NSW Court of Appeal Decision: Onus on Builders to satisfy Performance Requirements for Cladding
The Court of Appeal in New South Wales has ruled decisively that a failure by a Builder to obtain a certified Alternative Solution to allow combustible cladding to be installed on a building, prior to the issue of the Construction Certificate, is a substantive breach of the Building Code and statutory building warranties implied into the construction contract. It is not merely a ‘de minimis’ or technical breach.
Further, in a decision that is likely to be applicable in other jurisdictions in Australia, the Court of Appeal ruled that the onus to prove that an Alternative Solution could have been formulated and approved prior to the issue of the Construction Certificate was on the Builder, and not the subsequent owners of the building.
If there is no Alternative Solution, then the performance requirements of the Building Code will not have been met and the Builder, and potentially other construction practitioners are likely to be liable for the full replacement costs of the combustible cladding.
The case decision is Owners SP92450 v JKN Para 1 Pty Ltd [2023] NSWCA 114. In the case, the Owners Corporation of an apartment building known as “The Rise” in Parramatta were unsuccessful in their claim for full reinstatement costs (ie replacement of combustible cladding) at a lower court, and the matter was taken to the New South Wales Court of Appeal. On appeal, the Builder / Developer was unsuccessful, with the decision in the lower court overturned.
The Deemed to Satisfy provisions of the Building Code mandated the building’s external walls to be non-combustible, in accordance with the Australian Standards test of combustibility. Another pathway to compliance would be to satisfy the performance requirements of the Building Code with an Alternative Solution to allow acceptance of the external cladding product. However, there was no evidence of the formulation, assessment and certification of an Alternative Solution either prior to the issue of the original building approval (the Construction Certificate) or prior to completion.
In summary, the building did not satisfy the performance requirements of the Building Code on fire resistance because not only did the external cladding not comply with the “Deemed to Satisfy” provisions, as well, no Alternative Solution was prepared and approved prior to the issue of the Construction Certificate as a secondary pathway to compliance. Consequently, the building work involving the installation of this cladding was in breach of the statutory building warranty in section 18(1)(c) of the Home Building Act 1989.
A key question in the case to be determined was in relation to the correct measure of damages for breach of a statutory building warranty. During the appeal proceedings, the Builder conceded there had been a technical breach of the warranty as to fitness of materials (section 18(1)(c)) but maintained that this was not a substantive breach that would justify full replacement or reinstatement compensation.
In the seminal case decision of Bellgrove v Eldridge [1954] HCA 36, the High Court held that the measure of damages for compensating an owner for defective building works is the cost of rectifying the defects, subject to the rectification being necessary to produce conformity with the contract, and it is a reasonable course to adopt.
In other words, the test is whether the scope of rectification and the cost is what is “necessary” and “reasonable” to place the owner in the position they should have been in if the contract had been properly performed.
The Builder argued that a rectification involving full replacement and reinstatement of the cladding was not reasonable because “the as-built building, without modification, was capable of being certified at the relevant time by way of an alternative solution.”
Also, the Builder argued that the Owners Corporation bore the onus of proof to demonstrate that an Alternative Solution could not have been prepared and accepted prior to the issue of the Construction Certificate, or now, and that Counsel for the Owners had acknowledged this in the proceeding (the Owners denied this).
Finally, it was argued that the breach of warranty was merely a formal or technical non-compliance (given the possibility of an Alternative Solution) and not a substantive breach leading to significant loss and damage.
In the end, the Court of Appeal rejected the Builder’s arguments. It was held that the Respondents did not establish that an Alternative Solution would have been available prior to the issue of the Construction Certificate or was now available. The Court said it was the Builder’s onus to demonstrate this, not the Owners Corporation’s.
It was found that the Builder’s failure to prepare an Alternative Solution in respect of the cladding was not merely a formal or technical breach which did not warrant reinstatement damages. In fact, it was a substantive breach that meant the building did not meet minimum standards of fire safety, thus placing owners and occupants at risk.
Some key findings of the Court of Appeal were, citing from the Reasons:
“Having established that the Respondents did not comply with the Building Code of Australia, the Owners Corporation were not required to go further by proving that the Respondents could not have complied by acting differently with respect to an alternative solution.” [Paragraph 81].
Disagreeing with the Judge in the court below that the cladding issue was only a ‘de minimus’ technical breach that did not warrant reinstatement damages being awarded, the Court of Appeal opined in the judgment:
“By installing cladding which did not comply with the performance requirements of the Building Code of Australia, the Respondents provided the Owners Corporation with a building which did not meet the minimum standards for public safety.” [Paragraph 107].
This is a Lovegrove and Cotton publication, authored by Justin Cotton. Justin has more than 20 years of construction lawyering.
For related articles on cladding please see:
How to Respond to Cladding Rectification Notices and Orders in Victoria
Appealing cladding related building notices under the Building Act 1993 (Vic)
Cladding safety Victoria funding and demands for cladding regularisation – the interplay
Disclaimer
This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact a construction law firm. The experienced team at Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute.
Lovegrove & Cotton Cladding Compliance and Regularisation Lawyers
For thirty years, Lovegrove & Cotton have provided advice and represented property owners, builders, and building practitioners in cladding regularisation matters. Please see the cladding section page for more information.
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