Australian Construction Industry Insurance Update.

In the first half of 2020, the Victorian Government continued with its legislative response to the building industry issues that were identified in the Victorian Cladding Taskforce reports and the Shergold & Weir "Building Confidence" report that was obtained by the Building Ministers' Forum in April 2018. There were three significant legislative reforms in late 2020.
 

1. Cladding Safety Victoria
 

The Cladding Safety Victoria Act 2020 (Vic) (CSV Act) and associated regulations were enacted on 1 December 2020, which implement changes to the operation of Victoria's cladding rectification agency, Cladding Safety Victoria (CSV). The key changes are:
 

• The CSV Act establishes CSV as a separate body corporate; prescribes CSV's cladding assessment and remediation processes; and gives CSV additional powers. CSV previously operated as a business division of Victoria's building regulator, the Victorian Building Authority (VBA).

• CSV may provide funding to owners for the rectification of combustible cladding on eligible higher risk residential apartment buildings. 

• The 10-year limitation period on building actions is extended to 12 years for certain claims for cladding rectification costs. The extended 12-year limitation period applies where two conditions are met:  
   

  • Firstly, the claim must be a "cladding building action", which is defined as "a building action in connection with, or otherwise related to, a product or material that is, or could be, a non-compliant or non-conforming external wall cladding product". The wide definition of "cladding building action" could easily be interpreted by trial Courts as extending the limitation period on proceedings where combustible cladding is one of a number of defects alleged.

  • Secondly, the usual 10-year limitation period must have otherwise expired between 16 July 2019 to 1 December 2021. As a consequence, combustible cladding claims in respect of projects completed between 16 July 2009 and February 2011 that would have been statute barred (at the time this article was published) can now be brought within the limitation period.
     

CSV retains its statutory rights to recover funds it loans to owners from any building practitioners or consultants who may be liable for the use of non-compliant combustible cladding during development. The statutory right of recovery extends to the company's officers who held office at the time the cladding was used/approved and who had knowledge of the cladding's u
se.

2. Tightening of cladding ban
 

On 1 February 2021, Victoria's Planning Minister issued a declaration under the Building Act banning the use of specified combustible facade materials. The declaration prohibits building practitioners from placing aluminium composite panels (ACPs) with a core containing more than 7% combustible materials or expanded polystyrene external insulation panels (EPS) on high rise buildings after 1 February 2021.
 

Under the previous Ministerial Guideline 14, dated 22 March 2018, building surveyors were directed not issue building permits allowing the use of ACPs with a core containing more than 30% combustible material or EPS on high rise buildings unless the Building Appeals Board had determined that the proposed use of the cladding complied with the fire safety performance requirements of the building code.
 

The recent declaration removes the discretionary use of combustible products through performance-based solutions that are approved by the Building Appeals Board. Previously, cladding rectification works could allow sections of ACPs or EPS to remain on high rise buildings where it was safe to do so. Under the recent declaration, all ACPs and EPS will need to be removed as part of rectification works, even if it poses no fire safety danger, which will substantially increase the cost of remedial works for many buildings.
 

3. Engineer registration
 

The Professional Engineers Registration Act 2019 (Vic) (PERA) that was passed in August 2019 is due to commence on 1 July 2021. PERA introduces a registration scheme for professional engineers that will be phased-in over a two-and-a-half-year period. Engineers who provide professional engineering services in the areas of structural, civil, electrical, mechanical and fire safety engineering will need to register with the Business Licencing Authority (BLA) unless they work under direct supervision or only in accordance with a prescriptive standard. Registration is required to provide professional engineering services in Victoria, or from a location outside Victoria if the services are intended for Victoria.
 

The BLA has commenced a process to approve assessment schemes. Any organisation can prepare an assessment scheme and apply to the BLA for approval of that scheme. It is expected that registration on Engineers Australia’s "National Engineering Register" will be one such pathway to registration in Victoria.
 

When the Act commences on 1 July 2021, the registration of engineers engaged in the building industry will transfer from the VBA under the Building Act to the BLA under the PERA. Engineers who are engaged in the building industry will have an endorsement on their PERA registration that will entitle them to practice as a professional engineer in the building industry. Engineers who hold the endorsement will be subject to duties and obligations under the Building Act and PERA.
 

Future legislative reforms
 

In November 2020, the Victorian Government established an Expert Panel to lead a comprehensive review of the legislative framework and regulation of Victoria's building, plumbing and architecture sectors. Legislative reform in Victoria will now be driven by the recommendations of the Expert Panel. The Expert Panel is chaired by Victoria's Commissioner for Better Regulation and its members include Dame Judith Hackitt who led the UK Government's inquiry into the Grenfell Tower fire.
 

The Expert Panel's work is to be carried out in three stages:
 

• Stage 1 – Seek stakeholder feedback on options for improving consumer protection; practitioner registration and regulation; regulator powers, roles, responsibilities and structure; and legislative objectives.

• Stage 2 – Seek stakeholder feedback on options for improving building information;

• general duties of care; dispute resolution; and approval processes.

• Stage 3 – Provide recommendations for a new Victorian Building Act.
   

Class actions against manufacturers of combustible Aluminium Composite Panels (ACP) cladding
 

Background
 

There are two class action proceedings on foot in the Federal Court of Australia against manufacturers and Australian distributors of ACPs (Alucobond and Vitrabond).
 

The lead plaintiffs in each proceeding are the owners' corporations and apartment owners of residential apartment blocks in NSW. The litigation is funded by Omni Bridgeway. The claims were originally brought under the Australian Consumer Law for breach of the consumer guarantees that the ACPs would be of acceptable and merchantable quality. The claim in the Alucobond class action was amended in February 2020 to add claims for misleading and deceptive conduct in relation to the advertising and promotion of the ACPs.
 

The class actions are open to property owners, owners' corporations, commercial building owners and public bodies in Australia that have suffered, or will suffer financial loss due to the need to remove and replace the ACPs (see our article on previous updates to the class actions).
 

In the Vitrabond proceeding, the Australian supplier, Fairview Architetural Pty Ltd (Fairview), was placed into voluntary administration in July 2020. On 6 November 2020, Fairview entered into a deed of company arrangement (DOCA), which provided for the sale of Fairview's business to a related entity, with the claims of trade creditors to be paid in full and the owners' claim in the class action to be preserved to the extent Fairview was insured for the potential liability.
 

The owners applied for leave to proceed against Fairview while it is subject to the DOCA. The owners argued that Fairview was entitled to cover for the class action claim under a public liability insurance policy issued by AAI/Vero that was in force when the cladding was supplied in 2014/15. Fairview had notified its insurer of the claim, but at the time of the application for leave the insurer had not indicated its position on whether cover was available.
 

Justice Wigney granted leave for the owners to proceed against Fairview. His Honour issued a written judgment concluding the owners had an arguable case that Fairview's potential liability in the class action proceeding was covered under the AAI/Vero public liability insurance policy. His Honour considered that it was arguable Fairview’s conduct in supplying the cladding caused property damage because it caused damage to the building to which the cladding was affixed, the damage arising from the need for Owners to remove the cladding and remediate the building. His Honour opined that this argument was supported by the well-known case of Austral Plywoods Pty Limited v FAI General Insurance Co Limited [1992] QCA 4, in which it was held that the affixing of defective plywood to the hull of a vessel physically affected the hull, not only because of the screw holes which were made to affix the plywood, but also because the physical change to the hull caused by the affixing of the defective plywood meant that it was unsuitable for use.
 

In light of this decision, it is expected that building practitioners who are defending combustible cladding claims may seek to claim under their public liability insurance policies in addition to any professional indemnity insurance policies they may hold.
 

Queensland and Victoria
 

The states of Queensland and Victoria have both filed a notice of consent to become group members in the proceeding, which is likely to increase the size of the total claim.
 

In an ASX announcement by Omni Bridgeway, it was revealed there are likely to be more than 1,000 group members. The estimated total amount of the claims for compensation is likely to exceed $500,000,000.