As of 1 October 2018, around 12,000 buildings throughout Queensland need to have a compulsory audit to determine if they are at risk from potentially combustible cladding.
The inevitable consequence of those audits will be that:
- A building will be found to have at-risk cladding;
- The cladding will require rectification or replacement that the owner/s and/or body corporate will have to pay for; and
- The owner/s and/or body corporate will want somebody else to pay for it.
This begs the question: does an owner have a right to recover those costs from somebody else? And, if you’re a contractor or a developer, are you now at risk?
We want to stress that this article is general information only – whether or not you have risk or a potential claim should be the subject of proper, specific legal advice.
A Failed Audit Doesn’t Mean Somebody’s Liable
A building failing a cladding audit doesn’t automatically mean that anybody did something wrong.
The legislation itself certainly doesn’t provide for an automatic recovery system.
It only covers the requirement to get a building audited, and the immediate compliance consequences are on the owners if a building is determined to be at risk. It does not say anything like “if a building is found to be at risk the owners may recover the costs of rectification from the builder”.
Which means, despite the audit process, nothing has really changed so far as rights between parties are concerned.
What has changed is that owners will have highlighted to them the potential fire risks of materials used in the construction of their building.
This, naturally, is going to freak some people out a bit. First, because they have to keep living or working in the building. Second, because the owner will have to place a prominent warning at the front of their building and possibly scare others away. In some cases, disclosure to purchasers of the existence of affected cladding will also be required.
The General Proposition
Designers, architects, certifiers, engineers, developers and contractors involved in a build have general duties to apply themselves to their various tasks with “due care and skill”. They have similar obligations that are normally implied into their contracts, although often they are expressly written anyway.
From a legal perspective, the questions you should always ask are:
- What duty did one person owe to another and where did that duty come from (eg – the contract, some legislation, the building codes, or somewhere else)?
- Did that person breach the duty?
- Did that breach cause loss and damage?
- Is that loss and damage recoverable?
Simply having a loss isn’t enough.
Naturally there can be complications when it comes to who might be responsible. Was it the architect who suggested something or the developer who decided on it who is responsible?
Was it the contractor who ordered the material or the subcontractor who installed it? Or was it some combination of the above or something different entirely?
Further complicated is the situation where the owner isn’t the first owner since the building was finished – the rights of subsequent owners can be significantly more limited than the rights of immediate owners, and in some cases might be essentially non-existent.
In short, trying to figure out who owed what duty to whom is quite challenging, and everyone needs to take care before dishing out responsibility or accepting it.
If a Building Fails an Audit
If you’re a contractor or developer and a building you’ve been involved in fails an audit, there’s a pretty good chance the owners are going to get in touch with you.
At that point, you’re going to have to balance the commercial and legal aspects of what you do next.
The things you should consider are:
- Should you inform your insurance company (check your policy)?
- Do you respond yourself, or get your lawyers to respond for you?
- If you respond, how should you do it?
- Do you have any legal risk that needs to be provisioned?
From a practical standpoint, the kinds of issues that might be relevant to figuring out your risk are going to include:
- Who chose the cladding and why?
- What was known about the cladding at the time?
- Did you have any concerns about the nature of the cladding and did you express them to anyone?
- Did you do any independent investigation of the cladding before it was chosen or installed?
- Was the cladding from overseas? If so, does the country have controls or standards that are similar to ours?
- Was the person who installed the cladding properly qualified to do so?
- What do your contract documents say about who bears the risk on this aspect?
Of course, which of those questions are relevant will depend on why the cladding failed the audit.
How High is the Cladding Risk Really?
We can’t really answer this.
Hopefully your team has applied itself diligently and made careful decisions on products and subcontractors used after appropriate research. If so, your risks shouldn’t be much greater than they were before the audits commenced.
That said, sometimes things go wrong despite best efforts to the contrary, so it’s good to be prepared.
As you’d expect, the best advice we can give you if you get correspondence from an owner is to give us a call and we can chat through the issues before you respond.