On 23rd December 2022, the Technology & Construction Court (TCC) released its most recent judgment in relation to cladding defects. It provided further insight into the approach the courts will take to cladding claims following the 2017 Grenfell Tower fire.
The Claimant, LDC (Portfolio One) Ltd owns three student accommodation high-rise tower blocks. The first Defendant, George Downing Construction Limited, was the main contractor on the project pursuant to a building contract. The second Defendant, ESL was the specialist subcontractor in relation to the external wall construction, including the cladding and rainscreen works under a subcontract. Both were retained on a design and build basis.
The Claimant found defects in the external cladding which caused water ingress and deterioration of the Structural Insulated Panels as well as fire barrier and fire stopping issues. The Claimant brought a claim against the Defendants pursuant to the collateral warranties that had been issued by them.
In October 2021, a settlement agreement was reached with the first Defendant for 拢17.6m relating to the defects. During the court proceedings, the first Defendant brought a contribution claim against the second defendant for 拢17.6m. In May 2022, the second Defendant was placed in creditor鈥檚 voluntary liquidation and ceased to actively participate in the action.
The issues before the court were as follows:
1.聽 Obligations under the subcontract
Under the main contract between the Claimant and the first Defendant, there was a requirement to comply with 鈥渁ll statutory requirements鈥� which included the Building Regulations. The second defendant argued that there was no equivalent obligation in its subcontract. It argued that it was only liable for design matters if it failed to exercise reasonable skill and care.
The TCC rejected this argument. It stated that under the subcontract the second Defendant was obliged not to place the first Defendant in breach of its obligations under the main contract. The reasonable skill and care clause in the subcontract did not supersede this obligation. The general rule should be that if two clauses in a contract could impose different standards, the clause imposing a lesser standard be treated as a minimum requirement. The TCC concluded that the second Defendant was in breach of its obligations under the subcontract.
2. Remedial works and reasonableness
The second Defendant argued that the Claimant had failed to mitigate its loss and that the remedial works were unreasonable.
The TCC held that the second Defendant failed to demonstrate that the remedial works were unreasonable based on the following:
- The costs incurred are the starting point for an analysis of what is reasonable.
- The Claimant had relied upon expert advice.
- The works were effective to cure the defects. The fact that there was an alternative, cheaper, remedial scheme does not, of itself, mean that the Claimant鈥檚 scheme was unreasonable.
- The claimant is subject to a duty to mitigate its loss, although the court will not be overly critical of choices made as a matter of urgency or incomplete information.
- The remedial works complied with the updated Building Regulations.
3. Challenging the settlement contribution claim
The TCC rejected the second Defendant鈥檚 argument that the Settlement Agreement was unreasonable as it had been entered into following legal advice.
Key Takeaways
The courts are continuing to take a robust approach to cladding defect claims but the approach taken could well apply to other claims.
Parties should be aware of the exact scope of the contractual obligations they are signing up to. In this case, the second Defendant took on additional obligations by agreeing not to place the first Defendant in breach of the main contract. Such contractual clauses are common and due diligence is required when reviewing contracts.
It will often be difficult for contractors to challenge the costs of remedial works. Raising the fact that the defects could have been remedied through an alternative, cheaper scheme will not suffice. They will need to show that the actual approach taken was unreasonable.
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