The High Court’s approach to cladding claims

Judith Hopper and William Cursham analyse a recent ruling where a High Court judge awarded a housing association substantial damages in a claim relating to defective cladding.

The case of Martlet Homes Limited v Mulalley & Co Limited [2022] EWHC 1813 (TCC) will be of interest to housing associations, local authorities and other landlords who are still assessing their potential claims in a post-Grenfell landscape and gives useful guidance to the approach the Court will take.

In particular, the Court looked at the thorny question as to whether a claimant can recover for full replacement, or a more limited repair scheme.

Background

Martlet Homes Limited (Martlet) owns five tower blocks in Gosport which were refurbished by Mulalley & Co Limited (Mulalley) in the mid-2000s. That work included the installation of external wall insulation rendered cladding.

Post-Grenfell, Martlet discovered fire safety defects in all five blocks, including:

• inadequately installed fire barriers at each floor (particularly poor/inadequate fixing and gapping)
• inadequately fixed insulation boards, and
• a combustible external wall insulation (EWI) rendered cladding system.

After extensive investigations and expert advice, Martlet eventually decided to remove the entire EWI cladding system and replace it with a new non-combustible cladding system using stone wall insulation panels instead of EPS insulation panels. 

Martlet looked to recover the costs of this replacement scheme from Mulalley. The claim was close to £8m and included:

• the costs of investigating and remedying (by removal and replacement), combustible external wall installation rendered cladding (originally installed by Mulalley between 2005 and 2008), and
• providing a waking watch as a fire safety precaution until the EWI cladding had been removed.

Mulalley argued that Martlet should only be able to recover the cost of repairing the installation issues, which did not include replacing the EWI cladding system.

The Decision

Martlet succeeded in recovering the full replacement costs and costs of the waking watch, but in order to allow it to do so, the judge had to take what he called a more ‘nuanced approach’. How the judge reached his conclusions will be instructive to all those involved in these type of fire safety cases.

Martlet’s original claim was based on an allegation that the fire barriers and EPS insulation were not properly installed (i.e. they were not fixed, there were gaps and the wrong type of dowels had been used).  This was what it called its ‘primary case’. The court found that installation was defective, in breach of the Building Regulations, the guidance in ADB 2002 and the guidance in BRE135 (2003).  However, if Mulalley’s only breaches were in respect of installation, then it would be limited in what it could recover, because installation issues could be remedied by more limited repair work (installing adequate fire barriers and fixing them properly), and so its recovery would be limited to these repair work costs (even when it had actually implemented the full replacement scheme). 

Therefore, Martlet relied on what it called a 'secondary' or 'fall-back' claim, which is that Mulalley had breached the contractual specification in its choice of EWI for the external wall system. Although this may seem the more obvious case to make, the EWI rendered cladding had been installed in the mid-2000’s, well before the Grenfell Tower fire; it was  therefore far from clear whether, at the time of construction, such systems were actually prohibited (or even advised against). For example, the applicable version of Approved Document B was the 2002 version; it was only the 2006 version of ADB that advised that it was no longer possible to use combustible insulation panels, unless the EWI system of which they form part had passed a BS8414-1 full scale fire test at the time.

Notwithstanding this, the judge noted that under the building contract (GDI004 of the Employer’s Requirements), Mulalley agreed to “conform with the requirements, directions, recommendations and advice contained in the latest addition of the following publications..(f) Building Research Establishment reports, papers, defects action sheets and the like”. 

The relevant BRE report was BRE135 (1988), which was then replaced by BRE135 (2003) at the time the contract was entered into. BRE135 (2003) provides that the performance standard contained in it “could be adopted where the implications of rapid fire spread by way of the external cladding system are considered to be unacceptable, such as tall buildings (above 18m)”. The performance standards are set out in Annex A of BRE135 (2003) and were to be assessed through tests to be undertaken in accordance with BS8414-1.

Accordingly, BRE135 (2003) contained a recommendation and/or advice that the default position for an EWI should be that it should not be specified for use in these buildings, unless it could be shown to meet the Annex A performance standard in accordance with the test method set by BS8414-1.

Although the wording of BRE 135 (2003) is advisory and not mandatory, the judge noted that the advice contained a “clear recommendation” and a “strong exhortation” and that any reasonable contractor would comply with that advice. The Court concluded not only that Mulalley had failed to follow the advice, but that failure to comply with BRE 135 recommendations/advice also amounted to a failure to comply with functional requirement B4(1) of Schedule 1 of the Building Regulations.  This meant that Mulalley was also in breach of its contractual requirement to comply with statutory requirements.

The judge was clearly eager to find that the full replacement costs of the EWI rendered cladding system was recoverable by Martlet, as is evidenced by the emphasis he put on the fact that the recommendations and advice contained in BRE 135 (2003) amounted to a strong exhortation. He also noted that in many similar cases, defendants often argue that at the time of construction no one involved in the design or specification of the building knew that there were any issues with the system - but this type of argument, he said, was “not an answer” to this type of claim.

There are also the following important points to note from the judgment:

• Mulalley tried to argue that similar systems had passed BS8414-1 tests, but the judge was not impressed with this argument, and essentially said that only a test of that particular system would 'be sufficient’
• The fact that the EWI system had a BBA [British Board of Agrément] Certificate did not mean that the system is compliant with Building Regulations
• The defendant’s experts argued that the BRE 135 (2003) did not require a B8414-1 test as long as the system that contained the EPS had BRE 135 complaint fire-barriers. The judge said that this was wrong and ‘too simplistic’.

Remediation/Repair or Replacement

As is common in these types of cases, Mulalley also tried to argue that the decision to replace the EWI rendered cladding system (rather than repair the defects) was due to the ‘changed fire-safety landscape’ post-Grenfell, and not Mulalley’s specific breaches. Mulalley also made some allegations that Martlet effectively 'retro-engineered' the need to replace the cladding rather than carrying out the limited repair works.

Mulalley’s argument in this respect failed. The judge emphasised that, as long as the defendant’s breaches are an effective cause  of the loss, then that is sufficient; they do not have to be the only cause, and it does not matter that there might be other 'effective causes' (for example, the financial and political pressures following Grenfell).

The judge also made the following comments in relation to recovery for remedial works:

• The Court will be slow to criticise a claimant who has undertaken remedial works due to the fact that another party is in breach. This is particularly so when the claimant has to make an urgent decision, or make a decision with incomplete information, as was the case here.
• However, a claimant’s decision to undertake the remedial work must be reasonable. The burden is on the claimant to show that the remedial works it embarks upon are reasonable.
• ‘Reasonable’ does not necessarily mean ‘cheapest’. A key pointer to reasonableness is whether the claimant followed expert advice in deciding upon a particular remedial solution - although this is not conclusive and will not apply if the advice is negligent.
• In this case the court had regard to the fact that Martlet was doing “the right thing as regards residents’ safety” and “that it was obvious from an early stage that the safest thing would be to remove the defective fire barriers and to remove the combustible EPS insulation from the towers”.
• The claimant should consider any remedial proposals put forward by the defendant but is not bound to accept them, particularly if they do not fully address all the defects. In this case, Mulalley proposed an injection of adhesive into the firebreak cavities. Martlet considered this but rejected it on the basis that it was not sufficient, and the court agreed with this.
• A claimant should make sure that it keeps a proper paper trail of its decision-making processes, particularly in relation to remedial solutions- this will help evidence the ‘reasonableness’ of its decision making. It is important to ensure, however, that there is no suggestion of ‘retro-engineering’ a decision.
• If Mulalley had produced a BS 8414-1 test that showed that the system was compliant, then Martlet would have had to take this into account when making its decision whether to replace, and if it had carried on with replacement regardless, then it would probably not be able to recover the replacement costs.
• Equally, if Mulalley had suggested a BS 8414-1 before Martlet had made its decision, then Martlet would be expected to defer its decision until the outcome of the test was known.

Conclusion

There has been a prevailing concern as to the extent to which what is now widely accepted as a loosening of the requirements around Building Regulations in a pre-Grenfell era may have on claims for cladding and for other fire defects.

The case is helpful in showing that the Courts can find a creative way through this by emphasising the need for compliance with issued guidance. 

The decision is helpful to other parties seeking to recover damages for remedying such defects, particularly the emphasis that a reasonable solution does not have to be the cheapest.  There will be a number of factors for parties carrying out such remedial works to take into account. 

Reasonable steps taken to mitigate risks, such as waking watches, will also in principle be recoverable.

Judith Hopper is a Partner and William Cursham is a Senior Associate at Bevan Brittan.