Court awards housing association millions in damages in significant cladding dispute case

This ebriefing comments on the recent judgment in the case of Martlet Homes Ltd v Mulalley and Co Limited in relation to cladding fire safety defects on high-rise buildings.

What was the dispute?

Last month, judgment was handed down in the Technology Construction Court in favour of Martlet Homes Limited (part of the Hyde Group), in its claim against Mulalley and Co Limited. The case provides useful guidance as to the approach the court will take on cladding fire safety defects following the Grenfell Tower tragedy in 2017.

In 2005, Mulalley was engaged under a JCT design and build contract to refurbish five concrete tower blocks in Gosport, Hampshire, all of which are in excess of 18 metres in height. The works included fitting cladding to most elevations of the buildings. Mulalley completed the works between 2006 and 2008, including installing the StoTherm Classic external wall insulation cladding system (EWI). The StoTherm Classic system used combustible expanded polystyrene insulation as well as fire breaks and a render overcoat. Martlet acquired the buildings from the original owners in 2017.

Following the tragic Grenfell fire, Martlet carried out an investigation into the EWI which identified the use of combustible insulation boards and defects in the installation. In particular, there were significant defects ‘in the installation of the fire barriers which created a real risk that they would not operate as intended to prevent the spread of fire’.

Based on its investigations, Martlet quickly decided to remove the entirety of the EWI and replace it with a non-combustible system, using stone wool insulation panels. The remedial works were carried out by a different contractor between 2018 and 2020. Martlet also set up a ‘waking watch’ shortly after its investigations, which continued until the replacement works were completed on each respective block.

What was the claim?

Martlet issued a claim for the defective installation of the EWI at four of the buildings for the sum of £8 million. The works at the fifth tower were undertaken more than 12 years before the claim was issued, and were, therefore, ‘time-barred’ as it was outside of limitation. The claim was a direct claim in breach of contract. Martlet claimed that there were defects in the installation, including the defective fire breaks.

Mulalley’s initial position was that the Grenfell fire had caused Martlet to realise that the StoTherm Classic’s combustible material did not meet fire safety standards brought into force after it was installed, rather than it being in breach of regulations in force at the time. As such, Mulalley argued that the owner’s claim should be limited to the repair costs to remedy any installation breaches, but that even this should not be recoverable in any event because the owner had elected to replace rather than repair. 

This argument led to Martlet countering with a specification argument, involving an allegation that the cladding materials did not meet the required standards at the time they were installed either.

Mulalley denied liability for the costs of the waking watch in any event.

What was decided?

The judge agreed with Martlet on the workmanship argument, finding on the basis of expert evidence that there was ‘clearly a serious breach’ in relation to the installation as there were continuous voids between the fire barrier and the walls, leading to an obvious and serious risk of rapid fire spread. The lack of cavity barriers around windows, service penetrations and compartment walls also led to an obvious fire safety risk.

Interestingly, it was commented that had Martlet only succeeded in its claim in respect of defective installation, it would only have been entitled to recover the costs of a scheme to repair those defects, rather than the costs of a complete replacement scheme.

Nonetheless, the judge found that (even if it had theoretically been installed correctly) the EWI failed to meet the relevant building regulations, in particular ‘to adequately resist the spread of fire over the walls’ and the failure to conform to the advice in the Building Research Establishment (BRE) guidance in place at the time meant that Mulalley were therefore in breach of contract. The judge dismissed attempts by Mulalley to rely on a 1995 BBA certificate, stating that the certificate is not a ‘guarantee’ of compliance with building regulations and that there was no evidence the system satisfied all the general and system-specific design principles contained in BRE 135. Mulalley were therefore liable for the costs of the replacement works.

The waking watch costs were also recoverable (with deductions), as it was a reasonable step to take to ensure residents’ safety and to mitigate the losses that would have flowed from an evacuation.

Our thoughts

The judgment may not come as a surprise to many. However, what may be surprising is that this is the first case of its kind to be decided by the court since the Grenfell Tower tragedy, despite the measures being taken by housing providers across the United Kingdom to investigate and (where required) remedy their cladding and EWI systems. Whilst this case turned on its own particular facts and the contract/specification wording, undoubtedly there will be many parallels to be drawn with other similar scenarios.

In our experience, utilising adjudication is a common process utilised to resolve disputes involving cladding systems, as well as fire safety issues more generally (see our article about recovering the cost of replacement fire door sets using adjudication and then enforcement action via the court). Indeed, in the Martlet v Mulalley case, the parties had already taken the dispute through an adjudication. Adjudication is quicker and cheaper than court proceedings, with the adjudication process taking as little as 35 days. In the absence of payment, the adjudication decision can also be enforced through a streamlined court process in a matter of months. This is quite a stark contrast to a likely minimum of two years that it can take for a claim to be issued at court and progress to trial.

In addition, we have acted for clients in adjudication processes where an adjudicator is asked to determine liability for remedial or replacement costs prior to completion (in circumstances where risks are being mitigated), which often enables the parties to reach a settlement on the remedial or replacement works without further formal proceedings being undertaken. In those proceedings, we have similarly seen contractors seek to rely on a blanket assurance by way of BBA certificates that the cladding system in question is compliant with the relevant regulations, without providing any evidence to prove that it was installed with the same tested configuration.

No doubt the nuances in respect of recoverability of costs in relation to installation versus specification defects will be important for future claims. Likewise, the confirmation that appropriate waking watch costs can also be recovered will provide comfort to housing providers who want to ensure they mitigate risks to life following the identification of defective cladding.

As this case shows, it is important to take legal advice at an early stage to ensure that limitation does not expire which would leave an otherwise perfect claim ‘time-barred’ from commencing proceedings. In this case, the amount claimed by Martlet was £8 million across four towers, therefore the cost it had to absorb as a result of running foul of the limitation period for the fifth tower may have been in the region of £2 million. Martlet was also relatively lucky in that it still had the time to bring a direct breach of contract claim in relation to the four other towers. Many registered providers have found that they are already out of time to bring such claims when defects are discovered, and/or that the contractor/developer is no longer trading and they have had to resort to applying for Government Building Safety Funds. The very recently extended Defective Premises Act provides another possible avenue for recovery.

The importance of appropriate technical expert advice also cannot be understated in these types of cases, and it may be a mixture of fire expert and architectural that defines what was specified and whether it was acceptable or not.

For more information

For more information or advice about any of the issues in this ebriefing, please contact Paul Slinger.

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