Court confirms breadth of Cladding Safety Victoria’s right of subrogation under Building Act

The decision concerned a multi-residential apartment complex in Melbourne that had undergone the replacement of non-compliant aluminium composite panels affecting individual lots and common property as part of the state-wide cladding audit. Financial assistance was paid by CSV to the owners’ corporation, but not directly to the individual lot owners.

CSV had sought under section 137F of the Building Act to subrogate to the rights of – effectively, to ‘step into the shoes of’ – the owners' corporation and individual lot owners in bringing a proceeding against the builder, including its directors. This process has been driving recent cases in Victoria.

Greg Campbell, an expert in building regulation at Pinsent Masons, said: “The key issue for the Victorian Supreme Court of Appeal was whether the financial assistance paid to the owners’ corporation for the cladding rectification work entitled CSV to be subrogated to the rights of the owners' corporation only, or also the rights of the individual lot owners.”

“The Court of Appeal found that the payment to the owners corporation was made for and on behalf of the owners corporation and the individual lot owners, which entitled CSV to be subrogated to the rights of both the owners' corporation and the individual lot owners,” he said.

Simone Pappas, an expert in construction law and building regulation at Pinsent Masons, said: “The Court has confirmed that CSV does not need to show separate direct remittances to individual lot owners for section 137F of the Building Act to operate."

"This outcome is not surprising considering the object and purpose of section 137F of the Act and ordinary principles of statutory construction," she said.

“Building participants should continue to assess any potential legacy risks arising from legislative and legal changes."