Australia’s construction industry is still dealing with disputes involving flammable building cladding and the resulting insurance implications. However, published court decisions involving cladding in Australia are rare. A recent decision in the NSW Supreme Court bucks the trend and Thomas Byrne (pictured above), principal at national law firm Barry.Nilsson., suggests the ruling could be important for insurers in the construction space.
Cladding made from aluminium composite panels (ACPs) is used to create facades and insulation. The material became notorious for potentially deadly flammability after major fires around the world, including at Grenfell Tower in London, The Torch Tower in Dubai and in Melbourne’s Lacrosse Building in the Docklands.
According to Byrne, the NSW court ruling in July confirmed that, despite Australia’s ban on ACPs with a polyethylene core of 30% or greater, it does not necessarily follow that the installation of such ACPs will be in contravention of the Building Code of Australia (BCA).
“It certainly is positive news for insurers involved in defending construction professionals and contractors,” said Byrne, who specialises in insurance law.
Polyethylene, a highly flammable thermoplastic polymer and one of the most widely produced plastics in the world, is often the composite material that forms the core of the aluminium panels used for cladding.
Byrne said this particular legal case involved whether the owner/developer and builder were liable to the owners’ corporation for allegedly designing and installing combustible aluminium composite panels (Vitrabond FR) on a building situated in Parramatta.
“If so, whether the cladding needed to be completely removed and replaced or not,” he said.
Byrne said the ruling’s main lesson was that expert evidence very often makes or breaks a case.
“In this instance, the owners’ expert evidence did not prove beyond the balance of probabilities that the cladding was combustible within the meaning of the BCA,” he said.
Byrne said that an important aspect of the owners’ expert evidence was that it relied on the testing results for a cladding product that showed the cladding installed on the building was combustible.
“However, the court found that it was unclear whether the cladding product referenced in the documentation was, in fact, the same cladding product that was installed on the building,” said Byrne. “Further, the fact that an ACP contains a polyethylene core of 30% or more does not necessarily mean that, of itself, is determinative of whether cladding is combustible and therefore does not comply with the BCA.”
Byrne detailed some takeaways for insurance companies implied by this ruling.
“Where testing has not been conducted on a cladding product (similar to this case), you would expect that the decision may well shift some of the focus back towards whether liability can be established at all rather than issues of apportionment,” he said.
Byrne said the case is also relevant for the purposes of assessing the quantification of loss and damage recoverable.
“The judge found that even if he had found the defendants liable, the owners would not have been entitled to damages for full removal and replacement in circumstances where the only breach of the BCA was a failure to undertake an alternative solution at the time of construction,” he said.
Byrne said claimants or plaintiffs will need to ensure that, where they are seeking full removal and replacement, there is expert evidence to indicate that there is no alternative solution.
“One possible downside may be that parties pursuing cladding claims will simply incur greater costs undertaking testing of cladding products / looking at an alternative solution,” he said. “Ultimately that cost may well be borne by defendants and, by extension, their insurers.”
Byrne also said the decision may have some impact on claims brought by insurers by way of subrogated recoveries.
“A matter may have been resolved without any testing being carried out on the cladding product,” he said. “Depending on the nature of the other expert evidence supporting combustibility / fire spread, testing may now need to be carried out.”
However, he said, that may not be possible in circumstances where the cladding has already been removed and replaced.
Byrne added that the most surprising thing about this particular court case was that it went to a hearing at all.
“Save for the proceedings that followed the Lacrosse fire in Melbourne there have been very few published decisions (in any state) involving alleged combustible cladding, particularly with respect to ACPs,” he said.
Given the often high costs involved in both replacing and rectifying building cladding and any litigation, Byrne said usually all parties involved in cladding claims are willing to try and resolve the matter early, before they reach court.
In the wake of cladding fires caused by flammable ACPs, Australia’s states have brought in stricter building codes. In NSW, a Cladding Taskforce was established in 2017 to identify buildings with non-compliant and potentially combustible cladding and also help local councils address the issue.
According to its website, by February 2022 the Taskforce had audited 185,000 building records and inspected more than 4,000. Almost 400 buildings are currently under review, assessment or remediation.
