An owners corporation of 2 high-rise residential buildings in Warwick Farm, NSW, (the OC) commenced proceedings against Fairview Architectural Pty Ltd (Fairview), for supplying aluminium composite panels (ACP) used in its façade. The proceeding was a representative proceeding.
The Warwick Farm buildings, built between 2013 and 2015, contained large amounts of ACP affixed to their exterior, functioning as a waterproof membrane. The polyethylene core of the ACP is known to be highly flammable, such that the use of ACP with cores of more than 30% polyethylene (by mass) has been banned in NSW since 2018.
The OC alleged that the ACP manufactured and supplied by Fairview was not of merchantable or acceptable quality for the purposes of the Trade Practices Act 1974 (Cth) (TPA) and the Australian Consumer Law (ACL) (schedule 2 to the Competition and Consumer Act 2010 (Cth)) because of the threat to human life when exposed to fire.
The OC sought damages arising from the supply of the ACP, including all costs associated with its removal and the remediation of the buildings.
Fairview was placed into voluntary administration by its director on 7 July 2020, which resulted in a stay of the OC's proceedings against it.
The insurer provided cover to Fairview for the period from 2012 to 2016.
Under the policies, Fairview was insured in relation to, among other things, property damage which occurred during the period of insurance in connection with products owned by it. Under the policies, 'property damage' was defined to include "physical loss, destruction of or damage to tangible property, including the loss of use thereof at any time resulting therefrom....".
Orders were made joining the insurer to the proceedings as a second respondent. The insurer promptly filed an application seeking leave to appeal that decision.
In circumstances where the OC's action was a representative proceeding, on behalf of buildings constructed with Fairview supplied ACP over a ten-year period, the insurer had significant exposure.
Application for leave to appeal
The insurer sought leave to appeal on 2 grounds:
- the primary judge's decision was attended by sufficient doubt
- substantial injustice would result if leave were refused.
In its submissions, the insurer's primary argument concerned its purported entitlement to 'disclaim liability' under the policies issued to Fairview, which were based on:
- section 5 of the Civil Liability Act (Third Party Claims Against Insurers) Act 2017 (NSW) (TPC Act), giving the Court general discretion to grant, or refuse leave to bring or continue proceedings against an insurer, if it can disclaim liability under the policy
- the policies, which required "property damage" to have resulted from an 'occurrence.'
The insurer relied on evidence supporting the propositions that:
- the presence and future removal of combustible cladding should not be considered 'property damage'
- the installation of the panels was expected and intentional by Fairview as the manufacturer and supplier.
The insurer submitted that it was the primary judge's obligation to decide the issue of coverage on a final basis pursuant to section 5(4) of the TPC Act, which provides that "leave must be refused" if an applicant can prove their entitlement to disclaim liability.
However, the Full Federal Court dismissed the insurer's application for leave to appeal, citing that:
- section 24(1AA)(b)(i) of the Federal Court of Australia Act 1976 (Cth) prohibits any appeal from the joinder order if the judgment is a decision to "join or remove a party"
- the primary judge was correct in proceeding on an interim basis
regarding whether the policies responded to the claim as the:
- proceedings involved factual complexities, including expert evidence on the damage caused by the affixation and removal of panels
- question of indemnity under the policies was better suited for final determination at trial;
- claim was at a minimum arguable with a strong line of authority including AFG Insurances v Andjelkovic (1980) 47 FLR 348
- insurer provided no evidence that the primary judgment was attended by sufficient doubt to warrant a grant of leave to appeal.
- the primary judge correctly concluded the OC had an arguable case against the insured and that the policies might respond to the insured's claim or potential liability to the Owners.
The issue remains to be decided at trial as to whether the presence of ACP should be considered property damage and within the scope of the policies.
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