I   Overview

In a recent decision by the Supreme Court of New South Wales, Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958, the Court considered the application of section 18 of the Home Building Act 1989 (NSW)(“the Act”) in determining whether the allegedly combustible Vitrabond FR aluminium composite panels (“ACP Cladding”) installed on the property comprising 28 storeys and 133 lots (“Building”) complied with the Building Code of Australia (“BCA”) and the statutory warranties under the Act.

       II   Facts

1. The Owners Corporation argued that the ACP cladding which was installed on the Building did not comply with the provisions under section 18B of the Act, in particular, that the product used was allegedly combustible.
2. Section 18B of the Act provides warranties as to residential building works that are implied in every residential building work contract.

• Some of the relevant warranties provided in this section are as follows:

1. That all materials supplied by the contractor will be “good and suitable” for the purpose that they are to be used; and
2. That work consisting of the construction of a dwelling will be “reasonably fit for occupation as a dwelling”.
3. The main question in this case was whether the ACP cladding used, should it have been established to be combustible, breached the warranties noted above, and whether it complied with the BCA.

   III   Issues

A  Did the ACP cladding installed on the Building comply with the DtS provisions under the BCA?

1530. No AS1530.1 test was available to establish that the ACP cladding was not combustible (as defined), thus, the cladding installed on the building did not comply with the DtS provisions of the BCA.
1531. Further, it was held that even if the ACP cladding was established to be combustible as defined in the BCA, there was still the possibility of an Alternative Solution to overcome that risk.[1]

• The Defendants argued that even if the ACP cladding did not pass the test under AS1530.1 for building materials, components, and structures or the test under AS5113 for fire propagation, there have been alternative fire safety measures implemented to address the fire hazard.

B  Did the ACP cladding comply with the BCA with regards to Alternative Solution under the provisions?

1. When the question regarding whether the ACP cladding is compliant with the BCA in terms of Alternative Solution arose, it was held that it was not as there has been no Alternative Solution under the BCA that has been prepared before the issue of a construction certificate, or at the time of judgment.[2]

C  Was the ACP cladding composed of material that is not suitable for the purpose for which it is used?

1. The Owners Corporation relied on the statutory warranties implied by section 18B of the Act for residential building works (mentioned in section II (iii) of this case note) and argued that the material used for the ACP cladding was not suitable for the residential building work as the product is allegedly combustible and affected the use of the exits in the building in the event of a fire.
2. The Defendants argued that considering the ACP cladding was installed along with other fire safety features in the building (such as the sprinkler system), the material used is suitable for the purpose for which it is used.

• To prove that a product is “combustible” within the meaning of the BCA, it needs to be established by a AS1530.1 test result.

1. There was no evidence that the ACP cladding was combustible by any test whether it be a cone calorimeter test (a fire testing tool that measures the amount of oxygen consumed during the combustion of a sample material) or any other to prove that it would not be suitable for its purpose.
2. There must be evidence indicating the rate of combustion of the ACP cladding and how it would affect the safety features of the building, such as the sprinkler system.[3]
3. The Owners Corporation contended that due to the composition of the product, being 35-40% polyethylene, the ACP cladding would not be suitable or good for its use, however, there was no evidence of how the ACP cladding would perform in a fire in conjunction with its fire-retardant component.

• Further, it was argued that the cladding is not suitable for its purpose as it is now banned under the Building Products (Safety) Act 2017 (NSW) (“BPSA”). This argument was not accepted as it is not possible to conclude that a material used in construction works was never suitable or good for its purpose due to the legislative reforms that now ban a product that previously was allowed.[4]

D  Did the ACP  cladding result in a dwelling that is “not reasonably fit for occupation as a dwelling”?

1. It is agreed that the nature of the BCA is not determinative when assessing whether the Building is “reasonably fit for occupation as a dwelling”, although remains relevant.[5]
2. It was argued by the Owners Corporation that the building was “not reasonably fit for occupation as a dwelling” due to its combustible nature.

• The Defendants contended that the ACP cladding installed on the Building, due to other fire safety features present in the building such as the sprinkler system, allowed the Building to be considered “reasonably fit for occupation as a dwelling” under section 18B of the Act.

1. It was concluded that there would be a breach of statutory warranty if it were established that the use of the ACP cladding in the Building gave rise to a real “danger to health” or “risk to life and limb” as per Owners Strata Plan 69230 v Kell & Rigby Holdings Pty Ltd.[6]

E  Did the Defendants breach the statutory warranties?

1. It was found that the Owners Corporation did not establish that JKN and Toplace breached the statutory warranties on the balance of probabilities. Namely, they did not establish that the combustion of the ACP cladding that was installed on the building would create a risk of the fire spreading by the façade, through the cavity behind the ACP cladding, and into the windows of the Building, making the Building “not reasonably fit for occupation as a dwelling” or making the product “not suitable for its use”. Should these factors have been established, the statutory warranties would have been breached.[7]
2. It was also held that there was no breach of the warranty that the material must be suitable for its purpose for the reasons mentioned in section C (iii) of this case note.

F  Did the Owners Corporation suffer any loss and if so, how is the loss assessed?

1. It was not established that the Defendants breached the statutory warranties as noted above, thus, both questions do not arise.

G  Is there a liability to pay damages to rectify the construction works?

1. The Owners Corporation contended that it is necessary to replace the ACP cladding with a product that is considered “non-combustible” under the provisions of the BCA and that the Defendants were to pay the costs for this rectification.
2. It was concluded that should the Owners Corporation have undertaken a cone calorimeter combustibility test of the ACP cladding to establish that the combustible nature of the ACP cladding would outweigh the alternative fire safety features in the Building, such as the sprinkler system, the Defendants may have been liable to pay damages.[8]

• However, as the Owners Corporation was unable to establish this risk on the Balance of Probabilities, the Court concluded in favour of the Defendants as consequential liability on behalf of the Defendants could not be established.[9]

  IV To Consider

This case highlights the importance of properly determining risks associated with certain building products and undertaking the necessary tests to establish whether the installation or use of that product results in a breach of the relevant statutory warranties. For contractors, this case underlines the importance of using Alternative Solutions to eliminate safety risks that would have been present if it were not for the measures implemented.

[1] Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958 [45].

[2] Ibid [48].

[3] Ibid [46].

[4] Ibid [55].

[5] Ibid [59].

[6] [2020] NSWSC 612 at [108].

[7] Ibid n 1 [56].

[8] Ibid [68].

[9] Ibid.