State of Victoria (Department of Transport and Planning) v L.U. Simon Builders Pty Ltd [2025] VSCA 52
The Court of Appeal of Victoria, answering questions in a special case referred by the County Court, held that section 137F(1) of the Building Act 1993 (Vic) requires a payment to a lot owner for the State to be subrogated to that lot owner's rights, and that a November 2020 payment of cladding rectification assistance to an owners corporation acting both for itself and for the lot owners is such a payment. On the agreed and assumed facts, the State was subrogated to the rights of the owners corporation and the individual lot owners.
What the court decided
The builder constructed a 36-storey tower whose 205 apartments are individually owned lots [4]. The State sued the builder and two of its directors in the County Court, claiming as subrogee of the owners corporation and the individual lot owners [8]. The builder installed aluminium composite panels on external walls of both the common property and lots, and the court could assume they were combustible and non-compliant [5]. In June 2020 the owners corporation and the Victorian Building Authority made a funding agreement for assistance towards replacing the panels, beginning with a grant for the design phase, and the Authority paid money under it [6]. The first payment was made on or about 20 November 2020 [17]. The builder and its directors admitted that the owners corporation had entered into the agreement in its own capacity, but denied that the lot owners had done so [32].
Question 1 asked whether section 137F(1) requires a payment to the owner of a lot in order for the Crown to be subrogated to that lot owner's rights [9]. The Building Act defines "building" to include any part of a building, so the owner of part of one is an "owner of a building" [23], [52]. In the court's view, a lot owner's interest under the Subdivision Act 1988 (Vic) is an interest in land, so the lot owner owns the land on which the building stands [53], [54]. The owner of a lot in a subdivided building is therefore an "owner of a building" in section 137F(1), and a payment to a lot owner subrogates the State to that owner's rights as payee [55]. In joint reasons, Emerton P, Beach JA and Harris AJA answered Question 1 "Yes" [10], [63].
The court held that section 137F(1) is not confined to separate payments to each owner, and is satisfied by a single payment to the owners corporation for itself and the lot owners where the work extends across the building [82]. It relied on section 10 of the Owners Corporations Act 2006 (Vic) and the repair powers in sections 48 to 50 [83], [92].
The agreement's conditions precedent required the lot owners to approve the owners corporation's entry into it, and the court assumed, consistently with the special case, that they had authorised it to contract for them [94], [95]. On an objective reading, the agreement gave aid for rectifying the cladding on the whole building, for the owners corporation and on behalf of the lot owners [96], [99], [110]. The court also held that section 137F(1) did not require each lot owner to request assistance [102], [105].
A lot owner not affected by the cladding would have no relevant right to which the State could be subrogated [109]. On the builder's suggestion that a lot owner who benefited from the work might have bought with knowledge of the defect, the court did not decide whether that is a defence, saying only that if it were, that owner would have no right or remedy to which the State could be subrogated [109].
The court answered Question 2(a) that the payment is "correctly described in paragraph 2(a)(iii)", that is, a payment "for and on behalf of both" the owners corporation and the lot owners [111]. It noted that the payment also fell within paragraphs (i) and (ii), which did not ask whether it was made "only" for those named [111]. Because the payment was made for both, the Crown is subrogated to the relevant rights and remedies of the owners corporation and the lot owners [114]. The court accordingly gave the answer "Yes" to Question 2(b) [115]. On Question 3, the court's answer was that, "subject to any further submissions", the costs of the special case should be paid by the first to third respondents [10].
Why it matters
Under section 137F in the form the court applied to the November 2020 payment, a builder cannot resist the State's subrogated claim for lot owners merely because the money went to the owners corporation. Here the capacity in which the owners corporation received it turned on the terms of the funding agreement, its power under section 10 of the Owners Corporations Act and the assumed authority of the lot owners. The answers rest on agreed and assumed facts, and a particular lot owner's loss, or knowledge of the defect if that is a defence, goes to whether that owner has a right to which the State could be subrogated, not to the construction of section 137F.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.