Cladding claims – the Court’s approach

• United Kingdom

• Construction and engineering - Articles

23-01-2023

TCC issues further guidance in response to fire safety defects at university halls of residence in Manchester

On the last working day before Christmas, the TCC issued judgment in the case of LDC (Portfolio One) v (1) George Downing Construction Limited and (2) European Sheeting Limited (in liquidation)¹ .

LDC (Portfolio One) (“LDC”) was the freehold owner of three university halls of residence blocks in Manchester, each over 18 metres high. The first defendant, George Downing Construction Limited (“Downing”), was responsible for designing and building the blocks and the second defendant, European Sheeting Limited (“ESL”), was the specialist sub-contractor for the cladding and rainscreen works. Both defendants had provided collateral warranties to the employer, which had been assigned to LDC.

LDC brought breach of warranty claims against Downing and ESL in relation to the construction of the external walls and cladding of the blocks. The case builds on the judgment in Martlet Homes Ltd v Mulalley & Co Ltd² and provides useful guidance in relation to claims for defects in buildings.

Unusual aspects of the trial

The trial was unusual in that the LDC’s case may not have been challenged as robustly as might have otherwise been the case, due to the fact that:

• LDC and Downing had agreed terms of settlement in a Tomlin Order before trial, under which Downing was to pay LDC £17.65million
• ESL went into creditor’s voluntary liquidation just prior to commencement of the trial. The liquidator had not consented nor objected to judgment being entered against ESL
• ESL served a defence but took no part in the trial

LDC and Downing sought judgment so that Downing could claim a contribution from ESL in respect of the settlement sum it had agreed to pay LDC.

The defects

The defects related to water ingress and fire stopping. The Judge heard from expert witnesses for LDC and Downing, but not from ESL.

The Judge decided that the cladding was defective and LDC had been right to replace it. Downing was in breach of contract (and, in turn, so was ESL, for putting Downing in breach of the main contract pursuant to the terms of its sub-contract) and was liable to LDC for the costs of temporary repair of the defective cladding, the permanent replacement system and also lost income (relating to the loss of rental income, projected loss of rental income and operating costs)

The settlement Downing had reached with LDC was reasonable (applying the well-established principles under Siemens Building Technologies FE Limited v Supershield Ltd³ that the settlement was within the range of settlements which reasonable people in the position of the settling party might have made, bearing in mind such circumstances as: the strength of the claim, whether the settlement was the result of legal advice, the uncertainties and expenses of litigation, and the benefits of settling the case rather than disputing it).

Downing was therefore entitled to recover the settlement sum from ESL under the sub-contract between Downing and ESL, together with the reasonable costs of defending the claim from LDC.

Key takeaways from the judgment

The key takeaways from the judgment for those dealing with cases involving defects in buildings include the following:

1. Duty of reasonable skill and care

Where a sub-contract provides an over-arching requirement to carry out works with reasonable skill and care, that requirement is unlikely to water down a specific obligation on the sub-contractor not to place the contractor in breach of its obligation under a main contract. The Judge referred to the comment of Lord Neuberger in MT Hojgaard AS v E.ON Climate and Renewables UK⁴ that if there are two clauses imposing different standards or requirements, treating the clause imposing the lesser standard as a minimum requirement makes more sense.

The same approach applies in relation to compliance with statutory requirements: a reasonable skill and care obligation will not normally qualify an obligation to comply with statutory requirements into a lesser obligation.

       2. Reasonableness of costs incurred

Actual costs incurred in carrying out remedial works are the starting point for an analysis of what is reasonable, particularly if they are the costs of work which the claimant carried out on the basis of professional advice.

The claimant is subject to a duty to mitigate its loss although the Court will not be too critical of their choices if made as a matter of urgency or on incomplete information. If a claimant has to make a choice as a matter of urgency or on incomplete information then it is not surprising that the Court will not be too critical of a decision to choose option A which, with hindsight, turns out to be more expensive than option B.

It is not of itself an answer to a claimant’s claimed remedial scheme to demonstrate that the defects could have been rectified through an alternative scheme for a lower cost. The defendant must demonstrate that the remedial scheme claimed for was unreasonable (ESL did not do so).

      3. Importance of expert evidence

In determining whether a remedial scheme was reasonable, the Court will consider whether, and to what extent, the claimant relied on expert advice in deciding to carry out the remedial works at issue, provided the expert advice is directly relevant to the remedial works and not simply tangential or coincidental.

The Judge went on to say that “If two remedial schemes are proposed to rectify a defect which is the result of the defendant’s default, and one scheme is put in hand on expert advice, the defendant is liable for the costs of that built scheme, unless it could be said that the expert advice was negligent; albeit that to put in issue the reasonableness of a decision based on expert advice does not require conduct on the part of the expert amounting to professional negligence”.

There was a word of warning, however. Although reliance on an expert will always be a highly significant factor in any assessment of loss and damage, it will not on its own be enough, in every case, to prove that the claimant has acted reasonably. When considering alternate remedial schemes, it is necessary to consider their cost, efficacy, and any guarantees or bonds offered by the relevant manufacturer or contractor.

      4. Potential for betterment

Where works of repair or reinstatement result in the claimant having a better or newer building, a deduction will not usually be made from damages if the claimant has no reasonable choice. This includes betterment resulting from compliance with legislation introduced since the original works were carried out which require additional or enhanced standards to be met. In this case the Judge held that any upgrade to comply with the revised Building Regulations was not betterment.

Conclusion

• this judgment continues the approach of the TCC to claims relating to fire safety and cladding defects, namely that a detailed and rigorous analysis of contractual and statutory obligations will be carried out and properly mitigated remedial costs (including those relating to temporary safety measures) will generally be recoverable
• the importance of technical and quantum expert analysis to support your position (and also to justify the scope of any remedial scheme) is key
• contractors and sub-contractors may wish to limit their obligations to reasonable skill and care where appropriate; employers should ensure that there is an over-arching requirement to comply with relevant statutory obligations
• contractors should endeavour to have their supply chain (particularly key/specialist sub-contractors) on back to back terms with their main contract to ensure recovery in the event of a breach
• the recent approach by the Courts to defects rectification relating to fire safety is focused on ensuring buildings are made safe and compliant with current statutory requirements, even where these requirements were not in place when the works were carried out. The Judge confirmed that this will not be considered “betterment” – and, whilst this may be a surprising conclusion, it shows the focus of the judiciary is on making high rise building safe following Grenfell

_{[1]                [2022] EWHC 3356 (TCC)
[2]                [2022] EWHC 1813 (TCC)
[3]                [2009] EWHC 927 (TCC)
[4]               [2017] UKSC 59}