Australian regulation of building products, safety and compliance has seen recent comprehensive reform following London’s tragic Grenfell Tower fire in 2017 and several domestic incidents including the 2014 Lacrosse Tower cladding fire in Melbourne and high-profile structural failures on Sydney’s Opal Tower and Mascot Towers projects. Given constitutional competences as between the Commonwealth and the states, no uniform national response has been possible despite the commitment by the various levels of government to maximise consistency of the country’s overall response. Differential obligations now placed nationally upon construction and design professionals, and indeed upon their insurers, will no doubt assume greater importance in coming years.

Building Confidence report

In initial response to the Grenfell tragedy, a number of states imposed blanket bans on all cladding products with a polyethylene core greater than 30 per cent, with broader product regulation otherwise varying significantly between the different jurisdictions. Each of the states enacted subordinate legislation to require the audit of buildings to identify the presence of combustible cladding and to assess associated risk. As a broader strategy, the Building Ministers’ Forum (BMF) has since adopted the 2018 Shergold-Weir Building Confidence report. States and territories are now considering how recommended models may be adopted within their respective regulatory systems for:

• A National Registration Framework for design and building practitioners;
• The ongoing education of building practitioners on applying the National Construction Code (NCC);
• A nationally-consistent pathway for building surveyor (certifier) registration;
• How fire authorities participate in building approval processes; and
• Registration requirements for practitioners installing and certifying fire safety systems.

Queensland’s “chain of responsibility” legislation is one initiative yet to be replicated in other states. Part 6AA of the Queensland Building and Construction Commission Act 1991 establishes a chain of responsibility for non-conforming building products, with each industry participant responsible for their individual contribution to the final building product’s incorporation in a building. The Act covers importers, manufacturers, suppliers, builders, tradespeople and installers (and extends to the executive officers of companies in the chain). A primary duty is imposed on all in the chain of responsibility to, so far as reasonably practicable, ensure that a product incorporated in a building is not a “non-conforming building product” for an “intended use”. Non-conformance is defined in terms of expected safety and performance in accordance with any represented standards, and “intended uses” are those uses for which the product is intended, or is reasonably likely to be used in association with a building.

"Once-in-a-generation reform”

In comparison, New South Wales (NSW) has embarked upon “once-in-a-generation reform of the building and construction industry” by its Construct NSW strategy, adopting a legislative program far more comprehensive and restrictive than those presently being pursued in other states. The new provisions presently apply only to class 2 residential or mixed-use developments, however the NSW government has indicated an intention to expand the reforms to other classes of construction in the future.
The Residential Apartment Buildings (Compliance and Enforcement) Act 2020 (NSW) gives the Building Commissioner very broad powers to investigate and to take action against defective building work. Occupation certificates may not be issued unless the developer lodges an “expected completion notice” at least six months in advance of expected completion, so as to allow the Building Commissioner to identify and investigate risky projects (and indeed, risky developers or builders).
The Design and Building Practitioners Act 2020 (NSW) (DBP Act) is set to drastically reshape the legal landscape for the construction industry in New South Wales. Compulsory registration schemes have been introduced for professional engineers, design practitioners and building practitioners, while compliance declarations by registered practitioners are now required for “regulated designs” for “building elements” or for a performance solution under the NCC. “Building elements” are defined broadly and include fire safety systems, waterproofing, load-bearing elements and components forming part of the “building enclosure” or shell.
The DBP Act has also introduced strict insurance requirements, subject to a range of transitional arrangements. Regulations have allayed earlier concerns by confirming that insurance need only cover liability incurred from the date of a practitioner’s registration under the DBP Act. Run-off cover for 10 years is recommended (but not mandatory) to cover potential liability arising before the long-stop limitation period provided for by the Environmental Planning and Assessment Act 1979 (NSW). These new provisions in NSW complement the existing requirement under the Strata Schemes Management Act 2015 (NSW) that developers lodge, prior to application for an occupation certificate for a building, a building bond of 2% of the build price to be held as security for rectification of any significant building defects identified in a building inspection undertaken between 15 and 18 months after completion.
The DBP Act also created a new and retrospective statutory duty of care intended to overcome the common law limitations identified by the High Court’s 2014 decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. The Brookfield Multiplex decision held that a design and construct contractor for a strata-titled serviced apartment building did not owe to the owners corporation or subsequent apartment owners any duty of care to avoid pure economic loss flowing from latent defects. The DBP Act now provides for a non-delegable and extended common law duty of care owed by anyone who ‘carries out construction work’ within the meaning of the Act. ‘Construction work’ is broadly defined, meaning that the new duty of care will be owed by builders, project supervisors and managers, designers and product manufacturers and suppliers. The duty of care is owed to each owner of the land on which the construction work is carried out, including owners corporations, individual title holders and, most importantly, all subsequent owners. Building practitioners and their insurers will need to be mindful of the various limitation periods potentially applicable to construction work which has been carried out. The applicable limitations will be further complicated by the deferred accrual of causes of action in respect of latent defects until they become manifest or are otherwise discoverable with reasonable diligence.

Responsibility for rectification costs

Commonwealth and state governments in Australia have universally disclaimed any responsibility for the costs of required rectification of buildings, including to remediate combustible cladding. Costs associated with inspecting and rectifying existing buildings are accordingly likely to lie primarily with building owners, subject to any rights an owner may have against builders or other parties associated with the building’s design, construction and approval. Pending class action litigation in respect of the Alucobond and Vitrabond cladding products is complicated by the multiplicity of parties, insolvencies and disputes as to policy response of relevant insurances.
The decision of the Victorian Court of Appeal in Tanah Merah Vic Pty Ltd & Ors v Owners Corporation No 1 of PS613436T & Ors [2021] VSCA 72 is instructive as to the apportionment of liability amongst the range of practitioners usually engaged in the design and construction of a high-rise residential development. The decision reinforces that the fundamental issue in any claim arising from combustible cladding will be whether the cladding product was inherently defective or was non-conforming only in respect of its particular application in the subject building.
Ultimate responsibility for the costs of rectifying combustible cladding on Australian buildings is accordingly far from certain. In New South Wales, the Project Remediate program offers 10-year interest free loans to fund the cost of remediating flammable cladding by owners corporations of eligible class 2 residential apartment buildings. Similarly, in Victoria, Cladding Rectification Agreements are available whereby owners corporations can fund cladding rectification works with the costs recovered from lot owners over time, in accordance with their respective lot entitlements in the scheme and as part of property rates payable in respect of their lot.

Conclusion

Since 2018, the risks posed by combustible cladding had already caused significant tightening in the Australian professional indemnity insurance market, with substantial increases in premiums and excesses, reduced policy limits and growing difficulty for building industry professionals in obtaining exclusion-free cover. It is hoped that the comprehensive legislative response by Australian states and territories will encourage insurers to lift exclusions on PI insurance and to return in force to the local market. The increased regulation and liability provisions for cladding and building products will likely see a significant improvement in local building safety, albeit at significant additional cost to industry participants and end users. Given however the disparate legislative response across the states, the issue of restoring insurers’ appetite for the Australian PI market remains a complicated one.