Hesketh Henry’s Helen Macfarlane, partner, and Charlotte Lewis, solicitor, provide a detailed update on New Zealand’s response to high-profile building fires, such as the 2017 Grenfell fire in London and the 2014 Lacrosse fire in Melbourne, which had exteriors clad with Aluminium Composite Panels (ACP), enabling fire to spread rapidly.
1. In recent years, a number of fires on high rise buildings have occurred across the world, including the June 2017 Grenfell fire in London and the 2014 Lacrosse fire in Melbourne. The rapid spread of fire on the exterior of these buildings clad with aluminium composite panels (ACP) has resulted in extensive property damage, homelessness and loss of life.[i]
2. To date, New Zealand has not experienced a high rise fire contributed to by ACP cladding. However, recent investigations carried out by local bodies in Auckland, Wellington and Christchurch have found buildings in each of those centres clad with potentially flammable ACP products.[ii]
3. ACP products are flat panels, generally 3-6mm thick, comprising two thin aluminium sheets bonded to a non-aluminium core (such as polyethylene and/or a mineral product). ACP products, whether claimed to be fire-resistant or non-fire resistant, typically contain some percentage of polyethylene.
4. The problem with polyethylene ACP products is aptly described by Australian Fire Safety Engineer, Tony Enright, as follows:[iii]
A kilogram of polyethylene will release the same amount of energy as a kilogram of petrol, and it gets worse than that because polyethylene is denser than petrol too, so a kilogram of polyethylene is like about … one and a half litres of petrol. If you look at a one metre by one metre square section [of polyethylene core ACP cladding] that will have about three kilograms, the equivalent of about five litres of petrol.
5. In New Zealand, cladding products must comply with the fire performance requirements of the building code through an Acceptable Solution,[iv] Verification Method,[v] by presenting a product certificate, (normally issued by CodeMark), or an alternative solution.
6. An issue identified in both Australia and the UK is that not all testing methods are created equal. Some of the standards simply expose small samples of the product to fire to test how long it takes for them to ignite and burn.[vi] It has been argued, however, that only full scale testing of the cladding when installed as part of a wall structure can measure how the product will actually perform in a fire.[vii]
7. Even full scale testing standards have been criticised for not representing how the cladding being tested will perform as installed.[viii] For example, the British standard BS 8414 test assumes “perfect encapsulation” – apart from a window, the cladding system test model is installed essentially as a sealed unit without any other breaches such as vents, ducts and pipes.[ix] This rarely happens in reality. The test also assumes the installation of cavity barriers which are not compulsory in New Zealand.[x]
8. Another question, recently raised in both New Zealand and Australia, is the reliability of CodeMark certification. CodeMark certificates should be read carefully to see what product is being certified, for which of the building code performance standards and subject to what conditions or limitations. Following Grenfell, MBIE commissioned Tony Enright to undertake an audit of ACP cladding certifications issued by CodeMark (Enright Report).[xi] The Enright Report recommended suspending 6 New Zealand CodeMark certificates relating to 13 products (which comprise the most commonly used ACP products in the New Zealand market). Separately, Mr Enright has also recommended withdrawing certain Australian certifications.
9. Neither MBIE nor Australia has suspended / withdrawn the pertinent certificates to date and CodeMark has defended its certifications. MBIE has commissioned a peer review of the Enright Report, which it is presently reviewing. Auckland Council is still accepting CodeMark certificates as demonstrating product compliance with the building code when viewed as a building element in isolation, but not as part of a structure.
The Australian Experience
10. In Australia, disciplinary and civil proceedings have been brought against various construction professionals involved in the construction of the Lacrosse Apartments. The civil trial is expected to start in September of this year.
11. On a national level, NCC 2016 Volume One has been amended out of cycle to introduce Verification Method CV3 which requires full scale façade testing in accordance with new Australian standard, AS 5113 (itself modelled on a number of international standards including BS 8414).
12. Following an extensive inquiry, the Senate Economic References Committee (the Committee) made 8 recommendations to the Australian Federal Government.[xii] The Senate rejected one of the Committee’s key recommendations to ban the importation, sale and use of all PE core ACP products.[xiii] Instead, the Senate expressed support for the Queensland legislation which distributes responsibility along the supply chain, as opposed to focusing on manufacturers.[xiv]
13. A number of Australian States have enacted legislation to address the use non-conforming building products.
(a) In Victoria, the Minister for Planning issued a guidance document which creates the presumption that specified types of building clad with ACP will not comply with the NCC unless there is convincing evidence satisfactory to the Building Appeals Board. [xv]
(b) The NSW government enacted the Building Products (Safety) Act 2017. The Act grants powers to the Secretary to issue product bans and introduces penalties for contravening product bans and misrepresentation.
(c) Queensland has enacted legislation imposing duties and penalties on all parties in the supply chain – from supplier/manufacturer to designer to installer to inspector.[xvi] Penalties apply where a party fails to comply with the statutory duty, or fails to notify the Commissioner about the use of non-complying products.
United Kingdom
14. The independent Grenfell Inquiry into the Grenfell Fire is still in its early stages. Following the hearing of all relevant evidence, a report will be presented to the Prime Minister.[xvii]
15. The Independent Review of Building Regulations and Fire Safety (known as the Hackitt Inquiry) conducted a review of the regulatory framework in the United Kingdom. The Hackitt Inquiry recently released its final report which recommended a clear model of risk ownership (not dissimilar to the Queensland legislation), an outcomes based regulatory system, and the introduction of more serious penalties for noncompliance.[xviii]
16. In April 2018, a report on the Grenfell fire commissioned by the Metropolitan Police and prepared by the Building Research Establishment was leaked to the media.[xix] The report’s key finding was that had the 2014-2016 refurbishment, in which ACP cladding was installed, not been carried out, it is unlikely the fire would have spread from the fourth floor where it originated.
New Zealand Response
17. New Zealand is still in the fact-finding stage. As noted, following Grenfell, New Zealand local authorities have undertaken investigations to see how many buildings have ACP cladding.[xx] The Auckland Council recently released a list of 25 buildings with flammable ACP cladding and a further 116 buildings it said “appear to utilise ACP cladding to some extent.”[xxi] In Wellington 103 buildings have been identified as having some form of ACP cladding and in Christchurch 7 buildings have been identified as requiring further investigation.
18. The Auckland Council and Wellington City Council have reported that none of the buildings reviewed to date are considered to pose a risk to safety, because frequently the use of ACP cladding was limited and, even where not, the buildings were fully sprinklered and had stringent fire safety systems.[xxii]
Insurance Implications
19. The presence of ACP cladding has implications for insureds’ ongoing disclosure obligations under property insurance policies.[xxiii] Insureds have an obligation to disclose the presence of ACP cladding to their insurer as this is a factor relevant to risk and setting premiums. In some cases Australian insureds have been declined cover following such disclosure,[xxiv] and we understand that only a limited number of Australian insurers are now willing to provide cover for buildings with non-fire-rated ACP cladding.
20. Involvement in projects using ACP products also poses indemnity problems to those in the construction industry. In Australia, insurers are considering inserting exclusion clauses[xxv] into professional indemnity insurance contracts. British insurers are asking extensive and detailed questions about involvement in projects with ACP cladding before renewing PI policies.[xxvi]
21. In New Zealand, the response to date has been less clear-cut. However, in light of the present trend towards risk-based pricing on property insurance, we can expect to see premiums hiked on ACP clad buildings. New Zealand insurers may also follow Australia’s lead and insert exclusion clauses into PI policies (these are already common with respect to leaky buildings).
Existing ACP clad buildings
22. If you own or live in a building that has ACP cladding / are considering buying a unit in a building that may have ACP cladding, or are being asked to insure such a building, there are a number of inquiries you should make.[xxvii] It is important to check what type of ACP cladding has been used, how it has been installed and whether the product has been subject to CodeMark certification (any CodeMark certificate needs to be read carefully and it is prudent to engage a fire engineer to undertake a full assessment of the fire risk).
23. You should also ensure the building is sprinklered (including if possible balconies), has functioning smoke detectors and a fire alarm and evacuation system. Bodies corporate may also want to consider banning smoking and barbeques on balconies that are not sprinklered (the Lacrosse fire started on a balcony).
24. Assuming the building is acceptable from a health and safety perspective (as per recent council inspections), the primary issue becomes an economic one. Here the big ticket items are insurance and long term cost of replacement cladding. So long as both of these can be managed, ultimately, the risk profile may be acceptable.
25. It is important to recognise, however, that there remain major uncertainties as to future insurance, legislative and regulatory changes which may materially alter the risk profile of ACP clad buildings. Perhaps most significant will be the question of whether ultimately a remedial standard will be introduced requiring ACP clad buildings to be brought up to current code.[xxviii]
Helen Macfarlane is a partner in the Hesketh Henry Dispute Resolution team, with specialist expertise in construction law. Helen has over 25 years of legal experience. She read law at Oxford, was admitted as a barrister in London, then worked for 15 years in New York with leading US law firm, Shearman & Sterling. Helen’s US experience ranges from litigation over remediation of a fire-damaged office tower to the international arbitration of a contractual dispute arising out of the construction of a power plant in the Middle East.
Since joining Hesketh Henry in 2007, Helen has practised in the construction sector, both providing front end advice on contract drafting and addressing issues that arise during the course of a project. Her extensive experience in construction disputes spans payment claim adjudications, representing an engineering client in connection with the Royal Commission of Inquiry into the collapse of the CTV Building in the Canterbury earthquakes, to High Court litigation arising out of defective construction. Contact Helen at helen.macfarlane@heskethhenry.co.nz
Charlotte Lewis is a solicitor in Hesketh Henry’s Disputes Team. Charlotte attended the University of Auckland. She graduated with an LLB (Hons) and a BA. Charlotte has been at Hesketh Henry since October 2017 and was admitted to the bar in May 2018. Since starting at Hesketh Henry, Charlotte has been involved in a range of disputes including assisting on construction disputes, insurance matters, maritime and general civil matters. Contact Charlotte at charlotte.lewis@heskethhenry.co.nz
[i] The Grenfell Tower fire claimed he lives of 71 residents; in the Shanghai China fire in 2010, 58 residents died; no-one died in the Lacrosse fire, which occurred in a sprinklered building.
[ii] See: <https://www.radionz.co.nz/news/national/354194/13-auckland-buildings-found-to-contain-combustible-panels>.
[iii] Four Corners “Combustible” (31 August 2017) ABC <http://www.abc.net.au/4corners/combustible/8859420>.
[iv] Acceptable Solutions C/AS1, C/AS2, C/AS5. For further information, see: <https://www.building.govt.nz/assets/Uploads/building-code-compliance/c-protection-from-fire/asvm/cas1-cas7-protection-from-fire-amendment-2-commentary.pdf.>.
[v] Verification Method C/VM2. For further information, see: < https://www.building.govt.nz/assets/Uploads/building-code-compliance/c-protection-from-fire/asvm/cvm2-protection-from-fire-amendment-4.pdf>.
[vi] Generally, the New Zealand Acceptable Solutions and Verification Method C/VM2 refer to one or more of three tests to demonstrate compliance: ISO 5660.1:2002 (small scale test), AS/NZS 3837:1998 (small scale test), and NFPA 285:2012 (full scale test).
[vii] Four Corners “Combustible” (31 August 2017) ABC <http://www.abc.net.au/4corners/combustible/8859420>.
[viii] See further: Association of British Insurers ‘Cladding Approvals: A review and investigation of potential shortcomings of the BS8414 standard for the approval of cladding systems such as those commonly used on tall buildings’ (22 February 2018) <https://www.abi.org.uk/globalassets/files/publications/public/property/2018/04/abi-cladding-systems-research-report-2018-04-19.pdf>.
[x] See: Enright Report in Phil Pennington ‘Leaked report urges suspension of aluminium composite panels on high-rises’ 4 April 2018 <https://www.radionz.co.nz/news/national/354048/leaked-report-urges-suspension-of-aluminium-composite-panels-on-high-rises>.
[xii] Senate Standing Committees on Economics ‘Interim report: aluminium composite cladding’ (6 September 2017) <https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Non-conforming45th/Interim_report_cladding>.
[xiii] Australian Government ‘Australian Government response to the Interim Report: Aluminium Composite Cladding’ (February 2018) <https://industry.gov.au/industry/IndustrySectors/buildingandconstruction/Documents/Government-Response-to-Senate-Committee-Interim%20Report-Aluminium-Composite-Cladding.pdf> at 9.
[xv] Minister’s Guideline MG-14 (13 March 2018) <http://www.vba.vic.gov.au/__data/assets/pdf_file/0013/71410/Ministers-Guidelines-MG-14.pdf>.
[xvi] The Building and Construction Legislation (Non-conforming Building Products – Chain of Responsibility and Other Matters) Amendment Act 2017.
[xvii] For updates, see <https://www.grenfelltowerinquiry.org.uk/>.
[xviii] Hackitt Inquiry ‘Building a Safer Future Independent Review of Building Regulations and Fire Safety: Final Report’ (May 2018) <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/707785/Building_a_Safer_Future_-_web.pdf>.
[xix] Building Research Establishment (BRE) Global Client Report, ‘Grenfell Tower Fire Investigation – On-Site Investigation’ (31 January 2018) < https://www.standard.co.uk/news/london/shock-grenfell-dossier-reveals-disastrous-refurbishment-turned-tower-into-a-tinderbox-a3814866.html>.
[xx] See <https://www.radionz.co.nz/news/national/354194/13-auckland-buildings-found-to-contain-combustible-panels>.
[xxi] Anne Gibson, ‘Auckland Council names 25 blocks with cladding cores like Grenfell Tower’ (12 June 2018) <https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12068992>.
[xxii] Radio New Zealand ‘13 Auckland buildings found to contain combustible panels’ (5 April 2018) <https://www.radionz.co.nz/news/national/354194/13-auckland-buildings-found-to-contain-combustible-panels>.
[xxiii] Owners Corporation Network Committee Hansard (19 July 2017) at 44 cited in Commonwealth of Australia Aluminium composite cladding: Non-conforming building products (September 2017) at 2.29.
[xxv] Australian Institute of Building Surveyors Committee Hansard (19 July 2017) at 20 cited in Commonwealth of Australia Aluminium composite cladding: Non-conforming building products (September 2017) at 2.30.
[xxvi] See <http://www.howdengroup.co.uk/en/knowledge-base/professional-indemnity/2016/the-new-questions-insurers-ask-post-grenfell/>.
[xxvii] To date the information has not been included on unit Property Files or LIMs. However, Auckland Council is looking at ways to achieve this.
[xxiii] This was one of the proposals made by the Victorian Cladding Taskforce ‘Interim Report’ (November 2017 <https://www.planning.vic.gov.au/__data/assets/pdf_file/0016/90412/Victorian-Cladding-Taskforce-Interim-Report-November-2017.pdf>.