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Undercover May 2023

Unsuitable Cladding - Damages


About 10 years ago, an owner of property in Parramatta built upon that property a 28-story building called ‘The Rise’ which comprised of 133 residential units, one retail lot, two commercial lots and parking. Upon registration of the building’s strata plan, the common property vested in the building’s Owners’ Corporation.


The Home Building Act 1989 (NSW) prescribes a warranty which a builder gives as to the quality of the external cladding used, particularly its inability to combust. That warranty incorporates the requirements of the Building Code of Australia which required that external cladding be non-combustible.


The builder of ‘The Rise’ installed unsuitable cladding.


The Owners’ Corporation commenced proceedings against the builder for breach of warranty and damages, being the cost of reinstating the cladding to suitable levels (agreed at $5m).


The judgment of the New South Wales Court of Appeal makes it clear that the onus of proving the cost of reinstating the cladding rests with the Owners’ Corporation. But once proved, the onus shifts to the builder to establish that that cost is unreasonable. One way of discharging that onus is to establish that an alternative solution to suitable cladding the building existed at the time of its construction or now.


The Court emphasised that this was not just a theoretical point. It was a substantive point that required evidence of the process pursuant to which the alternative solution would be approved by the relevant regulators (e.g. the Fire Department) and implemented. There being no evidence to that effect, the Court found that the builder had failed to establish that an alternative solution existed and, therefore, that the cost of reinstatement was unreasonable.


Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114 (26 May 2023)


AFCA – Improving Industry Practice and Reducing Complaints


The Australian Financial Complaints Authority (AFCA) has just issued its bi-annual Systemic Issue Insights Report as part of its commitment to share information to help improve industry practice and reduce complaints.


The facts of the cases which AFCA proffered in its Report, demonstrate that that the behaviours which have caught AFCA’s eye over the last six months or so include the following:

  • a failure to observe AFCA’s determinations (whatever be the excuse or reason); and

  • a failure to act consistently in accordance with the language of the members’ own insurance policies because that language had not been embraced in the members procedures and processes or because the policies’ language was ambiguous or meaningless.

Between the lines lies a clear message – AFCA is looking for improvements.


The Federal Financial Service Minister speaks


The International Congress of Actuaries is being held in Sydney from 28 May 2023 to 1 June 2023.


In his welcome on behalf of the Government to the Congress’s delegates, the Federal Financial Service Minster, Mr Stephen Jones, called upon the insurance industry to recognise the work of insured who actively minimise risk, particularly, to their homes.


He also called upon insurers to improve the quality of data which the Government collects to shape policies which will assist insured who take positive and effective steps to reduce the risk that they would otherwise present.


Ultimately, Mr Jones and the Government expect to see insured who take such steps to be rewarded with lower premiums than those insured who do less or nothing. The Federal Government expects the data to reveal all and will respond accordingly.


Mark Sheller


Principal | Sheller


SHELLER | Clarence Chambers | Level 13 | 111 Elizabeth Street | Sydney NSW 2000 | Australia

Insurance & Commercial Law contact@shellerlegal.com | www.shellerlegal.com


DISCLAIMER This newsletter is intended to provide a general summary only and does not purport to be comprehensive. It is not, and not intended to be, legal advice. © Sans Limitations Services Pty Limited


Edition 5 - May 2023

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