Recent NSW Court of Appeal decision – who bears the evidentiary burden in combustible cladding claims?

Case note on Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114

Following the Lacrosse decision[1] where the Supreme Court of Victoria found that the architect, the building surveyor, the fire engineering consultant and the individual who caused the fire were liable to pay damages to the owners – not the builder – the New South Wales Court of Appeal recently held that the burden to prove that the cost of removing and replacing non-compliant cladding is unreasonable is on the builders and developers.

Background and first instance

The Appellant is the Owners Corporation of a 28-storey building in Parramatta, constructed by the Respondents (builder and developer).  Aluminium composite panels (ACPs) were used to clad the exterior of the building. The ACPs contained more than 30% polyethylene.

The Owner’s Corporation commenced proceedings against the Respondents on the basis that the ACPs were combustible and did not comply with the Building Code of Australia (BCA) and therefore constituted a breach of statutory warranties under section 18B of the Home Building Act 1989 (NSW) (HBA).  The Owners Corporation sought reinstatement damages for the cost of removing and replacing the cladding.

The Respondents contended that the cladding complied with the BCA at the time of installation. They otherwise did not admit the other alleged breaches of the statutory warranties.

The trial judge found that the Owners Corporation had not established any breach of the statutory warranties and dismissed its claim against the Respondents.  In relation to the question of compensable loss and damage and whether reinstatement damages were appropriate, assuming breach of warranty, the trial judge held that the Owners Corporation had the onus to establish that an alternative solution could not then or now be performed.  His Honour went on to conclude that rectification works at substantial cost would not be proportionate to any benefit to be obtained or a reasonable course to adopt.

Shifting the onus of proof

The New South Wales Court of Appeal overturned the trial judge’s decision.

The Court of Appeal held that:

1. Breach

The Respondents had breached the BCA – this was accepted by the Respondents in oral argument; and

2. Loss and Damage

The burden of proof for establishing loss lies on the claimant, in this case, the Owners Corporation.  However, the party in breach of contract has the onus of displacing the prima facie rule for assessing damages as the cost of restoring things to their original condition (reinstatement).

The trial judge erred in finding that the Owners Corporation had the onus of establishing that an alternative solution “could not then or now be performed”.

Accordingly, the NSW Court of Appeal found that it was not necessary for the Owners Corporation to demonstrate that an ‘alternative solution’ was not available. Rather, the builder and developer had the onus of establishing that the cost of reinstatement would be unreasonable. As they had failed to do so, the Owners Corporation was entitled to the costs of rectification.

Implications

This decision provides valuable clarity by:

• defining the requirements for plaintiffs to prove a breach of the BCA in combustible cladding cases; and
• shifting the burden of proof onto defendant builders and developers (instead of owners) to demonstrate that the reinstatement cost of ACP cladding would be unreasonable if a BCA breach is established.

You can read the full judgment here.