Who pays the costs of remedying fire safety defects in tall buildings?
Market Insight 06 September 2022 06 September 2022
UK & Europe
Cladding and Building Safety
The recent judgment of the Technology and Construction Court (TCC) in Martlet v Mulalley is an extremely important decision. Following the Grenfell Tower tragedy, it has emerged that thousands of tall buildings across the UK have potential fire safety defects which may require remediation, and this is the first judgment from a UK Court which decides which party should bear such remedial costs, and the costs of waking watches deployed to mitigate fire risks. The judgment is therefore likely to have considerable ramifications.
The background to Martlet’s claim
In the Martlet case, a housing association called Kelsey decided in 2005 to refurbish five tall, concrete tower blocks in Gosport, Hampshire which contained social housing apartments. The refurbishment involved installing new cladding systems on the outsides of the towers, mainly comprising insulation panels with render coatings, to improve the towers’ thermal performance and visual appearance. Kelsey entered into a design and build contract with a contractor, called Mulalley, for the design and construction of the new cladding systems.
Mulalley’s design of the new cladding involved attaching expanded polystyrene (EPS) insulation panels to the sides of the towers and, covering them with organic, acrylic render. These materials were combustible, and to prevent fire spreading across the facades of the towers, Mulalley’s design included horizontal, mineral wool fire barriers. These fire barriers were to be installed at every floor level (from the third floor upwards) of each tower. They were non-combustible and were intended to “fire break” the combustible EPS panels and inhibit the spread of fire, until the emergency services had arrived and could evacuate the tower’s residents. They were also to be over-coated with render.
The cladding works were carried out by Mulalley between 2005 and 2008.
Following the completion of the cladding works, the ownership of the towers and the design and build contract were transferred by Kelsey to a new housing association, called Martlet.
Following the Grenfell Fire in June 2017, Martlet decided to have the cladding systems on the towers inspected and serious fire safety defects came to light in them. In particular, the EPS panels and the fire barriers ought to have been continuously glued and pinned to the facades of the towers, but instead they were simply installed by “dots and dabs” of adhesive. These left cavities between the original concrete facades and the EPS panels and fire barriers, which would permit a fire to spread behind the EPS panels and the fire barriers. There were also gaps between adjacent fire barriers, which compromised their fire integrity.
As a result of these fire safety defects, Martlet decided to deploy 24 hour waking watches at each of the towers, as fire precautions.
Having sought professional advice as to the appropriate remedial works, Martlet decided that the cladding systems installed by Mulalley should be stripped from each of the towers and replaced with new, non-combustible cladding materials.
Having replaced the cladding on all five towers, Martlet commenced legal action against Mulalley. It claimed costs of approximately £8million for remedying the installation defects in the original cladding systems in, and deploying waking watches to, four of the five towers. (Martlet accepted that, as more than twelve years had passed between the completion of the cladding to the first of the towers and the issue of its claim, its claim in respect of that particular tower had become statute barred).
Mulalley defended Martlet’s proceedings. Although it admitted that there were some defects in its cladding installations (Installation Defects), it alleged that they could be remedied by localised repairs, and it denied that the wholesale replacement of the original cladding systems to the four towers was justified. It also contended that Martlet’s decision to replace the cladding systems, and thus the replacement costs, were not caused by the Installation Defects, but rather by Martlet’s desire, following the Grenfell Fire, for the towers to be clad in non-combustible materials and by Government recommendations (issued following the tragedy) to such effect.
Martlet’s amended claim
In response to Mullaley’s defence, Martlet sought to amend its claim to argue that it was entitled to recover its replacement costs, and that they were fully justified, because Mulalley ought never to have specified the EPS/render materials in its design (Specification Defects). This was because they were combustible and inappropriate for use in the cladding of high-rise buildings.
Mulalley objected to those amendments being made. It argued that they represented new claims, which could not be made after the relevant limitation periods had expired (in this regard, Mulalley contended that, by that stage, the limitation periods for claims for breaches of contract regarding all of the blocks had elapsed, and therefore that the new claims should not permitted).
These limitation-related issues were determined by the TCC first, and then (on appeal) by the Court of Appeal.
Although the TCC and the Court of Appeal both found that the relevant limitation periods had expired, they both allowed Martlet to advance its new claims. This was because Mulalley had alleged, in its defence, that the EPS/render systems were suitable for cladding the towers, and because Martlet was therefore entitled to make claims in the proceedings on the footing that they were not. Essentially, they ruled that the new claims related to facts which were the same or substantially the same as the facts which Mulalley had already raised in the proceedings, and the new claims based on them could thus proceed.
Consequently, the TCC had to decide whether Martlet was entitled to recover its replacement and waking watch costs, because of the Installation Defects and/or the Specification Defects. The TCC also had to decide Mulalley’s defence that the Installation Defects did not cause the replacement of the cladding.
The TCC’s decision
The TCC decided in Martlet’s favour and upheld its claim. Whilst it found that the Installation Defects would only justify repairs to the cladding systems, it interpreted the design and build contract and decided that Mulalley should never have specified the (combustible) EPS panels and render, in accordance with the contract, without fire testing the whole cladding system first. As Mulalley failed to do so, the TCC held that the Specification Defects constituted a breach of the contract by Mulalley and that it was liable for Martlet’s losses.
In reaching its finding that the Specification Defects constituted a breach of the contract by Mulalley, the TCC rejected Mulalley’s arguments that it could rely upon a British Board of Agrément Certificate concerning the EPS/render system in order to prove compliance with the Building Regulations. The TCC also rejected the argument that it was reasonable for Mulalley to specify the EPS/render system, as many other designers did at the time. The TCC found that Mulalley should have had the system fire tested first and it commented that a defendant was not exonerated from specifying an inappropriate system simply by proving that other designers were doing so at the time and were equally as negligent.
The TCC also remarked that it would not have upheld Mulalley’s causation defence, had it rejected the Specification Defects and simply been concerned with the Installation Defects. This was because it was sufficient for Martlet to establish causation, simply to show that the Installation Defects constituted breaches of contract by Mulalley and that they comprised an “effective cause” of its losses. It was not necessary for Martlet to prove that they were the only cause of its losses.
The costs of the waking watches constituted £3million of Martlet’s total £8million claim. The TCC decided that they were recoverable by Martlet, as it had followed professional advice in implementing them, and since Mulalley had failed to demonstrate that Martlet did not take reasonable steps to mitigate them.
The implications of the Martlet decision
As noted above, the TCC’s judgment in Martlet is likely to have considerable consequences. It will encourage the owners or tenants of tall buildings to bring claims against the designers or contractors responsible for fire safety defects in them, particularly for the remedial and waking watch costs which they incur. The TCC has indicated that the Courts are unlikely to be receptive to defences from designers and contractors that they were not negligent because many other designers or contractors were either generating or building similar flawed schemes at the time. By applying the “effective cause” test to establish the causation of the owner’s/tenant’s losses, the TCC seems to be ruling out inventive arguments by designers or contractors that other factors may have in fact caused the losses.
The fact that the door relating to such defensive arguments by designers and contractors may be closing, may lead designers and contractors to search for other, alternative lines of defence. One example, concerning fire safety defects in the external walls of a tall building, might be that the designers or contractors could implement or contend for a remedial scheme which falls short of full replacement, and then seek to have the safety of such a scheme confirmed either by way of a PAS 9980 fire risk assessment, or via an EWS1 Certificate, by a suitably qualified industry professional. This approach may make it much harder for an owner/tenant to justify the reasonableness of a broader remedial scheme, if it wishes to implement one and the Martlet case was pleaded before PAS 9980 and a holistic approach to fire engineering and life safety became the industry standard. Each cladding related claim will be very fact specific and time will tell whether the Martlet decision tips the balance of liability towards contractors and designers.