In the context of sweeping cladding audits of buildings across Victoria, the question whether the Victorian Building Authority (VBA) has the power to retrospectively compel builders to rectify completed buildings under section 37B of the Building Act 1993 (the Act), is one of great importance for the industry. Fires in buildings across the world, like Lacrosse in Victoria and Grenfell in London, have exposed a worldwide problem of non-compliant external cladding being used on buildings.

There is no doubt that practical and pragmatic solutions are necessary to rectify existing buildings for the safety of residents and occupiers. However, if powers of retrospectivity were given to the building regulator to compel builders to fix completed projects, this may have wide ranging impacts on the industry in terms of liability, insurance and the viability of the industry going forward.

Recently, LU Simon challenged whether the VBA could issue a direction to fix under section 37B of the Act in respect of six apartment buildings in Melbourne that had already been long completed and issued with occupancy permits.

In a significant decision for builders LU Simon & others v Victorian Building Authority [2017] VSC 805 of 22 December 2017, Justice Cavanough of the Supreme Court of Victoria confirmed that the VBA did not have the power to issue a direction to fix pursuant to Section 37B of the Act in respect of the six apartment buildings that had been completed and issued with occupancy permits.

The position of the parties

The VBA argued that because the Act was silent as to when the power to issue a direction to fix would end, that it had the power to give such a direction at any time, even 50 or 100 years after the building work in question had been completed and an occupancy permit or certificate of final inspection issued. Alternatively it argued that it could do so for “a reasonable time” after an occupancy permit or certificate of final inspection had been issued.

LU Simon’s primary arguments why the VBA could not issue a direction to fix building work pursuant to s37B of the Act in relation to the buildings in question were that (a) building work had previously been completed; (b) there was no longer any building permit in place; and (c) occupancy permits had been issued – and that accordingly the VBA had no power to issue a direction under s37B.

The decision

The Court held that the power to give a direction to fix to a builder under s37B is confined to the building stage and accordingly could not be given after a certificate of final inspection or an occupancy permit had been issued.

The Court closely examined the intention of the Act, the general scheme of the Act and where the sections appeared in the Act and concluded that s37B directions to fix were only applicable during the building stage. Amongst some of the reasons given by the Court were that the Act is arranged in a sequence that broadly matches the stages of a building project with Part 4 (which includes s37B) relating exclusively to the Inspection of building work. Part 4 of the Act comes between the sections dealing with building and occupancy permits. His Honour stated that in “that context, it would not be surprising to find that the provisions of Part 4 related principally to inspections and related things falling to be done during the period of, and at the finish of, building work, where the building work was being carried out pursuant to a building permit and where an occupancy permit has not yet been issued for the intended building.”

Justice Cavanough also raised additional legal consequences in the decision that went beyond the statutory interpretation of the Act (although he did not need to rely on these points as he decided it was clear from the interpretation of the Act that directions could only be given during the building stage).

He agreed with LU Simon that the VBA’s retrospective interpretation would put builders in a no-win position because any attempt for the builder to rectify work which was the subject of the direction from the VBA would require the owner’s consent and might require the owner to obtain a building permit. LU Simon submitted that once the occupancy permit had been issued, the builder will have completed the contract with its client, departed the scene and relinquished any right to be on the premises – therefore the builder had no legal power to compel the owner to co-operate. This could put the builder in a position where they couldn’t comply with the direction because the owners’ conduct might prevent them from doing so.

In addition, he also agreed with LU Simon’s submission that on the VBA’s construction, a direction to fix could be issued long after the event to a person who bore no blame for the alleged defect or has lost the ability to enforce any rights of contribution against others.

Where to from here?

Although the decision may still be the subject of an appeal, Master Builders strongly opposes any legislative response that would act to retrospectively compel builders to rectify buildings – particularly where there is a risk, as was raised in the decision, that builders would be put in a no-win position and could potentially have lost the ability to enforce contribution from other parties.

As the Act stands, there exists a mechanism by which Orders can be issued to owners (usually via the owners corporation) to compel them to vacate or prohibit a person from entering into the building, because of danger to life or property arising out of the condition or use or proposed use of a building. This may accordingly require urgent rectification work to be arranged by the owners. Whether the owners have any residual rights against parties such as the builder, architect, building surveyor or others will depend on the circumstances of each case.

Any scheme to rectify buildings across Victoria must be fair, practical and ensure the ongoing viability of the building and construction industry.