Owners SP 92450 v JKN Para 1 Pty Limited

1. [1]

   GLEESON JA: The Owners – Strata Plan 92450 (Owners Corporation) is the registered proprietor of the common property of a 28-storey building located at Parramatta known as “The Rise” (the building). The building comprises 133 residential units, one retail and two commercial lots, and a carpark. The building was designed and constructed by Toplace Pty Ltd (Toplace) pursuant to an agreement with the owner/developer, JKN Para 1 Pty Ltd (JKN).

2. [2]

   In the underlying proceedings, the Owners Corporation claimed damages for breach of three statutory warranties in s 18B(1) of the Home Building Act 1989 (NSW) arising from defects in the building, the most significant being the installation by the respondents of aluminium composite panels (the ACPs or the cladding) on the exterior of the building. The alleged breaches were that (1) the cladding did not comply with the requirements of the Building Code of Australia (BCA) with respect to fire resistance of buildings, (2) was not good and suitable material as it was combustible, and (3) the dwellings were not reasonably fit for occupation because they are combustible. The Owners Corporation sought reinstatement damages for the cost of removing and replacing the cladding. As at 26 April 2021, the agreed estimated cost of rectification was some $5 million (excl GST). The respondents, JKN and Toplace, contended that the cladding complied with the BCA at the time of installation. They otherwise did not admit the other alleged breaches of the statutory warranties.

3. [3]

   On 30 May 2022, Ball J ordered the separate determination of nine questions relating to the alleged cladding defects. The primary judge (Black J) answered those questions on 19 July 2022 and concluded that the Owners Corporation had not established any breach of the statutory warranties: Strata Plan 92450 v JKN Para 1 Pty Ltd [2022] NSWSC 958. His Honour made formal orders on 27 July 2022 dismissing the Owners Corporation’s claims against JKN and Toplace relating to the alleged cladding defects and ordered the Owners Corporation to pay the costs of the determination of the separate questions.

4. [4]

   The Owners Corporation seeks leave to appeal against those orders and the answers to the separate questions. Leave to appeal is required because the decision below involves the determination of separate questions: Supreme Court Act 1970 (NSW), s 103. The respondents did not oppose the grant of leave. Leave should be granted since the arguments raised by the Owners Corporation raise substantial issues beyond a merely arguable injustice.

5. [5]

   For the reasons given below, the appeal should be allowed and the answers to separate questions (c)-(g), together with the orders made on 27 July 2022, should also be set aside. In lieu, those questions should be answered in the manner set out below, and orders should be made upholding the Owners Corporation claim for damages for reinstatement, being the agreed cost of removal and replacement of the cladding.

Background

1. [6]

   The primary facts are not in dispute and may be summarised as follows.

2. [7]

   On 18 February 2013, Toplace made application to the principal certifying authority, Vic Lilli & Partners, for the issue of a construction certificate, which was received by the certifier on 5 July 2013. It is common ground that the 2013 edition of the BCA is the applicable version for the construction of the building by Toplace as the application for a construction certificate was made on 5 July 2013. Reference hereafter to the BCA is a reference to the 2013 BCA.

3. [8]

   The ACPs were manufactured by Fairview Architectural Pty Ltd (Fairview) under the product name “Vitrabond FR”. The external cladding performed a waterproofing function. In its product brochure issued in 2019, Fairview stated that Vitrabond FR was not suitable for use where non-combustible materials are required. The document also stated that Vitrabond FR “can generally be used on a performance basis to meet fire resistance and building safety requirements” but recommended another product, Vitracore G2, “for use where non-combustible material is required”.

4. [9]

   An interim occupation certificate was issued on 13 May 2016.

5. [10]

   On 18 May 2016, Fire & Rescue NSW provided a “Final Fire Safety” report to Vic Lilli & Partners which:

6. [11]

   There is no evidence that Vic Lilli & Partners ever responded to this report.

7. [12]

   On 15 July 2016, the strata plan in respect of the building was registered and the common property vested in the Owners Corporation. The final occupation certificate was issued on 10 March 2017.

8. [13]

   On 10 August 2018, pursuant to the power conferred by the Building Products (Safety) Act 2017 (NSW) (BPSA), s 9(1), the Commissioner for Fair Trading NSW announced a building product use ban prohibiting the use in a building of ACPs with a core greater than 30 per cent polyethylene on the basis that the use of such products is unsafe due to the fire risk. Following the announcement of that prohibition, the Owners Corporation obtained two reports relating to the combustibility of the cladding installed on the external walls of the building.

9. [14]

   UQ Materials Performance reported on 15 February 2019 that examination of the cladding cores by infrared spectroscopy demonstrated the cores to be between approximately 35 per cent and 41 per cent polyethylene.

10. [15]

    AE & D Pty Ltd reported on 25 March 2019 to Accor Consulting that the cladding is combustible because the core is 35-40 per cent polyethylene. It recommended that the cladding be removed and replaced with a product deemed non-combustible pursuant to AS-1530.1. This was a reference to the requirements of Australian Standard AS1530.1-1994 – Combustibility Test for Materials.

11. [16]

    On 24 April 2019 in a letter to the Owners Corporation, the City of Parramatta Council raised fire safety concerns in relation to the cladding, and requested the Owners Corporation immediately take action, including (a) engage a suitably qualified professional to review and inspect the overall fire safety of the building, in particular, the installation of any external wall cladding, (b) provide a report to the Council about “how this cladding will permit the spread of fire, along with any recommendations to improve building fire safety”, and (c) take action to make any recommended changes to the building. The Council reserved the right to issue orders to the same effect.

12. [17]

    The solicitors for the Owners Corporation replied to the Council on 28 May 2019 outlining the steps being taken in the proceedings which the Owners Corporation had commenced against the respondents to recover damages to replace the cladding, and the fire safety measures being taken in the intervening period, which included banning the use of barbecues and smoking on all balconies and in the common areas of the property.

Nature of the case

1. [18]

   The Home Building Act contains warranties which are implied into contracts to do residential building work. It was admitted on the pleadings that the construction of the common property of the building was the undertaking of “residential building work” within the meaning of the Home Building Act, and that by operation of ss 18C and 18D of that Act, the Owners Corporation was entitled to the benefit of the statutory warranties contained in s 18B as the successor in title to JKN, being the party to the construction contract with Toplace.

2. [19]

   Section s 18B(1) relevantly provides:

3. [20]

   As the primary judge observed at J[6], the reference in s 18B(1)(c) of the Act to “any other law” includes the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) and associated regulations which gave legal effect to the BCA: Taylor Construction Group Pty Ltd v Strata Plan 92888 [2021] NSWSC 1315 at [33]. The relevant provisions of the EPA Act and the regulations include:

4. [21]

   The Owners Corporation’s primary case relied on breach of the statutory warranty in s 18B(1)(c). It contended that BCA compliance required that the external cladding installed on the building comply with the performance requirements (as defined) of the BCA, relevantly, with respect to fire resistance. This could be established by compliance with the deemed-to-satisfy provisions (as defined) or formulating an alternative solution (as defined), or a combination of those matters, prior to the issue of the construction certificate. It further contended that the external cladding did not comply with the deemed-to-satisfy provisions, and since no alternative solution which complies with the performance requirements, or is shown to be at least equivalent to the deemed-to-satisfy provisions, or a combination of both, was prepared prior to the issue of the construction certificate (EPA Regulation, cl 145(1)(b)), the work was not done in compliance with the provisions of the EPA Act and the EPA Regulations.

5. [22]

   The alternative case advanced by the Owners Corporation relied on breach of the statutory warranties in s 18(1)(b) and (e). It contended that the cladding installed on the external walls of the building was not good and suitable material for its purpose (s 18(1)(b)) because the cladding is combustible and poses a danger to health and risk to life and limb to the occupants of the building. This was supported by reference to the manufacturer’s representation in its publication “Understanding ACM Fire Compliance” that Vitrabond FR was only suitable for use where non-combustible materials were required when installed pursuant to an alternative solution.

6. [23]

   It also contended that “the building’s residential units were” not reasonably fit for occupation as a dwelling (s 18(1)(e)), as the cladding that forms part of the (external) wall of the building is “Vitrabond FR” manufactured by Fairview, which has a core of between 36-42 % polyethylene and is combustible because of the polyethylene core. Therefore, it was said, the cladding poses a danger to health and risk to life and limb to the occupants of the building.

The relevant provisions of the 2013 BCA

1. [24]

   The BCA is an instrument, produced by a board on behalf of the federal, state and territory governments, intended to achieve nationally consistent, minimum necessary standards of relevant safety (including structural safety and safety from fire). It contains technical provisions for the design and construction of buildings and other structures, including with respect to fire resistance of buildings. In the summary of the relevant provisions below, capitalised terms are used consistently with the drafting technique adopted in the BCA. However, the balance of this judgment does not use capitalised terms for the defined terms in the BCA.

2. [25]

   Section A of the BCA sets out the general provisions. Part A0 headed “Application” states that a Building Solution will comply with the BCA if it satisfies the Performance Requirements, which can only be achieved by complying with the Deemed-to-Satisfy Provisions or formulating an Alternative Solution that complies with the Performance Requirements, or is shown to be at least equivalent to Deemed-to-Satisfy Provisions, or a combination of both, and that the ‘Objectives’ and ‘Functional Statements’ may be used as an aid to interpretation: A0.4, A0.5 and A0.6. A Building Solution which complies with the Deemed-to-Satisfy Provisions is deemed to comply with the Performance Requirements: A0.7. An Alternative Solution will only comply with the BCA if the assessment methods used to determine compliance with the Performance Requirements have been satisfied: A0.8; and the Performance Requirements relevant to an Alternative Solution must be determined in accordance with A0.10 by identifying the relevant Performance Requirements relevant to a Deemed-to-Satisfy Provision that is to be the subject of an Alternative Solution.

3. [26]

   A0.9 specifies the following assessment methods, or any combination of them, which can be used to determine that a Building Solution complies with the Performance Requirements:

4. [27]

   Under the heading “Documentation of Decisions”, it is stated in the Introduction to the BCA that decisions made under the BCA should be fully documented and copies of all relevant documentation should be retained. Examples of the kind of documentation which should be prepared and retained in cases where an alternative solution has been proposed are:

5. [28]

   A1.1 headed “Interpretation” sets out Definitions, which relevantly include:

6. [29]

   Australian Standard AS 1530.1, which is referred to in the defined terms “combustible” and “non-combustible”, was not in evidence. However, it is common ground that cl 3.4 of AS 1530.1 was set out in Mr Tatian’s report (at par 37), which is reproduced below:

7. [30]

   Section C headed “Fire Resistance” contains the critical provisions relevant to these proceedings concerning the Objective and performance requirements with respect to fire resistance. The Objective is stated in CO1 as:

8. [31]

   The performance requirements in relation to the fire resistance of buildings include:

9. [32]

   Part C1 headed “Fire Resistance and Stability” contains the relevant Deemed-to-Satisfy Provisions and specifications with respect to fire resistance of buildings. C1.0 states that the manner of complying with Performance Requirements where a Building Solution is proposed to comply with the Deemed-to-Satisfy Provisions or a Building Solution is proposed as an Alternative Solution to the Deemed-to-Satisfy Provisions. Importantly for the present case, Part C1 cl C1.1(b) states that for Type A construction, the most fire-resistant type of construction is required for Class 2 buildings (residential) of three or more storeys and Class 6 (retail) and class 7 (car park) buildings of four or more storeys: Table C1.1.

10. [33]

    Specification C1.1 headed “Fire-Resisting Construction” contains requirements for the fire-resisting construction of building elements and cl 3.1(b) relevantly states that in a building required to be of Type A construction “external walls … must be non-combustible”.

11. [34]

    “The Rise” building is more than four storeys in height; accordingly, it is classified as Type A under the BCA and was required to be the “most fire-resistant”: Part C1 cl C1.1(b). BCA compliance could be achieved through the deemed-to-satisfy provisions or through an alternative solution (or a combination of both), provided that the relevant performance requirements are satisfied. The performance requirements included that a building must have elements which will, to the degree necessary, avoid the spread of fire to exits and to sole occupancy units and public corridors, appropriate to the matters listed in CP2(b), which include the fire load, the potential fire intensity and the fire hazard.

12. [35]

    The deemed-to-satisfy provisions of the BCA required the external walls of the building to be “non-combustible”, that is, constructed wholly of materials that are not deemed combustible: Specifications C1.1 cl 3.1(b). Whether a material is not deemed combustible is determined by AS1530.1. It was common ground that the cladding installed on the external walls of the building did not comply with the deemed-to-satisfy provisions of the BCA as there was no evidence of an AS1530.1 test report in respect of the subject cladding.

13. [36]

    It was also common ground that no alternative solution that complies with the performance requirements of the BCA with respect to fire resistance or is shown to be at least equivalent to the deemed-to-satisfy provisions, or a combination of both, was prepared prior to the issue of the construction certificate.

The expert evidence

1. [37]

   Evidence on the issue of BCA compliance and combustibility of the cladding was given by three experts. Mr Mark McDaid of MCD Fire Engineering Pty Ltd, was appointed by the parties by order of the Court as their single joint expert to provide an opinion to the Court on various matters relating to the fire safety systems and the cladding installed on the building, including the compliance or otherwise of the cladding with the BCA and any other relevant law or standard, and the rectification required in respect of the fire safety systems and cladding. Mr McDaid issued the final version of his joint expert report on 10 February 2020.

2. [38]

   The parties also adduced their own expert evidence. The respondents relied upon reports from Mr Mardiros Tatian dated 26 April 2021 and 13 April 2022. The Owners Corporation relied upon reports by Mr Alan Harriman dated 11 February 2022 and 20 June 2022.

3. [39]

   In response to question 4 – whether the cladding was installed on the external walls of the property in compliance with the BCA and all other relevant legislation, codes and standards during its design and construction in 2015-2017 – Mr McDaid answered (at par 34):

4. [40]

   In response to question 10 in relation to recommended remediation for any non-compliance in the fire safety systems at the property, Mr McDaid recommended the removal and replacement of the ACPs installed as the external cladding on the building, stating (at par 59(k)):

5. [41]

   Mr McDaid answered further questions in a letter to the parties’ solicitors dated 30 June 2020. In response to the question 7 whether in recommending that cladding be removed and replaced, did he consider and investigate the feasibility of adopting any solution whereby the cladding could be retained, and if so, what solution(s) and what was his conclusion about those solutions, Mr McDaid answered (in par A.8.1):

6. [42]

   The respondents’ case, relying on the evidence of Mr Tatian, was that the as-built building, without modification, was capable of being certified at the relevant time by way of an alternative solution under cl A0.5 of the BCA. Whilst Mr Tatian did not identify what an alternative solution would be, he gave evidence of an assessment method to be adopted for an alternative solution to comply with the performance requirements under Part C of the BCA.

7. [43]

   After referring to six matters in par 61 of his first report (proximity of the cladding to any fire-source feature, the sprinkler system to AS 2118.1 as installed, the fire resistance of the external walls of the building, all external walls with the cladding are non-loadbearing, the furnace test procedure outlined in cl 2.10 of AS 1530.4-2005, and his opinion that the cladding is not expected to adversely contribute to the fuel load as the temperature generated by an external fire is unlikely to exceed 1000C), Mr Tatian concluded in pars 62-63:

8. [44]

   The Owners Corporation’s case, relying upon the evidence of Mr Harriman, was that whilst a performance solution could have been carried out in 2013 (which his Honour noted at J[22] was clarified when giving evidence as merely a reference to the availability of that option), certain information was not available, which is still the case, to allow a comprehensive performance solution to be undertaken. This information was identified in Mr Harriman’s first report (par 11.1.3):

9. [45]

   Mr Harriman concluded in his first report (par 11.1.4) that a performance solution that satisfied all of the performance requirements of CP2, CP4, CP8 and CP9 of the BCA could not have been undertaken in 2013, either for the cladding which formed part of the external wall or for the cladding formed the attachment to the building elements.

The primary judge’s reasons

1. [46]

   The primary judge referred to the requirements of the BCA (at J[5]-[8]), addressed the report of Mr McDaid (at J[9]-[13]) and made findings in relation to the evidence, including the expert evidence (at J[15]-[42]).

2. [47]

   Addressing the expert evidence concerning the availability of an alternative solution, his Honour said of the evidence of Mr Harriman at J[22]:

3. [48]

   Turning to the evidence of Mr Tatian, his Honour found at [37]:

4. [49]

   With respect to the statements by Fairview in its 2019 publication, which were relied upon by the Owners Corporation on the issue of combustibility of Vitrabond FR, his Honour said at J[24], [28]:

5. [50]

   Addressing the asserted breach of the warranty in s 18B(1)(c), his Honour found that:

   1. (1)

      the cladding on the building did not comply with the deemed-to-satisfy provisions of the BCA, noting that such non-compliance was admitted by the respondents in answer to a notice to admit facts: J[43];

   2. (2)

      the “strict” answer to question (b) (whether the cladding is otherwise compliant with the BCA by way of alternative solution under the BCA) was no, “because an alternative solution under the BCA was not prepared prior to the issue of a construction certificate for the building and has not been prepared now”: J[48];

   3. (3)

      however, the strict answer would not assist the Owners Corporation in obtaining substantive relief since the Court would plainly be less likely to order damages in excess of $5 million in respect of the rectification cost of removing and replacing the existing cladding “if that existing cladding would comply with the BCA if an Alternative Solution was now prepared”. For that reason, senior counsel for Owners Corporation rightly noted in opening submissions that it sought to establish that an alternative solution could not be prepared to satisfy the BCA requirements: at J[48]; and

   4. (4)

      the evidence does not establish that an alternative solution would not have been available, nor had the respondents established the availability of any alternative solution had it been necessary for them to do so: at J[51].

6. [51]

   Turning to the alternative case relying on breach of the warranty in s 18B(1)(b), his Honour found at J[54]-[55] it had not been established by an AS1530.1 test that the cladding was combustible within the meaning of the BCA, and the 2019 publication by Fairview did not establish that matter; there was no other evidence that the cladding was combustible in any event, where neither a cone calorimeter or any other test of it had been performed; and the evidence did not establish that the cladding was composed of material that was not good and suitable for the purpose for which it was used, because it was combustible, and gave rise to a real risk of fire spreading via the façade, through the cavity behind the cladding and into the windows of the apartments.

7. [52]

   His Honour accepted at J[56] that had it been established that there was a real risk of fire spreading by the façade, through the cavity behind the cladding and into the windows of the apartments, then he would have found that the statutory warranty in s 18(1)(b) was breached.

8. [53]

   His Honour concluded that he could not find that the combustibility of the Vitrabond FR cladding has been established for the purposes of AS1530.1 or otherwise. On his Honour’s view, the evidence did not adequately address the rate at which combustion would occur or the effect of other design features of the building, including the sprinkler system, which also would have been relevant to the availability of an alternative solution at the relevant time: at J[57].

9. [54]

   For the same reasons with respect to s 18(1)(b), his Honour found that that there was no breach of the warranty in s 18(1)(e): at J[60].

10. [55]

    His Honour concluded that the Owners Corporation had not established any breach of the statutory warranties in s 18B(1)(b), (c) or (e) of the Home Building Act: at J[61].

11. [56]

    Given the conclusions on breach, the questions of compensable loss and whether reinstatement damages were appropriate, did not arise: at J[62], [63].

12. [57]

    Nevertheless, his Honour went on to address on a contingent basis, assuming breach of warranty, whether the respondents would be liable to pay damages to the Owners Corporation for the cost of rectification by removing the cladding and replacing it with cladding that conforms to the requirements of the BCA as it now applies. Although his Honour referred to Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 and subsequent authorities, his Honour proceeded on the basis that the Owners Corporation had an onus to establish that an alternative solution “could not then or now be performed”: at J[67]. (The Owners Corporation contends on appeal that his Honour erred in finding that the Owners Corporation had such an onus of proof.)

13. [58]

    His Honour gave the following reasons for concluding that rectification works at substantial cost would not be proportionate to any benefit to be obtained or a reasonable course to adopt (at J[67]):

14. [59]

    At J[70], his Honour summarised his answers to the separate questions:

15. [60]

    On 27 July 2022, his Honour made orders dismissing the Owners Corporation’s claim in relation to the cladding defects as follows:

Issues on appeal

1. [61]

   There are two parts of the appeal. The first concerns the challenge his Honour’s findings that the respondents did not breach the statutory warranties in s 18(1)(c) (grounds 1 and 2), or alternatively, s 18(1)(e) (grounds 3-9) or s 18(1)(b) (ground 10).

2. [62]

   The second part concerns the issue of loss and damage. The Owners Corporation challenges in various ways his Honour’s conclusion that the question of liability to pay damages does not arise, the finding that the Owners Corporation had the onus of establishing that an alternative solution “could not then or now be performed”, and the contingent finding that the award of reinstatement damages would be unreasonable.

Breach of s 18B(1)(c): BCA compliance

1. [63]

   The respondents did not press their objection in writing that the Owners Corporation’s reliance on non-compliance with planning laws raised a new case on appeal.

2. [64]

   The Owners Corporation says that his Honour’s conclusion that there was no breach of s 18(1)(c) of the Act is a clear error because this breach was established as the building did not satisfy the performance requirements of the BCA. It is said that the external cladding did not comply with the deemed-to-satisfy provisions and, since no alternative solution was prepared prior to the issue of the construction certificate, the work was not done in compliance with the relevant provisions of the EPA Act and associated regulations. So much was acknowledged by his Honour at J[48] when stating that the “strict” answer to question (b) is “no”, before finding that there was no breach of s 18B(1)(c).

3. [65]

   The respondents correctly accepted in oral argument that the statutory warranty in s 18B(1)(c) had been breached. Ground 1 is established.

4. [66]

   The focus of argument on appeal turned to the question of loss and damage for breach of the warranty in s 18(1)(c). It is convenient to immediately turn to that issue.

Principles: loss and damage

1. [67]

   In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13], the joint judgment reiterated the “ruling principle” with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman (1884) 1 Exch 850 at 855; 154 ER 363 at 365:

2. [68]

   Consistent with this principle, rules have been developed in particular types of cases for the bases of assessing damages. In a case like the present, where the claimant is entitled to have a building erected upon its land in accordance with the contract and the plans and specifications which formed part of it, the prima facie measure of damages is the cost of reinstatement, not the diminution in value of the defective building. In Bellgrove v Eldridge, Dixon CJ, Webb and Taylor JJ said (at 617):

3. [69]

   Bellgrove v Eldridge recognised a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. “The qualification … is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt” (at 618). The joint judgment gave as an example of unreasonableness, demolishing the walls of a house which were to be cement rendered with second-hand bricks, to replace second-hand bricks with new bricks, which was said to be “quite unreasonable”, whilst indicating that the expression “economic waste” goes too far in stating the test (at 618-619). Importantly, the test of “unreasonableness” is only to be satisfied “by fairly exceptional circumstances”: Bellgrove v Eldridge at 617, cited in Tabcorp at [17].

4. [70]

   Tabcorp at [16] referred by way of an example of unreasonableness to the situation where the innocent party was “merely using a technical breach to secure an uncovenanted profit”, citing Oliver J in Radford v De Froberville [1977] 1 WLR 1262. Other examples include where the cost of the “proposed rectification is out of all proportion to the benefit to be obtained”: Brewarrina Shire Council v Beckhouse Civil Pty Ltd [2006] NSWCA 361 at [87]-[88], citing South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81 at 90 (Debelle J); and Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 at [120] (Ipp JA); see also Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [81] (Macfarlan JA, McColl and Basten JJA agreeing). For a recent application of this principle in this Court, see Renown Corporation Pty Ltd v SEMF Pty Ltd [2022] NSWCA 233.

5. [71]

   The burden of proof for establishing loss lies on the claimant, in this case, the Owners Corporation. By contrast, the party in breach of contract has the onus of displacing the prima facie rule for assessing damages as the cost of reinstatement: Builders’ Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23 at [79]; Owners of Strata Plan No 77475 v Walker Group Constructions Pty Ltd [2016] NSWSC 1127 at [50] (Bergin CJ in Eq); Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) 166 FCR 494; [2008] FCAFC 38 at [27], [29]-[31] (Finkelstein and Gordon JJ), [115] (Rares J, although in dissent on the facts); Metricon Homes Pty Ltd v Softley (2016) 499 VR 746; [2016] VSCA 60 at [246]; and Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5 at [102], [106], [115], [119] (Kirk JA and Griffiths AJA).

6. [72]

   The onus is at least an evidentiary onus in the sense referred to by Barwick CJ, Kitto and Taylor JJ in Purkess v Crittenden (1965) 114 CLR 164 at 168; [1965] HCA 34 when speaking of the “burden of proof in the secondary sense” of introducing evidence.

7. [73]

   Builders’ Insurers’ Guarantee Corp v Owners – Strata Plan No 57504, involved a claim by the owners against the Guarantee Corporation as the insurer of the builder’s work. The contract obliged the builder to construct a concrete or brick hob at the junction between a residential unit and its balcony on the same level to prevent storm water entering the unit from the balcony, but the builder had installed inferior hobs. Handley AJA (Tobias and Campbell JJA agreeing) said that the Guarantee Corporation had “at least” an evidentiary onus in terms of adducing evidence that the hobs as installed in that case were just as effective as those specified: at [79]. His Honour also remarked, without deciding, that a defendant may actually have the legal onus of proving functional equivalence, so that reinstatement would be unnecessary: at [80]. His Honour observed that the evidence called by the Guarantee Corporation, taken at its highest, did not establish functional equivalence and its evidentiary onus was not discharged: at [81].

8. [74]

   Kirby v Coote [2006] QCA 61 involved an unsuccessful appeal against an award of damages for the cost of demolishing and re-erecting a pole house on steeply sloping land which the builder had constructed on inadequate footings. The builder argued that partial underpinning of the footings at a cost of $193,200 would be adequate and that the damages of $581,200 for the cost of demolition and reconstruction were excessive. The primary Judge accepted expert evidence that partial underpinning involved a real risk of failure although this could not be quantified with any certainty.

9. [75]

   Keane JA referred (at [52]) to the reluctance of the High Court in Bellgrove v Eldridge to confine the plaintiff to "a doubtful remedy" "contrasting the case before it with a case where it is clear that the expenditure imposed on the defendant is disproportionate to any benefit to the plaintiff in terms of the vindication of the plaintiff's right to recover its actual loss from the defendant".

10. [76]

    Keane JA continued (at [59]): "The respondent’s house is a house which is affected by a degree of instability which would not have been present had the first appellant properly discharged his duty … because the respondents’ damages are assessed ‘once and for all’ the law must be astute to ensure that the measure of damages accurately reflects the restoration of the respondents to the position they would have been in had the appellants not failed in their duty." The cheaper option advocated by the builder involved risks and Keane JA said (at [60]) that "reasonableness does not require the respondent to carry those risks".

11. [77]

    Metricon Homes v Softley involved an unsuccessful appeal against an award of damages for the cost of demolition and reconstruction a house which the builder had constructed with a concrete slab that was defective. After referring to the statements of Keane JA in Kirby v Coote, Robson AJA (Warren CJ and Tate J agreeing) said at [245]:

12. [78]

    Bowen Investments involved a claim by a landlord against a tenant for breach of a covenant not to alter the demised premises without approval. In the Full Federal Court, after noting at [27] that the landlord’s wish to have the foyer restored was important, and “her attitude has not been shown to be unreasonable”, Finkelstein and Gordon JJ said at [29] and [31]:

13. [79]

    On appeal to the High Court, the majority judgment of Finkelstein and Gordon JJ was affirmed. Whilst the High Court did not comment on those parts of the Full Court’s judgments at [29]-[31], the discussion in Tabcorp at [17] leading to the conclusion that the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances, implies that there is an onus on a defendant to displace a claim for rectification costs by establishing that it is unreasonable.

14. [80]

    The Owners Corporation submits that the respondents bore an evidentiary onus of displacing the prima facie rule for assessing damages as the cost of reinstatement. That should be accepted. It is not necessary to address the issue raised by Handley AJA in Builders’ Insurers’ Guarantee Corp v Owners – Strata Plan No 57504 at [80] as to whether if the rectification work is regarded as an act of mitigation, there is a legal onus on the defendant to show that the work proposed by way of mitigation was unreasonable.

15. [81]

    His Honour erred in finding that the Owners Corporation had the onus of establishing that an alternative solution “could not then or now be performed”: at J[67]. Having established that the respondents did not comply with the BCA, the Owners Corporation were not required to go further by proving that the respondents could not have complied by acting differently with respect to an alternative solution.

16. [82]

    The respondents do not challenge by way of a notice of contention his Honour’s findings that Mr Tatian’s evidence involves a degree of speculation to steps which were not taken to develop a full alternative solution (at J[37]) and that the respondents had not established the availability of any alternative solution (at J51]). The evidence adduced by the respondents did not establish the functional equivalence of an alternative solution to the deemed-to satisfy provisions of the BCA and their evidentiary onus was not discharged. That is, the respondents did not adduce evidence which, if accepted, would have shown that an alternative solution that would satisfy the performance requirements of the BCA with respect to the fire resistance of the cladding could have been formulated, assessed, and certified prior to the issue of the construction certificate, or could now be formulated, assessed, and certified.

17. [83]

    The respondents resist an award of reinstatement damages on two grounds. One is that his Honour’s approach to the issue of “onus” was correct based on asserted acknowledgements by the Owners Corporation’s in the conduct of its case at the hearing. The other is that the breach of the warranty in s 18B(1)(c) is not a substantive breach and is “purely formal”. Neither argument should be accepted.

18. [84]

    The respondents say that the Owners Corporation’s senior counsel acknowledged at the hearing that (1) it sought to establish that no alternative solution would have been possible at the time of the issue of the construction certificate, and (2) the Court would not reasonably order the removal and replacement of the cladding unless the Owners Corporation positively established the unavailability of an alternative solution.

19. [85]

    The Owners Corporation disputes that it made these concessions.

20. [86]

    The starting point is to consider how the parties put their respective cases at the hearing. The Owners Corporation’s written opening submissions contended that Mr Tatian’s opinion that the building was “capable of being certified at the relevant time by way of an alternative solution” was not to the point because BCA compliance required that any alternative solution had to be formulated, assessed and approved prior to the issue of the construction and occupation certificates.

21. [87]

    It was further contended:

22. [88]

    That submission was directed to disputing Mr Tatian’s opinion that the building was “capable of being certified at the relevant time by way of an alternative solution”. It did not involve an acknowledgement by the Owners Corporation that it had the onus to disprove the availability of an alternative solution. Rather, the submission joined issue with Mr Tatian’s opinion.

23. [89]

    Consistent with the respondent having the onus of proof that reinstatement would be unreasonable, the respondents’ written opening contended:

24. [90]

    During the Owners Corporation’s oral opening, his Honour raised the question of whether it sought to establish affirmatively that an alternative solution could not be prepared at the time of the construction certificate. The Owners Corporation’s senior counsel initially agreed that, although not pleaded, disproving the availability of an alternative solution formed part of its case in chief. However, counsel also said that “there is no evidence that any alternative solution was ever undertaken in respect of the cladding”.

25. [91]

    A little later, the following exchange occurred:

26. [92]

    His Honour then put to the Owners Corporation’s counsel that he was seeking to raise that the “second” possibility seemed to be a distraction, because it did not seem likely to lead to the substantive relief sought by the Owners Corporation. Counsel responded:

27. [93]

    Contrary to the respondents’ characterisation of this exchange, it did not follow that the Owners Corporation was acknowledging that it had the onus on that issue. That counsel went on to make the further submission that it would never have been possible to do an alternative solution did not amount to an acknowledgment that the Owners Corporation had the onus of disproving that an alternative solution was available. That submission was in response to the respondents’ case that an alternative solution was available: see [85] above.

28. [94]

    Further exchanges occurred during the opening in which his Honour put to the Owners Corporation’s counsel that it did not seem to be an attractive proposition to order a replacement of the cladding at a cost of some $5 million where “an alternative solution could’ve been obtained, was open to be able to be obtained on the merits but was not obtained”. Counsel responded, “[y]es. I think we would agree with that”. His Honour then observed “[w]ell, yes, that is common ground”. His Honour suggested to the Owners Corporation’s counsel that she consider the matters he had raised and clarify the Owners Corporation’s position and invited counsel to “come back to [the issue] once [counsel] had a fair opportunity to think about [it]”.

29. [95]

    Again, contrary to the respondents’ submissions, it did not follow from this exchange that the Owners Corporation was acknowledging that reinstatement damages were unreasonable if the Owners Corporation could not positively establish the unavailability of an alternative solution prior to the issue of the construction certificate. What his Honour was putting to counsel was that reinstatement damages may be unreasonable if an alternative solution could have been obtained prior to the issue of the construction certificate but had not been obtained. That was a matter on which the parties’ experts had joined issue.

30. [96]

    On a fair reading of the transcript, it is evident that whilst the Owners Corporation initially agreed that disproving the availability of an alternative solution to form part of its case in chief, after further discussion and some confusion at least with respect to the “second” possibility mentioned by his Honour, the primary judge invited the Owners Corporation to come back to that issue once it had a fair opportunity to think about it.

31. [97]

    In closing submissions, the respondents contended that the Owners Corporation had conceded in opening, in effect, that the Owners Corporation had the burden to establish that no alternative solution could have been prepared at the time of the construction certificate demonstrating compliance with the performance requirements. The Owners Corporation’s counsel denied that any concession had been made. Counsel reiterated that there had been a failure to prepare an alternative solution at the relevant time.

32. [98]

    The respondents point to a submission in closing by the Owners Corporation that it had demonstrated that “it would be incredibly difficult to have an alternative solution” and that there was “no realistic possibility that any solution would have been determined to comply with the relevant performance requirements”. Contrary to the respondents’ submissions in this Court, this was not a concession in relation to the onus of disproving the availability of an alternative solution but was in response to the respondents’ case, that an alternative solution was capable of being formulated. That submission had been advanced by the respondents in their opening written submissions (par [32]), by reference to the reasoning of Meagher JA in The Owners of Strata Plan 76888 v Walker Group Constructions Pty Ltd [2016] NSWSC 541 at [44]-[46], [66]-[67]. In written closing submissions (pars [94]-[99]) the Owners Corporation submitted that Walker Group was distinguishable. The respondents’ submissions mischaracterise the arguments advanced by the Owners Corporation in answer to a different point.

33. [99]

    In the course of further argument, the following exchange occurred:

34. [100]

    That the Owners Corporation contended that reinstatement damages were reasonable because the non-compliance with the BCA was a substantive risk in the building did not involve an acknowledgement that it would be unreasonable to award reinstatement damages unless the Owners Corporation positively established the unavailability of an alternative solution.

35. [101]

    On a fair reading of the whole of the transcript, the Owners Corporation did not accept – contrary to the authorities referred to above – the onus of establishing that no alternative solution would have been possible at the time of the construction certificate or would have been possible now. Nor did the Owners Corporation acknowledge that reinstatement damages would be unreasonable, unless the Owners Corporation positively established the unavailability of an alternative solution. His Honour erred at J[48] in assuming that the Owners Corporation’s senior counsel made such concessions. Ground 14 has been established.

36. [102]

    The respondents’ “purely formal” characterisation of the breach of the BCA relies upon the following arguments.

37. [103]

    It is said that no alternative solution was prepared for the cladding at the time because none was required by the principal certifying authority. That misses the point, especially as the respondents now acknowledge the breach of the warranty in s 18(1)(c).

38. [104]

    It is said that it is beside the point that the preparation of an alternative solution was not a simple matter. That also misses the point. There is an unchallenged finding that Mr Tatian’s evidence involves a degree of speculation to steps which were not taken to develop a full alternative solution: at J[37]. That finding was well-open to his Honour. As the Owners Corporation correctly submits, for an alternative solution to have satisfied the performance requirements of the BCA, would have required the following steps:

    1. (1)

       the respondents having an alternative solution that would have to be formulated and assessed pursuant to the “Assessment Methods” included in the BCA (cll 8.05, 8.08, 8.09);

    2. (2)

       the respondents obtaining a report and/or compliance certificate from a fire safety engineer stating and/or certifying that the alternative solution complies with the relevant performance requirements;

    3. (3)

       the respondents submitting the compliance certificate and/or report to the principal certifying authority as part of the application for a construction certificate: EPA Regulation, cl 144A(1);

    4. (4)

       the principal certifying authority, within 7 days of receiving the application, forwarding to the Fire Commissioner a copy of the application, plans and specifications for the building, details of the relevant performance requirements the alternative solution was intended to meet, and details of the assessment methods used: EPA Regulation, cl 144(2);

    5. (5)

       the Fire Commissioner, within 23 days of receiving the documents, furnishing the certifying authority with an initial fire safety report specifying, among other things, whether the Fire Commissioner is satisfied that the alternative solution will meet the relevant performance requirements: EPA Regulation, cl 144(3), (5)(b), (9);

    6. (6)

       the certifying authority, before issuing a construction certificate, taking the initial fire safety report into account: EPA Regulation, cl 144(5)(a); and

    7. (7)

       the certifying authority, if the initial fire safety report recommended a condition be imposed on the building, ensuring the terms of the recommended condition are included in the plans and specifications of the building work or attached to the construction certificate, or if the certifying authority does not adopt the recommendation, giving written notice to the Fire Commissioner of the fact that the recommendation has not been adopted and of the reasons why: EPA Regulation, cl 144(6), (7).

39. [105]

    It is said that the Owners Corporation failed to prove a substantive failure because its expert conceded that further information was required to assess the combustibility of the cladding. This was a reference to evidence of Mr Harriman during concurrent evidence that cone calorimeter testing would have supplied information necessary to assess the cladding’s combustibility, which his Honour regarded as a significant concession: at J[49]. This evidence was directed to the sources of information as to the combustibility of the cladding in the absence of an AS1530.1 test. The respondents did not adduce evidence by reference to any such testing of functional equivalence, that an alternative solution would satisfy the performance requirements of the BCA with respect to the fire resistance of the cladding. Nor did Mr Harriman resile from his evidence that the cladding was combustible or that the cladding ought to be replaced for that reason.

40. [106]

    Contrary to the premise of the respondents’ submissions, compliance with the performance requirements of the BCA does not distinguish between substantive and purely formal breach. There is an unchallenged finding that the respondents had not established the availability of any alternative solution: at J[51]. The failure to comply with the deemed-to-satisfy provisions or to formulate, assess and certify an alternative solution prior to the issue of the construction certificate was not a technical breach. It was a failure to comply with either of the only two methods of meeting the performance requirements of the BCA with respect to the fire resistance of buildings: BCA, A0.5, C1.1(b). Contrary to his Honour’s implicit characterisation of the breach as a de minimis or technical breach (at J[67]), the breach was substantive. Ground 2 is established.

41. [107]

    The performance requirements of the BCA require that the materials used on the external wall of a building either meet a particular test standard to ensure that they are not combustible (AS 1503.1) or are assessed and certified by a fire engineer, certifying authority and the Fire Commissioner, so as to ensure the materials’ functional and performance equivalence during a fire. By installing cladding which did not comply with the performance requirements of the BCA, the respondents provided the Owners Corporation with a building which did not meet the minimum standards for public safety: Tanah Merah Vic Pty Ltd v Owners Corp No 1 of PS613436T [2021] VSCA 72 at [209].

42. [108]

    The Owners Corporation was entitled to a building with cladding that either complied with the deemed-to-satisfy provisions or had been assessed by a fire engineer, certifying authority and the Fire Commissioner as an alternative solution to ensure that the cladding’s functional and performance equivalence was resistant to fire as that required by the deemed-to-satisfy provisions. That did not occur prior to the issue of the construction certificate. Nor did the respondents establish the functional equivalence of an alternative solution which could now be formulated, assessed, and certified.

43. [109]

    The non-compliance with the performance requirements of the BCA with respect to the minimum standards of safety from fire, impacts not only upon the occupants of the building, but also the public and the Fire Brigade which has the responsibility to deal with any fire that may occur. It is not necessary to find that a fire will occur: Coote v Kirby at [55]; Metricon at [249]. It is sufficient to find, as I do, that given the noncompliance with the minimum standards in the BCA for safety from fire, there is a real risk of damage occurring in the future from fire in the building and of harm for the safety for occupants of the building and the public. As Keane JA said in Coote v Kirby at [60], reasonableness does not require the Owners Corporation to carry those risks.

44. [110]

    Grounds 12 and 13 have been established insofar as these grounds refer to breach of s 18B(1)(c). Orders should be made upholding the Owners Corporation claim for damages for reinstatement, being the agreed cost of removal and replacement of the cladding.

Grounds 3-10 and 15-17

1. [111]

   Given the above conclusion is dispositive of the appeal, it is strictly unnecessary to address the other grounds. I have considered whether, in accordance with Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12], I should do so and concluded that I should not.

2. [112]

   It is not necessary to address grounds 3-10 which relate to other alleged breaches of s 18B(1), in the alternative to breach of s 18B(1)(c), given the respondents’ concession that there had been a breach of s 18B(1)(c). Nor is it necessary to address grounds 15-17 which assume that the Owners Corporation had the onus of proof of proving that an alternative solution was not available, given that the premise of these grounds does not arise.

Conclusion and Orders

1. [113]

   The appeal has succeeded and there is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

2. [114]

   I propose the following orders:

   1. (1)

      Grant leave to appeal.

   2. (2)

      Appeal allowed.

   3. (3)

      Direct the appellant to file a notice of appeal in the form contained in the White Book within seven days.

   4. (4)

      Set aside the answers to separate questions (c), (d), (e), (f), (g) and (h) given on 19 July 2022, and in lieu, answer those questions as follows:

   5. (5)

      Set aside orders (1) and (2) made on 27 July 2022 and in lieu, make the following orders:

   6. (6)

      The respondents pay the appellant’s costs of the appeal and the determination of the separate questions in the court below.

3. [115]

   WHITE JA: I agree with Gleeson JA.

4. [116]

   BRERETON JA: I agree with Gleeson JA.