Builder strikes back against regulator on flammable cladding fix: what are the implications?
Construction bulletin - 11 January 2018
In late 2017, the Supreme Court of Victoria handed down its decision in the LU Simon & others v Victorian Building Authority (VBA)1 case. The case has significant ramifications for builders and regulators, providing clarity about the scope of practitioners' obligations and the limits of the regulator's powers.
In summary, the Court found that the VBA was acting beyond its statutory powers in directing LU Simon, a builder, to repair allegedly flammable cladding on six apartment complexes, long after occupancy permits had been issued for these developments.
The VBA directed LU Simon to fix cladding under the Building Act
The case relates to six apartment buildings in inner city Melbourne for which occupancy permits had been issued in the past, in one instance over nine years ago. The VBA had issued the builder directions to fix the cladding on these buildings, purportedly under Section 37B of the Building Act 1993 (Vic) (Act). Section 37B allows a building surveyor or relevant authority to direct a builder to fix any defective building work, at no additional charge to the owner.
The VBA's primary submission was that under the Act, it has the power to direct a builder to fix building work at any time, even 50 or 100 years after the building work was completed, and after an occupancy permit or certificate of final inspection has been issued.
The arguments about Section 37B of the Building Act
The VBA argued that because Section 37B was silent as to when the period in which to issue such a direction to fix ended, the power did not expire. It argued that this interpretation of the provision was necessary to provide proper consumer protection.
LU Simon argued that Section 37B was only intended to operate during construction, and prior to the issue of an occupancy permit or certificate of final inspection being issued. It argued that the open ended interpretation of Section 37B contended by the VBA was problematic, impractical, and inconsistent with the intent of the legislation (as set out in section 1) and would give rise to inconvenient, improbable, or even irrational consequences.
The Court found the VBA to be acting beyond its power
The Court agreed with LU Simon, finding that the VBA was acting beyond its power in issuing the directions to fix the six apartment complexes. The Court found that while there was no express time limit in Section 37B, that this did not necessarily support the VBA's interpretation. Rather, the Court emphasised the importance of considering Section 37B in the context of the whole of the Act, and having regard to its objectives and its structure. The Court noted that the structure of the Act largely mirrors the construction process from start to end — in that context, Section 37B could not give the VBA the power to issue a direction to fix after the relevant project's completion.
The Court also ordered the VBA to pay LU Simon's legal costs.
What are the implications for builders?
The decision has wide ranging implications for builders generally, and provides important clarity about the limits of the regulator's powers. It emphasizes that certain powers in the Act apply only during a relevant stage of the construction lifespan.
In the specific context of flammable cladding, to which this case related, it clarifies that directions to fix can only lawfully be made before construction is completed. Post completion, the obligation to remedy falls to the building owners.
If you would like to discuss the implications further with one of our specialist construction team, please do not hesitate to contact Charles or Natasha.
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