Building & Construction Law Update - Victorian Court of Appeal clarifies the ‘reasonable care’ requirement in proportionate liability cases

Building & Construction Law
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Tanah Merah Vic Pty Ltd v Owners Corporation No 1 of PS613436 [2021] VSCA 72

In this case (Lacrosse Appeal), the Victorian Court of Appeal was required, among other things, to decide whether a claim against a builder who had been found, at first instance, to have breached certain statutory warranties under the Domestic Buildings Contracts Act 1995 (Vic) (DBCA), was in fact an apportionable claim.

The case concerned a fire at the Lacrosse apartment tower at 673-675 La Trobe Street, Docklands, Victoria (Building). The owners brought the claim after the external cladding of the Building caught fire (ignited by an errant cigarette), causing damage to apartments and common property.

At trial, Judge Woodward (sitting in the Victorian Civil and Administrative Tribunal (VCAT)) determined (among other things) that the builder (L U Simon Pty Ltd) (Builder), by using certain inflammable aluminium composite panel cladding in the construction of the Building, breached several of the warranties in the DBCA. The warranties held to have been breached were those as to: suitability of materials (s 8(b)); compliance with the law (s 8(c)); and fitness for purpose (s 8(f)). Importantly, there was (purposefully) no claim by the owners (and no finding by VCAT) that the Builder failed to carry out the works in a proper and workmanlike manner (s 8(a)) or without reasonable care and skill (s 8(d)).

This aspect of the owners’ claim was important because, by eschewing any reliance on ss 8(a) and 8(d) of the DBCA (each of which requires the application of care and skill), the owners carefully and deliberately did not allege that the Builder failed to take reasonable care, so as to avoid any finding that the claim against the Builder was apportionable. By proceeding in this manner, the owners sought to recover all their losses from the Builder, alone, without having to make claims against all other putative wrongdoers (such as the architect and fire engineer, against whom the Builder had brought cross-claims). Had the owners relied on ss 8(a) or 8(d) of the DBCA, involving as they do an allegation of a failure to take reasonable care, Part IVAA of the Wrongs Act 1958 (Vic) would have applied to those claims. This is because the proportionate liability provisions (Part IVAA) apply (subject to certain exceptions) to a claim for economic loss or damage to property arising from a failure to take reasonable care.

On appeal, the fire engineer (Tanah Merah Pty Ltd, trading as Thomas Nicolas) and the architect (Elenberg Fraser Pty Ltd) both argued that, despite the owners not claiming any breach of duty of care by the Builder, the claim against the Builder was nevertheless apportionable and the Builder was a concurrent wrongdoer (along with the fire engineer/architect, both of whom had been found to have been concurrent wrongdoers who had breached a duty of care). It was, of course, in the fire engineer’s and the architect’s interests to so argue because if the Builder was also a concurrent wrongdoer, then the extent of each of the fire engineer’s and architect’s liability would be reduced.

However, the Court of Appeal did not agree and upheld VCAT’s finding that the claim against the Builder was not apportionable for several reasons. First, the Court rejected the fire engineer’s submissions that, because the Builder had made an alternative plea based on proportionate liability (which plea was secondary/alternative to the Builder’s primary position and contingent on VCAT finding that the claim was apportionable), there was an apportionable claim and that Part IVAA of the Wrongs Act 1958 (Vic) applied.

Second, the fire engineer and the architect relied on authority (e.g. Justice Barrett’s judgment in Reinhold v NSW Lotteries Corporation [No 2] (2008) 82 NSWLR 762) to the effect that a claim may be one arising from a failure to take reasonable care if the Court makes a finding to that effect, regardless of any plea of negligence, or any plea of a failure to take reasonable care. However, noting the more recent remarks of Barrett J in Perpetual Trustee Company Limited v CTC Group Pty Ltd [No 2] [2013] NSWCA 58, the Court of Appeal rejected this contention and said at [113] that the “claim itself must arise from a failure to take reasonable care”. The Court of Appeal also held at [115] that: “… the terms in which the claim is framed [i.e. how the pleadings put the claim] are the starting point for deciding whether the claim is” an apportionable claim. The Court at [117] endorsed the view that “the terms in which the claim is framed are an essential determinant of whether a claim can be said to arise from a failure to take reasonable care”. Put slightly differently, this means, in effect, that the plaintiff must allege (for the claim to be apportionable) that the defendant failed to take reasonable care.

One important consequence of Court of Appeal’s decision is that plaintiffs will now need to (more) carefully consider the causes of action relied on (and how the pleading is put), because the way the claim is pleaded will be the starting point to determine whether the claim is apportionable or not.

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Adam Rollnik practises in commercial law

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