There are new implications for those in the construction industry arising from the decision of the Supreme Court Victoria in L U Simon Builders Pty Ltd v Victorian Building Authority [2017] VSC 805. 

In November 2014 a fire broke out on the balcony of an apartment at the Lacrosse building in Docklands.  The fire spread quickly upwards from the balcony via the façade which was built using non-compliant aluminium composite cladding. 

The Lacrosse fire and the subsequent Grenfell Tower tragedy in London has resulted in scrutiny of building materials used in the construction of high rise apartment towers and high rise commercial buildings.  It would seem that increasingly entities involved in design and construction of high rise buildings have accessed inferior and, sometimes non-compliant materials.  Local councils, State governments and the Commonwealth Government have launched various inquiries and undertaken corrective measures to attempt to address the problems arising from the use of materials such as aluminium composite cladding. 

The Victorian Building Authority (VBA) issued the builder of the Lacrosse building, LU Simon, with a direction pursuant to section 37B of the Building Act 1993 (Vic) (Act) to fix certain building works and specifically to replace the cladding. 

LU Simon challenged the legality of the VBA’s direction.  Justice Cavanough of the Victorian Supreme Court was asked to determine whether the relevant State authorities have the legal power to give a direction to fix building work under section 37B(2) of the Act.  His Honour determined that, after reviewing the objects and provisions of the Act, a direction to fix could not be issued after a certificate of final inspection or occupancy permit has been issued for a building.  His Honour also determined that a direction to fix under the Act could only be issued during the building stage.  

In opposing LU Simon’s contention that the direction to fix power was limited to the period before the issuing of an occupancy permit or certificate of final inspection, the VBA submitted that its power in section 37B to issue a direction to fix should be exercisable within a ‘reasonable period of time’ after completion of the building works.  This argument was not accepted. 

The reasons for Cavanough J arriving at his conclusion included: 

  1. That section 37B and the power to give a direction to fix, whilst not expressly setting a time limit for operation, must be read in the context of the Act as a whole; 
  2. The direction to fix power in section 37B is found in Division 2 of Part 4 of the Act which relates to the phase or period between the issue of a building permit and the issue of the certificate of final inspection or occupancy permit; 
  3. The wording of section 37B suggests that, before a direction to fix can be issued, there must be a builder in charge and on the site carrying out building work; 
  4. Other sections of the Act provide that building work cannot be carried out unless there is a current building permit in force (and doing so gives rise to a criminal offence).  LU Simon submitted that it would be inconceivable that Parliament would intend that a builder, after the issue of an occupancy permit or certificate of final inspection (i.e. many years after a building permit has expired), would be required to undertake corrective building work and thereby commit a criminal offence; and 
  5. Practical problems could arise if a direction to fix was given a long time after the issuing of an occupancy permit or certificate of final inspection.  For example, a person or entity who was no longer a builder could be forced to attend and carry out corrective works even if they had no right to enter property and even if they had no rights of contribution from other parties (such as consultants and sub-contractors) due to the passage of time and statutory limitations of liability. 

The VBA has not appealed the decision.  There is no indication that the Victorian Government will pass legislation to amend the Act to allow for directions to fix to be issued at or after final inspection or the issuing of an occupancy permit.  

This decision is significant for the following reasons: 

  1. The powers of the VBA and Local Councils in Victoria to issue directions to fix under section 37B of the Act are limited to the period before the issuing of an occupancy permit or certificate of final inspection.  As a consequence, the VBA and Local Councils cannot issue directions to fix months or years after the completion of building works – often when the non-compliance becomes known to owners and responsible authorities; 
  2. Owners and owners corporations who discover non-compliant building works and defects can no longer turn to the VBA and Local Council and request that they intervene and issue a direction to fix under section 37B of the Act to the builder and/or to subcontractors.  Instead, owners and owners corporations must pursue rights in their own names and either seek to negotiate with the builder or refer the matter to the Domestic Building Disputes Resolution Victoria and/or to VCAT or to the Courts, at the expense of owners and owners corporations.  Often such disputes run for a period of several years and involve considerable expense; and 
  3. The outcome is favourable for builders as it prevents authorities from issuing effective directions to fix building works to builders potentially many years after works have been completed.