Different options for resolving building disputes

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A building dispute can have serious implications for all parties involved, the most obvious being delays to the construction project and the resulting financial loss.

A dispute may arise from disagreements over the interpretation of a contract term, incomplete or defective works, variations to the scope of works, or charges for prime cost items and provisional sums.

Bringing a building dispute matter before a court or tribunal can exacerbate the issues between the parties, delay the project further, incur additional costs and cause even more damage to the parties’ strained relationship. It is almost always beneficial to settle a building dispute through alternative dispute resolution (ADR).

ADR involves retaining an impartial third party to assist in reaching an early settlement of the matter. In fact, most jurisdictions require that parties to a building dispute make genuine attempts to settle the matter before proceeding to a tribunal or court.

Construction contracts often contain ADR clauses that specify the approach to be used if a dispute arises. The ADR method may be facilitative, advisory or determinative.

When preparing or entering a construction contract, it is important to understand the different ADR approaches and their implications, and to choose the type most suited to the circumstances. If there is no ADR clause, the parties may agree to use a particular method. The following is a summary of each.

Facilitative

A building dispute may be resolved through mediation which involves a neutral person meeting face to face with the parties to assist them in narrowing the disputed issues, exploring options and reaching a solution.

Mediation is informal and confidential, and the mediator does not provide legal advice nor does he or she determine the matter. The parties should be willing to negotiate in good faith and make genuine attempts to resolve the dispute.

The parties meet in a “without prejudice” environment and the mediator coaches the parties through the issues and encourages them to engage in meaningful negotiations.

Mediation allows the parties to reach an early settlement that may be more flexible than one imposed by a court or tribunal and may assist in preserving the parties’ commercial relationship allowing them to continue working throughout the project and beyond.

The construction contract will usually specify who may be appointed as a mediator and stipulate who is responsible for the costs of the mediation – this is often shared equally between the parties.

Advisory

Advisory ADR processes may include conciliation, expert appraisal and case appraisal. Each involve the appointment of a third party to consider the available material and provide advice regarding the facts and appropriate law and how the matter may be settled.

Early Neutral Evaluation was first used in the United States in response to a critical backlog of cases within the courts system and generally falls within the category of case appraisal. An evaluator with knowledge of the law is appointed and considers the parties’ respective arguments and evidence. The evaluator may be a dispute resolution practitioner or judicial officer. They make a non-binding evaluation of the strengths and weaknesses of each side, the likely liability and an estimate of damages.

In other words, the parties are provided an expert opinion, from an experienced and respected neutral party, regarding the likely outcome if the matter was to go to a court or tribunal. The evaluation is confidential, and the appraisal provided generally encourages settlement without the delay, costs and formalities associated with a court or tribunal hearing.

Senior Executive Appraisal, also known as a mini-trial, involves a panel of senior experts joining an independent neutral third party to consider and evaluate the dispute. The parties present their own evidence and the panel convene to attempt to settle the matter. The power conferred on the panel and independent third-party is predetermined by agreement.

Determinative

An independent expert with appropriate technical knowledge is appointed by the parties to determine the dispute. The determination is generally made on the respective parties’ written submissions, statements and evidence and the expert may conduct his or her own investigations before determining an award. Oral evidence does not usually form part of the process.

The contract generally sets out the process governing this method of ADR, including who the expert should be, how the expert is appointed, the relevant timeframes, the binding nature of the decision and how costs are to be paid.

If the contract provides for the determination to be binding and a party refuses to comply with the decision, then the other party will generally need to rely on the contract’s provisions to enforce the decision through the court.

When ADR is unsuccessful

Not all building disputes may be successfully negotiated.

If resolution is impossible or impractical, either party may make the appropriate application to their state or territory Administrative Tribunal or court. The matter will proceed according to the type of construction project, the value of the claim, and the parties to the dispute. Tribunals and courts are formal jurisdictions and have strict processes and timeframes.

Conclusion

Unresolved building disputes can escalate quickly depleting valuable time and resources of the parties involved. Utilising ADR to resolve a dispute can be time efficient, cost effective and assist in preserving the relationship between the parties.

Determining which ADR method is appropriate will depend on the facts and circumstances of each case. In all matters however, the parties should be willing to listen and make genuine efforts to negotiate and resolve the issues.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email [email protected].

Fire in the sky: Lacrosse building consultants found liable for cladding

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A Frenchman lights a midnight cigarette on his balcony in Melbourne. In less than three hours, most of the 23-storey high rise building catches fire. The Docklands area narrowly avoids burning to the ground.

Thanks to the incredible work of the fire brigade, the occupants and the sprinkler system, not a single one of the tower’s 400 occupants or anyone in the Docklands was hurt by the towering inferno.

Like Deep Purple’s rock classic, this is a true story, the butterfly effect of nightmares for three consultants to a building project. They were found, in what was crucially a breach of their consultancy agreements, to have contributed in various ways to the installation of combustible cladding on the building. This was against the regulations that applied to the high-rise.

They have been ordered by the Victorian Civil and Administrative Tribunal per His Honour Judge Woodward to foot a $5.75 million bill. More damages may follow. A further $6.8 million in claims is still being heard by the judge, mostly for removal and replacement of the unburnt cladding.

It was a landmark decision, one of the first in Australia on liability in relation to combustible cladding. It will not be the last. High rise building owners and building consultants must carefully examine their properties (and their contracts), or they could be next.

To see the full 227-page judgment, follow this link.

For the key details and what builders, consultants and residents need to know moving forward, keep reading.

The events

At about midnight on 24 November 2014, one of the Lacrosse residents returned from work and had a cigarette on a level 8 balcony. Leaving the almost-extinguished cigarette butt in a plastic tray, he went to bed.

Unfortunately, the tray contained aluminium foil, a plant and a packet of seeds. After two hours, everything combustible on the balcony caught alight, including the timber table, some clothes and an air conditioning unit. High-rise balcony areas are high-risk fire hazards.

The building was clad in aluminium composite panels (otherwise known as ACPs) which had a core containing the highly combustible material, polyethylene. Polyethylene has a combustibility similar to petrol and diesel. In the space of twelve minutes the fire spread from floor eight to floor twenty-one.

The use of an ACP with a 100 percent polyethylene core as part of the external wall of the building was found to be “primarily responsible” for spreading the fire.

The applicants

The 211 owners of the various floors and individual apartments brought the case. This included three owners corporations.

The respondents

The case was brought against eight respondents:

  • L U Simon Pty Ltd was the builder;
  • Stasi Galanos and his employer Gardner Group Pty Ltd, who was the building surveyor;
  • Elenberg Fraser Pty Ltd was the architect;
  • Tanah Merah Pty Ltd trading as Thomas Nicholas was the fire engineer;
  • the resident who lit the cigarette;
  • the primary occupier of the smoker’s apartment unit; and
  • the superintendent of the build, Property Development Solutions.

This was the cast of characters in Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd [2019] VCAT 286.

Liability of the builder

The builder’s warranties (promises) stated in the Victorian Domestic Building Contracts Act 1995 were the basis for its overall liability. It was alleged that the builder:

  • Had failed to provide materials good and suitable for the purpose for which they were used;
  • Had not carried out work in compliance with the Building Act 1993 (Victoria) and the Building Code of Australia (BCA), and
  • Had not used materials reasonably fit for a particular purpose which was stated in the contract, in circumstances where the building owner clearly relied on the builder’s skill and judgment.

Such warranties are a part of every domestic building contract, and very similar warranties are implied into many home building contracts in NSW law.

In this Victorian case, combustible panels were found to be not good or suitable for the purpose of being used as external walls of a high-rise residential building. The cladding did not avoid the spread of fire in the building so as to prevent injury and property damage. The builder had made an error in selecting these materials.

However this was not the end of the story, as “not every error is negligent” at law.

To be found negligent, the builder had to have failed to take reasonable care in selecting the ACPs. Judge Woodward found that the builder had not failed, for three reasons:

  1. The builder had not known that ACPs were highly combustible and was not expected (at least in 2011) to know this;
  2. The installation of ACPs was a part of the building contract itself, forming the annexed performance requirements; and
  3. The builder had signed consultancy agreements with “highly skilled professionals” (consultants) to supervise and ensure that the complex project was compliant with the BCA. By engaging them, the builder had relied on their expertise.

Liability of the consultants

Point (3) just above meant that there was a possibility that the consultants (the fire engineer, the building surveyor, and the architect) were responsible for the damage. It was alleged that these were the parties who had failed to exercise due care and skill in relation to the installation of the ACPs.

Judge Woodward agreed. Courtesy of the consultancy agreements, the builder was able to pass almost all of the risk in relation to the BCA compliance of the cladding down to the consultants. The consultants were ultimately at fault, and apportioned the $5.7 million in damages as follows:

  • The fire engineer was found liable for 39 percent of the damages;
  • The building surveyor was found 33 percent liable; and
  • The architect was found 25 percent liable.

The French smoker was found 3 percent liable, but given he did not appear in the proceedings and his responsibility was found to be “minimal’ by the judge, the builder copped this amount instead.

Each judgment was made considering the particular consultancy agreement between the consultant and the builder.

The fire engineer: 39 percent liable

As the “primary consultant responsible for fire safety compliance”, the fire engineer was always going to be in trouble.

It had failed to conduct a full fire engineering assessment that would inquire into and assess the range of construction materials. The purpose of this assessment was to identify potential fire hazards of the building.

The fire engineer made the almost-deadly error of assuming that it was not required to conduct an assessment under the consultancy agreement that it had signed. This was incorrect. It was in fact required to conduct some proactive investigation and assessment of the building materials, which it did not do.

It had also failed to warn the builder (and also the other consultants) that the ACPs used for the high-rise residential building did not comply with the Building Code of Australia. Finally, it had also failed to advise about a solution to the non-compliance.

The fire engineer was found the most liable out of everyone, for the simple reason that it was the only professional on the project who actually knew that ACPs were not compliant and were fire risks. A simple email or comment at a meeting may have got it out of trouble. Its inaction was costly.

The building surveyor: 33 percent liable

The builder surveyor was in the firing line primarily because it had decided to issue a Stage 7 Building Permit. Through this, ACPs were approved for use on the façade of the building despite not being in compliance with the BCA. This was allegedly a breach of its consultancy agreement.

However, it was also alleged that the building surveyor’ failed to query the incomplete description of the cladding systems in the fire engineering report, and also that it failed to properly inspect the work during construction for compliance with the BCA.

Judge Woodward found that, notwithstanding some expert evidence to the contrary, the building surveyor’s had failed to give adequate consideration to whether the ACP was compliant with the BCA before issuing the permit.

The building surveyors might have had a defence if the builder did not give them insufficient information about the materials used in construction. Unfortunately for the Lacrosse tower building surveyors, this was not the case.

The architect: 25 percent liable

The other consultant in hot water was the architect.

The allegation was that the architect had made an agreement to prepare architectural drawings of the external cladding that satisfied legislative requirements, and it had breached this agreement. The allegation was also that it had failed to check whether the sample of the ACP provided to it complied with the BCA and was fit for purpose.

Both allegations were proven. The design specified ACPs for the external walls of the tower, including one with 100% polyethylene core, which was a breach of the BCA. Secondly, as head design consultant, it was also responsible for ensuring that the ACP sample it provided was compliant with its design intent and the BCA. In approving of a sample of the ACP, it had failed to exercise due care and skill.

Overall

In summary, the consultancy agreements between the builder and the consultants existed for the commercial purpose of ensuring ongoing involvement from consultants in the project, and therefore ongoing responsibility for the work.

Judge Woodward found that the involvement of the consultants, on terms that they would advise on non-compliance of building materials, meant that they and not the builder were liable for the fire damage.

The lesson for consultants: know exactly your obligations under a contract, whether they are immediate or over a longer period of time, and warn of non-compliances with the law consistent with your knowledge.

Whose line is it anyway?

The line between what is the builder’s responsibility and what is a consultant’s responsibility is a difficult one for the law to trace. There are no hard and fast rules, especially as much will depend on the particular builder-consultant contract.

There will be cases where a commercial builder, given its expertise and experience, will be expected to identify and correct errors by another building professional.

However, in this case Judge Woodward ruled that “where (as here) the skill involved is beyond that which can be expected of a reasonably competent builder and there is no actual relevant knowledge”, the liability of a skilled consultant will be possible.

Knowledge of consultants

The lack of knowledge about the combustibility of ACPs, and the failure of the few who had this knowledge to pass it around, proved very costly and almost deadly.

In another important lesson for consultants, the building surveyor tried to argue that because its peers held similar (incorrect) assumptions about ACPs and their compliance with the BCA, it should not be liable. However, Judge Woodward was unimpressed, as these incorrect assumptions formed “organically and apparently without any practitioner seeking any kind of assessment or endorsement from a professional body or regulatory authority”.

Uncritically adopting a practice perceived to be widespread will not save a consultant. He or she must logically consider each issue they come across, and seek professional advice such as that of a fire engineer.

Conclusion

The judge emphasised that this decision was based on the specific facts of the case. If the building contract and the building had been different, or if ACPs had been used on buildings without obvious ignition sources like barbeques and air conditioning units, then the outcome of the case may have been different.

Nevertheless, building owners and consultants, especially those who have been involved in installing combustible cladding, should be on high alert.

They will need to review their building and consulting contracts immediately, not to mention their professional indemnity insurance. This applies not just for current projects, but for previous ones too. The Lacrosse fire happened in 2014 and the companies are paying dearly for it today.

Building owners will also need to go about registering their buildings on the NSW Cladding Registration portal (see link for more).

If you or someone you know wants more information or needs help or advice, please contact us on +612 9248 3450 or email [email protected].

The role of an expert witness in a building dispute

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If you are involved in a domestic building dispute, whether as a building professional or homeowner, it will often be beneficial or necessary to retain an expert witness.

The role of an expert witness in a building dispute is to provide objective, qualified and documented evidence relevant to the facts in dispute.

Engaging an expert witness is usually a complex and expensive exercise. Further, the expert’s role as an impartial observer, and not as an advocate for the instructing party, is often misunderstood. Parties to a dispute can become anxious when it appears that the expert they have retained is not “on their side” or that the other party’s expert is an “opponent” in disputed proceedings.

It is therefore helpful to understand the role of expert witnesses, their obligations to a tribunal or court and how they can assist in determining a building dispute.

What is an expert witness?

An expert witness is a qualified professional with both specialised technical knowledge in a particular area or industry, and the necessary skills to provide an opinion, in writing and verbally. This opinion may be used as evidence in negotiations, dispute resolution processes or during tribunal or court proceedings.

When and why is an expert used?

The role of the expert is to assist the parties in negotiating a settlement, or if the matter proceeds to a tribunal or court, guide the decision-maker towards a reasonable determination.

A residential building dispute does not typically concern the interpretation of a contractual term, which, in a court or tribunal, would be a matter for lawyers to argue.

Rather, a residential building dispute typically concerns claims of incomplete and/or defective construction work the nature of which is highly technical and industry specific. The subject matter of the dispute may be a single dwelling or a multi-storey residential complex.

A layperson is not qualified to provide evidence of a technical nature which, in court or tribunal proceedings, could be considered an opinion or hearsay. Similarly, a lawyer is not qualified to assess the costs of rectification of a building.

In such matters evidence should be given by a person with specialised knowledge in the subject matter that is based on his or her training, study or experience. One example of an expert is a quantity surveyor.

Retaining an expert witness

The selection of an expert witness is typically made by the lawyer representing a party to the dispute, who will identify a professional with the necessary expertise required for the particular case and the ability to provide written, and oral evidence, if required.

Written instructions should be provided to the expert which will include an overview of the matter, the issues in dispute, the matters to be addressed, and additional information that will assist in compiling the report, such as building contracts, plans and specifications, and invoices for building materials.

Most unresolved domestic building disputes are heard in a tribunal with specific rules and codes of conduct regarding the use of an expert witness and the required format for expert reports. This is generally to ensure consistency and uniformity. A copy of the relevant expert evidence guidelines and reporting requirements from the tribunal should always be attached to the instructions given to the expert.

It may also be necessary to engage an additional expert with specialist knowledge, such as a structural engineer, to provide a supplementary report for specific issues like a retaining wall claimed to be defective.

A quantity surveyor may be engaged to assess the cost of rectification works for more complex matters. For relatively simple matters, retaining an expert may not be necessary, as obtaining quotes from building professionals and tradespersons may be sufficient.

The expert report

An expert will draw upon his or her construction knowledge to provide a qualified opinion in response to the issues raised in the instructions. A report will typically include:

  • the expert’s formal qualifications, experience and field of expertise in which the evidence is being provided;
  • a summary of the issues upon which the expert is required to report;
  • any facts or assumptions upon which the expert has relied (i.e. the letter of instruction);
  • the identification (and categorisation) of incomplete, non-compliant and/or defective building work;
  • an opinion as to why the building work is incomplete, non-compliant and/or defective, qualified with reference to relevant standards, construction codes and tolerances, and the building contract, plans and specifications;
  • any examinations, investigations or tests used to form the opinion;
  • an assessment of the cause of a defect;
  • recommendations for the rectification of incomplete, non-compliant and/or defective building work including reasons for the recommendation;
  • suggested methods for rectifying the incomplete, non-compliant and/or defective building work including any reasonable alternative remedies;
  • the estimated cost of the recommended rectification work.

The duty of impartiality

Tribunal and court rules, practice notes and directions require that an expert witness is impartial and not an advocate for a party to a proceeding. He or she has an overriding duty to assist a tribunal or court on the matter relevant to the expert’s expertise.

Independence is paramount and any hint of bias towards the instructing party by the expert can be detrimental to that party’s case and may initiate a request by the opposing side for the tribunal to disregard that expert’s evidence.

The expert’s reputation and credibility in such circumstances will also be at stake.

Conclusion

An expert witness may be retained to provide an impartial qualified opinion to assist in determining a matter in dispute.

Choosing an expert with the requisite qualifications, knowledge and experience to provide an objective opinion is essential for many building disputes. When retaining an expert, it is also important to bear in mind that the expert is not an advocate for the instructing party.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email [email protected]