Queensland Government’s recently announced proposal of a complete ban on combustible cladding for all new buildings, concerns about cladding in Queensland have been brought into even sharper focus.

While the Queensland Government’s recent proposal may bring some certainty for future buildings, the question of how to deal with combustible cladding risk on existing buildings remains a live issue for building owners, body corporates and professionals alike.

What is clear is that the uncertainty surrounding the liability and insurance implications of combustible cladding is likely to lead to claims being made against stakeholders involved in construction projects containing combustible cladding.

An emerging landscape

While this remains an emerging litigation space, combustible cladding has already come before the courts in a number of cases.

For example, one case dealing with liability for a fire caused by combustible cladding has already been decided by the Victorian Civil and Administrative Tribunal, with a builder and various consultants being ordered to pay significant sums of money.[efn_note]Owners Corporation No 1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286[/efn_note]

In another Victorian case, a builder successfully argued against the regulator that it could not be directed to carry out rectification works in relation to combustible cladding identified on various completed buildings.[efn_note]LU Simon Builders Pty Ltd & Ors v Victorian Building Authority [2017] VSC 805[/efn_note] This was because under the relevant legislation, builders are only required to rectify defects identified during the construction process.

There are also currently two class actions on foot in the Federal Court against manufactures of combustible cladding. These proceedings are being conducted on behalf of building owners seeking compensation for the costs of replacing combustible cladding.[efn_note]Federal Court proceeding NSD215/2019, The Owners – Strata Plan 87231 V 3a Composites GMBH & Anor and Federal Court proceeding NSD940/2019, The Owners – Strata Plan No 91086 V Fairview Architectural Pty Ltd ACN 111 935 963[/efn_note]

It is clear these cases are likely to be the first of many to come before the courts in relation to combustible cladding.

Issues to consider

Given the increased likelihood of litigation and claims being made, there are a number of potential issues that building owners, body corporates, builders and consultants such as architects, engineers, certifiers and surveyors should be aware of.

A key issue for all stakeholders to consider will be where potential liability for combustible cladding lies. This question is likely to turn of the facts of each matter, and in many cases, it may be that liability is apportionable between a number of parties.

Stakeholders should also be aware that in some cases determining liability may also be complicated by significant delays between the instillation and discovery of combustible cladding. This may give rise to limitation of action issues.

The critical issues for professionals to consider will be:

• assessing potential exposures by determining whether they have been involved in any projects in which combustible cladding was used;
• reviewing the scope of relevant insurance policies that may respond to claims made in relation to combustible cladding issues; and
• determining whether there are any known cladding risks that should be notified to an insurer.

Similarly, building owners and body corporates should consider:

• whether they have complied with all regulatory requirements regarding buildings that may be affected by the presence of combustible cladding ;
• whether rectification works need to be carried out to replace non-compliant cladding;
• whether any insurers or contractors need to be notified of any circumstances giving rise to a potential claim in relation to cladding; and
• whether any claims might be available through the courts or through regulators to seek compensation for any losses suffered as a result of combustible cladding.

Early consideration of these issues will be important so that parties can be prepared, should litigation become a possibility.

Assessing your risk

While the dust is yet to settle on the full extent of the liability and insurance implications of combustible cladding, what is clear that there are likely to be increasing numbers of claims being made by and against parties involved in construction projects containing combustible cladding.

Building owners, body corporates, builders and consultants should give early consideration to the potential implications of any combustible cladding in buildings or projects they are or have been involved with.

If you would like more information about these issues, please contact Rocco Russo, Graham Roberts, Miranda Klibbe, Emma Cameron or any members of our litigation and dispute resolution team on +61 7 3231 2444.