Class action over cladding

The Australian 12:00am February 16, 2019

Ben Butler, Ben Wilmot

A landmark class action against the importer and manufacturer of potentially deadly building cladding could result in hundreds of millions of dollars in compensation for apartment tower owners, its backers say.

The lawsuit, filed in the Federal Court by Sydney firm William Roberts Lawyers and bankrolled by listed litigation giant IMF Bentham, targets the Sydney-based importer of Alucobond, Halifax Vogel Group, and its German manufacturer, 3A Composites.

But more importers and manufacturers of other similar products could also be targeted by similar lawsuits, William Roberts principal Bill Petrovski told The Weekend Australian. “We anticipate that we will be able to launch action and get compensation for other products and other manufacturers,” he said.

The move came as new figures revealed the extent of the problem was growing as state authorities undertake more invest­igations into problem towers. Fire & Rescue NSW has identified 447 buildings at risk, 90 of which are residential apartments, according to an update of its cladding register yesterday.

A statewide audit by the Victorian Building Authority that has so far inspected about 2000 buildings has discovered 275 cases of cladding that it considers are “high to highest risk”. A further 228 across Victoria are deemed “moderate risk”, taking the total to 503.

The lawsuit, to be run by specialist construction barrister Ian Roberts, SC, alleges cladding that contains flammable polyethylene plastic sandwiched between two layers of aluminium is not fit for sale under consumer protection laws.

By targeting the importer and manufacturer, IMF and William Roberts may be able to bypass having to ask the court to determine thorny issues about whether developers, builders or both bear liability for installing the potentially deadly cladding on hundreds of buildings around Australia.

“Our present estimate is for hundreds of millions of dollars and that can only get bigger if we bring in other manufacturers,” IMF Bentham investment manager Gavin Beardsell said.

Flammable cladding has been implicated in two fires in Melbourne, including one as recently as last week at the Neo200 building in the central business district, and the 2017 Grenfell Tower fire in London that killed 72 people.

Both NSW and Victoria last year banned some types of plastic-core cladding from most new construction.

Rectifying a single high-rise building can easily cost more than $10 million, which in the short term falls on building owners.

Brokerage Credit Suisse said the cladding issue is looming as a risk for the listed real estate investment trusts.

“While liability risk is shifting away from REITs to construction companies, we expect disruption as this is resolved in the courts,” Credit Suisse said in a note to ­clients.

“In the meantime, there is a moderate risk to the value of (property) assets exposed if potential buyers view a building to be dangerous and needing costly remediation in the future but with inherently uncertain liability for the costs.”

The IMF Bentham-backed lawsuit, which seeks compensation for the cost of replacing the plastic-core cladding with a non-flammable material, has been filed on an open basis, meaning it covers every owner of an Alucobond-clad building.

Mr Petrovski said he estimated hundreds of buildings and thousands of owners, including institutions and body corporates, could be involved.

However, IMF and William Roberts hope to swell that number by urging owners to sign up so that they can gather information about future potential targets.

Mr Beardsell said IMF’s ­funding terms were confidential. “We are committed to fund what will be a large, nationwide open class action, which is likely to cost millions of dollars,” he said.

A spokesman for Halifax Vogel Group declined to comment. The company is part of the Sanwa Holdings group, controlled by Sydney’s Ferster family, which last year had revenue of more than $500m and made an $8.5m profit.

3A Composites is a subsidiary of Switzerland-listed Schweiter Technologies Group, which last year declared a profit of more than 170m francs.

The lawsuit is to be funded by IMF on an “unconditional” basis out of its “Rest of World” funds, which were launched in October 2017 to bankroll cases outside the US.

Fire safety experts have blamed the use of plastic-core cladding for the rapid spread of the Grenfell Tower fire, which ripped through the upper floors of the building early on June 17, 2017.

At the time, 3A said the Grenfell Tower cladding was not Alucobond and claimed the material had passed fire tests.

“3A Composites as a responsible manufacturer is aware of the fundamental role which building materials are playing with regard to safety, and therefore supports and endorses clear and stringent regulations with regard to fire protection and fire safety,” it said.

Similar cladding had previously been implicated in a 2015 fire at Dubai’s unfortunately-named 86-level Torch apartment building that forced the evacuation of more than 300 people.

And about five levels of the 41-storey Neo200 building in Melbourne were set ablaze after a fire started on the 22nd floor early last Monday morning.

Fire brigade officials said combustible cladding was one of the fuels that stoked the fire.

The chief executive of national construction and property development company Watpac, Martin Munro, said that determining liability for cladding was a vexed question.

He said the issue was complicated as builders had used products that were compliant when they were installed but they may no longer meet standards and some materials complied with rules in some uses but not others.

“There is all sorts of combinations and permutations,” he said.

Mr Munro said that dealing with cladding that was non-compliant when first installed could be quickly handled.

But difficulties would arise where manufacturers, surveyors and builders in a supply chain had met standards at the time.

Two major reviews into high rise cladding fires, Britain’s Hackitt report and the local Shergold-Weir report, independently concluded that cladding-related failures were largely systemic and not purely product-related.