The Victorian Supreme Court has ruled on non-compliant cladding

Great analysis by Joel Harris. Too good to not repost with a few of my own comments:

Two things:

FIRST, this case is a brilliant read for a range of reasons including a synopsis of:

• PI policy contractual interpretation (the judgment considers a number of clauses including various insuring clauses); and

• Of course, the effect of section 137F of the Building Act 1993 (Vic) that grants rights to the State to recover costs of cladding removal from directors personally!

In fact, it is worth posting the section of the Act here as there is a bit more to this section that I expect to be contested in the future.

This section applies to “officers” and requires “knowledge or consent” under sub-section 4 (which was not a particular issue in this case) but I am sure it is going to arise time and time again in future cases.

“BUILDING ACT 1993 - SECT 137F

Subrogation

(3) If a right or remedy to which the Crown is subrogated under this section is exercisable against an entity that is not an individual, it is enforceable jointly and severally against the entity and the people who were its officers at the time the act or omission that gave rise to the right or remedy occurred.

(4) If it is proved that an act or omission by an entity occurred without the knowledge or consent of an officer of the entity, a right or remedy is not enforceable as provided by subsection (3) against the officer in relation to the act or omission.”

SECOND, when the State exercises its subrogation rights under section 137F (3) of the Building Act the officer liability to the State does not depend on a breach of professional duty.

Therefore, the liability imposed by s 137F of the Building Act 1993 (Vic) challenges olds assumptions:

• Directors of building companies are clearly on notice - don’t assume a PI policy is going to cover your liability as an officer/director arising from the cladding rectification reforms under a section 137F of the Building Act 1993 (Vic).

• This is strict liability folks and personal assets are at risk.

• With all the strata defect litigation in the pipeline arising from non compliant cladding it is critical directors are taking out appropriate D&O or management liability insurance that dovetails with PI insurance.

I think a lot of directors will or should be calling their broker to check on their cover both for PI and D&O and in particular looking at any cladding exclusion and PI exclusion as well. In this case the finding turned on the cover at hand so it is worth getting a legal review of policy cover FORTHWITH!!!

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• building disputes