Director held personally responsible for $1.2 million cladding repair costs in Victoria
On 24 August 2023, the County Court of Victoria handed down its decision in Owners Corporation I Plan No PS 707553K and Ors v Shangri-La Construction Pty Ltd (ACN 130 534 244) and Anor [2023] VCC 1473.
This is an important decision to take note of as it’s the first successful compensation claim by Cladding Safety Victoria (CSV), directly against a director of a building company for the rectification costs incurred in removing combustible cladding under the amendments to the Building Act 1993 (Cth).
Building Act 1993 (Vic) amendments
Following the 2014 Lacrosse fire and the 2017 Grenfell fire in the United Kingdom, the Victorian Government committed to the removal of combustible cladding in Victoria by establishing CSV.
Subsequently, a number of amendments were made to the Building Act 1993 (Vic) (Act), which notably provided that:
where CSV pays for cladding rectification work from 19 November 2020, the Crown is subrogated all the rights and remedies the owner has against any person in relation to the installation or use of any non-compliant or non-conforming cladding; and
the Crown can enforce these rights against an officer of an entity who, at the time the cladding was installed, had either knowledge of the cladding used, or provided consent for its use.
These amendments are reflected in section 137F of the Act.
Background
In 2015, Shangri-La Construction Pty Ltd (Shangri-La), completed the construction of an apartment complex in Hawthorn.
All consultants involved in the project, including the appointed fire engineer, agreed that it would be sufficient and compliant to install the expanded polystyrene (EPS) product, known as RMAX Orange Board (RMAX) on the building. The building surveyor subsequently issued a building permit in December 2014, which had the approval of the fire engineering report.
Post construction and following the Lacrosse and Grenfell fires, it was largely accepted by the industry that EPS was non-compliant and combustible.
In 2019, the Owners Corporation commenced proceedings in VCAT against Shangri-La for various defects and non-compliant cladding. However, Shangri-La went into liquidation and the claims against it were stayed.
The active parties in this proceeding were the State of Victoria and the director of Shangri-La, Mr Naqebullah.
Court’s findings
The State of Victoria sought orders pursuant to section 137F of the Act, to the effect that Mr Naqebullah, as an officer of Shangri-La, be made personally responsible for the rectification costs incurred by CSV.
Under section 137F, a defence to enforcement action can be established if it is proven that an act or omission by an entity occurred without the knowledge or consent of an officer of an entity.
Mr Naqebullah argued that he lacked knowledge that the RMAX product used was non-compliant and that the issues were beyond his knowledge and expertise, and he should therefore not be liable.
In summary:
The court accepted Mr Naqebullah’s evidence that he was unaware that EPS was inappropriate to be used as external cladding, and only became aware of its problematic nature in 2016 or 2017.
In dealing with the interpretation of the legislation and facts, the Court adopted a strict approach and considered the absence of further proof that Mr Naqebullah knew that EPS was problematic and non-compliant is not sufficient to negate that he had knowledge of EPS being used as external cladding on the building.
Mr Naqebullah’s “knowledge”, namely that EPS was used, is sufficient to exclude him from the benefit of the defence.
Mr Neqebullah was ordered to personally pay $1.2 million to the State in compensation.
Conclusion
Subject to any appeal, the outcome of this case may result in the State further pursuing directors and officers of building companies for compensation for expenses incurred by CSV on behalf of the State in rectifying combustible cladding.
Key takeaways
If an officer of a building company possesses knowledge or consents to the cladding product used in a project (whether or not they possess the knowledge that the product is compliant or not is irrelevant), they may be found to be personally liable to the State under the provisions of the Act.
To discuss this article further, or for more information, please get in contact with:
Ben Broadhead
Principal
T 03 5226 8549 | M 0413 561 332
E bbroadhead@ha.legal
Leesa Hovendene
Lawyer
T 03 5225 5230
E lhovendene@ha.legal
James Hickey
Lawyer
T 03 5225 5239
E jhickey@ha.legal
Monique Monahan
Graduate Lawyer
T 03 5225 5261
E mmonahan@ha.legal
