Support for cladding claims

Peter Stockill considers the implications of the Building Safety Act 2022 and a recent court decision in relation to cladding. Much publicity has been given to the support and protection that the UK government has sought to give flat owners who would otherwise face large bills for fire safety issues. As part of its package of measures, the government also wishes to enable the bringing of successful claims against those legally responsible for creating such issues. This support is conspicuous in the Building Safety Act 2022 and in a recent court decision: Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC).  Building Safety Act 2022 The 2022 Act makes a number of significant changes to the law to enhance the right to claim. The Defective Premises Act 1972 English law does not generally enable property owners to claim the cost of rectifying defects from those responsible, in the absence of a contractual relationship. The Defective Premises Act 1972 was passed to create a statutory right to claim against developers, contractors and professionals involved in the creation (as a new build or conversion) of new homes (referred to as “dwellings”). It imposed on such parties a duty to those engaging them and to subsequent owners: “…to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed”. The requirement that the defects render the property unfit for habitation limits the 1972 Act to serious defects, but this has been held to apply where the property is not currently unfit for habitation, but would become so due to the defect if not remedied, including if a risk such as fire manifested itself. Immediately following the aftermath of the tragic fire at Grenfell Tower in 2017, the 1972 Act was invoked in claims. However, it contained a time limit for a claim of six years from completion of construction. This excluded many claims. The 2022 Act seeks to address this by extending the time limit to 30 years with retrospective effect for existing rights, and to 15 years for rights that arise in the future. The 2022 Act also seeks to address another limitation on the scope of the DPA by extending it to any other work to a building containing a dwelling (unless the result is the removal of the dwelling). Significantly, this brings the refurbishment of existing residential buildings, ie by a cladding scheme, into scope. However, this change will not have retrospective effect. The Building Act 1984 The 2022 Act has also brought section 38 of the Building Act 1984 into force, which had sat silently on the statute books for almost 40 years. It provides a statutory right to claim against a party responsible for a breach of the Building Regulations; a common feature of fire safety claims. This is potentially wider than the 1972 Act because a fitness for habitation threshold does not have to be satisfied. However, it is likely to be less useful in the short term because it will not apply retrospectively and it appears that it will only provide a right to claim for personal injury or damage to third-party property and not to the cost of rectifying defects. It comes with a 15-year limitation period. Building liability orders Many property developments are undertaken through special purpose companies, whose sole asset is the property in question. Following completion, the company may be sold to another or dissolved, preventing claims back to the group of companies to which it belonged. The 2022 Act gives the courts the power to make a building liability order. Such an order can be made against an associated company in respect of liability under the 1972 Act, section 38 of the 1984 Act or where such liability arises from a “building safety risk”, which is defined in this context as “a risk to the safety of people in or about the building arising from the spread of fire or structural failure”. The definition of associated company is based on control and can be applied at any time from the carrying out of the works to the making of the order. Broadly, it will include companies who have been in the position of being a parent or sister company during this period. An order can be made where the court considers it “just and equitable” to do so. This gives the court wide discretion. It remains to be seen how this will be applied, but the clear intent is to ensure the use of a special purpose company, or a subsequent group reorganisation, will not necessarily protect a group’s assets.  The 2022 Act also entitles the court to grant an order for the provision of information to enable a potential claimant to make, or consider making a claim, for a building liability order.   Construction products The 2022 Act also creates a new right to claim against product manufacturers, ie the manufacturers of combustible cladding or insulation. Contracts with manufacturers are typically placed by subcontractors and so claims for the cost of rectifying defects are otherwise generally not available to main contractors, developers and property owners. Liability may arise for: (i) a failure to comply with certain statutory requirements for a construction product; (ii) a misleading statement in relation to a construction product; or (iii) manufacturing an inherently defective product. The product must cause the dwelling(s) to be unfit for habitation. Significantly, the time limit for claims is 30 years with retrospective effect for existing rights, and 15 years for rights that arise in the future. Martlet Homes Ltd v Mulalley & Co Ltd  In the first post-Grenfell trial judgment of an English court on a claim for the cost of replacing combustible cladding, the court has shown a receptiveness to claims by those who bear the cost of such works. The claim related to five social housing towers in Gosport in Hampshire. It was by a developer against its design-and-build contractor. The developer succeeded in establishing that there were fundamental design defects necessitating replacement, as well as widespread workmanship defects. The decision will provide support for other claims, including in the following ways.  The court confirmed that where there are two clauses imposing different design obligations a court is likely to consider that it makes more sense to see the lesser obligation as a minimum standard and not as qualifying the more onerous standard. The more onerous standard will therefore apply unless the contract terms clearly qualify it.   The court made clear that it expected designers to make reasoned decisions about the appropriateness of their designs, and to have treated publication BR 135 as creating a relevant performance standard. Slavishly following common practice or even BBA certificates will not be accepted. The court reserved to itself, rather than experts, the true interpretation of the Building Regulations and related guidance, making it more difficult for a party to advance the interpretation taken by construction professionals at the time (or now) as a reason for defending a claim. The court accepted representative evidence of workmanship defects, without requiring a comprehensive record of every occurrence. Where the designer had not followed available guidance and had not tested the system, the court found that they bore the burden of proving that the system would pass a test. A defendant cannot simply rely on the absence of such a test to say a claimant has not proven its case. The court accepted that workmanship defects were an “effective cause” of the claimant’s loss, at least up to the notional cost of repairing those defects, even though the claimant had not repaired them, they had replaced the whole system.  The court rejected the argument that the workmanship defects would have caused no loss if it had found that the claimant had replaced the system in order to comply with recent guidance (and not because of a fundamental design defect). The court allowed recovery of more than £2m for the cost of a waking watch, dismissing various arguments that this head of loss was too remote. The court stressed that the claimant does not have to show that a defendant contemplated a specific loss for it to be recoverable, only that they did, or should have, contemplated the type of loss. More generally, the court allowed the majority of the sums claimed. Concluding remarks  There is much yet to be worked out about the finer points of the 2022 Act and about the issues that commonly arise in fire safety claims. However, the trend of support from the government and courts is tangible and is likely to continue in the months and years ahead.   Peter Stockill is a partner and head of construction & infrastructure at Penningtons Manches Cooper Photo by Geoffrey Swaine/Shutterstock