Combustible cladding update: a new threat emerges

Australia's combustible cladding crisis continues with the New South Wales Civil and Administrative Tribunal (NCAT) determining that the use of cladding product Biowood in multi-story, residential properties is not compliant with the Building Code of Australia (BCA).

In March 2019, the Victorian Civil and Administrative Tribunal handed down its decision in the Lacrosse Tower litigation, the first Australian judgment on liability for combustive cladding. Continuing the trend of cladding related litigation, the NCAT in The Owners Strata Plan 9288 v Taylor Construction Group Pty Ltd and Frasers Putney Pty Ltd [2019] NSWCATCD 63, has broadened the scope of cladding products considered to be non-compliant with the BCA beyond polyethylene core, aluminium composite panels to include the composite timber product, Biowood.

This decision, and the continuing cladding crisis in Australia, will likely have ongoing implications for builders and building professionals who will need to consider:

• if they are now at risk of being exposed to claims from property owners who need to carry out rectification works relating to the installation of Biowood on their property;
• whether any cladding related exclusions imposed on their liability and professional indemnity (PI) insurance in the wake of the Lacrosse Tower litigation will now extend to claims relating to Biowood; and
• how this decision impacts their notification and disclosure obligations to insurers.

Application for the removal of defective Biowood

The applicant, Strata Plan No 92888, as registered proprietor of the common property, brought a claim in the NCAT against Taylor Construction Group Pty Ltd, the builder of the works comprising the common property, and Frasers Putney Pty Ltd, the developer of the building work, for damages and/or an order that the respondents carry out rectification works to rectify defects and non-complying works.

In contrast to the Lacrosse Tower litigation, there had been no fire incident in the residential tower the subject of these proceedings. Accordingly, the applicant alleged that the external cladding, "Biowood", installed as architectural attachments on the external walls of the building, were defective as they are combustible and fail to comply with Clause 2.4 of the BCA Specification C1.1 and are therefore in breach of the statutory warranties in section 18B of the Home Building Act 1989 (HBA).

The key issues for determination by the Tribunal included:

• whether the Biowood as installed is compliant with the applicable codes and standards; and
• even if the cladding is compliant, is the Biowood, as installed, a material fit for purpose?

Biowood: An "undue fire risk"

Clause 2.4 of the BCA requires that there be no undue risk of fire spread via the façade of the building. Even in the absence of large-scale fire testing of Biowood, the Tribunal accepted that "Biowood is indisputably combustible". Although Biowood was found to have a low, and a relatively slow, fire spread rate in comparison to other materials the Tribunal held that these factors did not preclude a finding that there exists an undue risk. Senior Member Boyce stated, "any risk that it will support fire spread between levels of the building presents an undue risk".

The respondents submitted that the façade of the building means the external wall, but does not include an attachment to the external wall itself. The Tribunal, agreeing with the applicant, found this contention "defies common sense". Adopting the common sense approach referred to in the Lacrosse Tower litigation, the Tribunal determined, in a Type A, multi-storey residential building, "that it is illogical to stipulate that the external walls must not be combustible and then allow them to be covered in combustible attachments."

The Tribunal found that combustible Biowood used as an attachment to a non-combustive external wall presents an undue risk of fire spread and therefore, is not fit for purpose. The use of Biowood in the construction of this residential building amounted to a breach of the statutory warranties in section 18B(1)(b), (c) and (f) of the HBA and was not compliant with the BCA.

The Tribunal ordered the respondents rectify the breach of the statutory warranty by removing the Biowood attachments and replacing them with attachments that comply with the codes, standards and statutory warranties. The respondents were ordered to pay the applicant's costs of the proceeding.

Combustible cladding crisis continues for builders and building professionals

With Biowood being a popular product used in the Australian market, this decision will likely open the door for many property owners and owners corporations who wish to bring claims against builders and building professionals for the removal and replacement of Biowood used on their property.

Following the decision in the Lacrosse Tower litigation, most PI insurers imposed cladding related exclusions into their policies, and it is likely that Biowood, having now been found to be non-compliant with the BCA, will be captured by such exclusions.

This decision, as did the Lacrosse Tower judgment, will have immediate implications for the PI insurance market for building industry professionals. The key lessons for builders and building professionals from these types of cladding related litigation, as we first noted in our commentary on the Lacrosse Tower judgment, include:

• builders and building professionals need to consider their duty of disclosure to insurers in respect any and all cladding products;
• to the extent that builders and building professionals are at risk of claims relating to cladding products not currently excluded from their PI policies, likely being at least Alucobest ACP and Biowood, they should consider making comprehensive and effective circumstances notifications to trigger any existing cover before insurers take steps to impose broader exclusions; and
• in light of that risk of uninsurability, property owners should consider putting builders and building professionals on notice of potential claims to assist professionals trigger any available PI cover.

Further, and while private certifiers are permitted to be registered and practice in Queensland until 30 June 2021 despite cladding related exclusions in their PI insurance, this carve out does not extend to the wider class of building professionals, including surveyors, inspectors and building designers. To the extent that those professionals currently work with Biowood products, they may find it difficult to maintain the level of PI insurance required to continue their practice.

The Victoria Government has implemented a similar exemption to the requirement to hold PI insurance, which currently extends to building surveyors, inspectors and quantity surveyors. Further, from 15 February 2020, the Victorian carve out has extended the permissible exclusion to civil, mechanical, electrical and fire safety engineers, draftspersons in building design (including interior and architectural professionals) and registered architects.

There has not yet been any indication that Queensland will introduce a similar exemption.

For a detailed examination of the key risks, legal issues and insurance implications arising from combustible cladding, see our article "Cladding – who will pay".

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• Cladding – who will pay?