External wall fire safety: first post-Grenfell liability judgement

More than five years have passed since the Grenfell Tower fire on 14 June 2017 and the ramifications of this tragic event are still being felt across the construction and property development sectors, as thousands of buildings of all types and uses have been identified as having external wall fire safety defects that require remediation.

Many significant developments concerning fire and building safety have occurred so far in 2022. The Government began this year by ratcheting up pressure on residential property developers [See our article from 12 January 2022 which details how the Building Safety Bill affects residential developers], culminating in a  significant number of housebuilders signing the Government’s ‘building safety pledge’, whereby they have agreed to remediate buildings over 11 metres in height that they developed over the last 30 years. Some of the most significant legislative changes to affect the industry in a generation have now come into force via the Building Safety Act 2022 (BSA).

Parties have been kept very busy with legal disputes in relation to fire safety defects, often between multiple players such as building owners, original developers and the consultants and contractors who designed and built the projects under scrutiny. A recent judgment handed down by the Technology and Construction Court, in the case of Martlet Homes Limited v Mulalley & Co. Limited [2022] EWHC 1813 (TCC), is the first decision on civil liability in a case of external wall fire safety defects since the Grenfell tragedy and provides useful guidance on how the courts will determine such claims.

The facts

• The claimant in the case, Martlet, is the owner of five concrete residential apartment blocks in Gosport, Hampshire, which are all in excess of 18 metres in height. This height threshold is significant because more onerous fire safety restrictions in the building regulation guidance (known as ‘Approved Document B’) apply to external wall constructions, including the use of combustible materials.
• The previous owner of the towers, Kelsey Housing Association Limited (Kelsey), decided to refurbish them and the refurbishment works included the application of an insulated render system, a ‘Sto Therm Classic K’ render system incorporating expanded polystyrene (EPS) insulation board, to the external elevations.
• Kelsey appointed Mulalley to carry out the refurbishment works under a design and build contract dated 2005 (executed as a deed) and the works were completed sequentially to each tower, from 5 December 2006 through to 7 April 2008.
• No particular problems were experienced with the external wall system following practical completion, but in the immediate aftermath of the Grenfell tragedy, Martlet took prudent steps to assess the external wall composition. By 23 June 2017, it realised that the system included combustible EPS insulation boards and following intrusive investigations it also discovered serious installation defects in relation to the provision of fire barriers which created a risk that they would not operate as intended to prevent the spread of fire.
• Martlet decided to remove the entire render system and replace it with a new, non-combustible system, using stone wool insulation panels rather than EPS. The remedial works were completed between 2018 and 2020.
• Due to what the court described as ‘various transfers’ which were not detailed in the judgment, Martlet was entitled to sue Mulalley under the design and build contract as if it had been the original employer under the contract.
• Martlet commenced court proceedings against Mulalley in December 2019, claiming approximately £8m in damages for costs incurred in: (a) investigating and implementing the replacement scheme of remedial works, and (b) providing a ‘waking watch’ fire warden patrol at the development until the remedial works were completed. As the claim was commenced in December 2019, more than 12 years after practical completion of one of the towers (Garland Court) – 12 years being the limitation period for claims for breaches of contracts executed as deeds –  no claim was made in respect of that tower.

The dispute

Martlet’s initial claim only alleged installation defects, e.g. in relation to fire barriers, which the court described as the “installation breach case”. Mulalley admitted to the existence but not to the extent of the installation defects and denied that those defects justified the wholesale replacement scheme implemented by Martlet. Mulalley said that the real cause and justification for the replacement works was because Martlet concluded that the existing render system with EPS insulation did not meet the heightened fire safety standards following Grenfell.

In response to Mulalley’s defence to the installation breach claims, Martlet amended its claim to also allege that the StoTherm classic render system as specified did not meet the applicable fire safety requirements of the Building Regulations at the date of the contract (the “specification breach case”). Martlet contended that it was entitled to recover the replacement and waking watch costs as having been caused by the specification breach as an alternative to its primary installation breach case. Mulalley asserted that the specification of the render system complied with the Building Regulations in force at the time of the refurbishment works and therefore denied that its specification of the render system was a breach of its contractual obligations to Martlet.

The court’s decisions

• The court decided that Martlet had fully made out its case as regards the installation breaches in relation to the fire barriers. Given the damning evidence as to the overall quality of the installation of the fire breaks and the absence of any evidence to the contrary from Mulalley, the court found that the installation defects were widespread rather than isolated.
• The court then assessed the specification breach case separately, considering it on a hypothetical, or “counter-factual”, basis, namely that the render system was installed without the installation breaches complained of. The court also ruled the specification breach case in Martlet’s favour, finding that the render system as specified and implemented did not comply with the Building Regulations at the time of the refurbishment works.
• Although the court decided that the specification breach was established and this justified the ‘replacement’ scheme of remedial works, the judgment also resolved the ‘causation’ arguments between the parties about whether the claimants could have recovered damages for losses arising from the installation defects alone. Mulalley argued that Martlet’s decision to fully replace (rather than repair) the render system did not satisfy the ‘but-for’ test for causation, i.e. that Martlet could not prove that “but for” the installation breaches the render system would not have been replaced, such that the installation defects had not caused Martlet to suffer any loss. The court decided that it would have been inappropriate to apply the ‘but for’ test in this case and it was appropriate to apply the ‘effective cause’ test in place of it, otherwise the claimant would have no recourse against a legally responsible defendant for any part of the cost incurred to remedy defective installation, even though the wholesale replacement works implemented had the effect of resolving the problem for which the defendant was legally responsible. The court decided that the installation breaches were also an effective cause of the loss suffered and Mulalley was liable for such loss.
• Since Martlet succeeded on the specification breach case, it could recover the costs incurred referable to the replacement scheme. However, if Martlet had only succeeded on the installation breach case but not the specification case, it could only have recovered the costs referable to the repair scheme, but not the replacement scheme.
• Martlet also succeeded on recovering the waking watch costs regarding the specification claim, subject to a modest reduction. The court also held that Martlet would have also succeeded on the waking watch scheme had it only succeeded on the installation breach case, although the valuation of the waking watch on that hypothesis would have been assessed on the basis of a lesser time period for completing the repair scheme.

Implications and key points to note

The written judgment is very comprehensive, running to 612 paragraphs over 84 pages. His Honour Judge Stephen Davies has helpfully broken the decision down into bookmarked sections, making it easier for readers to navigate to specific issues. The judgment makes clear that the case turned on specific contractual provisions and the specific fire safety standards applicable to a particular product at a particular point in time. It is also a ‘first instance’ decision of the High Court which is not strictly binding on all cases, but there are many aspects of the judgment that will be of wider interest to the many ongoing fire safety claims. A few of the most notable aspects are set out below.

• Assessing compliance with the Building Regulations – the judgment contains very detailed discussion about the relevant building regulations, particularly in relation to the functional requirement B4(1) of Schedule 1 to the Building Regulations in respect of external wall constructions. The judgment charts the various editions of Approved Document B and the Building Research Establishment (BRE) report, ‘BRE 135’, providing detailed interpretation of the guidance and performance criteria for the use of external wall insulation systems. When assessing the specification breach case, the court placed significance on a contractual provision (‘GDI004’ in the Employer’s Requirements to the Contract) which required Mulalley to comply with the latest editions of technical requirements, including BRE reports. This was significant to Martlet’s case because the criteria in BRE 135 became more stringent from the first edition (in 1988) to the second edition (in 2003) and the court held that Mulalley was required to follow the guidance in the second edition of BRE 135 notwithstanding that the applicable edition of Approved Document B at the time (the ‘2002’ edition) still referred to BRE 135 (1988). The court also considered the effect of BBA certificates on assessing building regulation compliance and stated that they “cannot be said to amount to a form of ‘guarantee’ or ‘passport’ to compliance with the Building Regulations”. There are also helpful sections which illustrate what parties must prove in order to establish specification breaches in these cases. The court rejected Mulalley’s argument that Martlet had to positively prove that the StoTherm Classic system would have failed to pass the performance criteria in BRE 135 (2003) had it been tested as specified and installed without installation defects, deciding:

“The claimant has proved that the defendant was in breach of contract in specifying and installing the StoTherm Classic system at a time when it had not obtained proof that the system passed the Annex A performance criteria when tested in accordance with BS 8414-1 and, thus, with the test specimen assembled and installed in accordance with the manufacturer’s instructions. If the defendant now seeks to show that this breach is causatively irrelevant because the system would have passed had it been tested at the time on that basis, then it is for the defendant to adduce that evidence.”

Whilst Mulalley did not provide test evidence in support of its case, it may be open for contractors in defence of claims to adduce such evidence in attempts to demonstrate compliance with the Building Regulations.

• Reasonable skill and care – The court also found that Mulalley was in breach of its contractual design obligation to exercise reasonable skill and care. It held that (seemingly independent of the specific contractual obligation in ‘GDI 004’) “any reasonably competent designer specifier could not have failed to be aware at the time that BRE 135 (2003) – as the most up to date and authoritative report on the topic – contained a clear recommendation and advice to avoid specifying a product such as the StoTherm Classic system with a combination of combustible EPS insulation and combustible organic acrylic render for a high-rise residential building unless there was evidence that it met the Annex A performance criteria via a BS 8414-1 test.” The court also accepted Martlet’s argument that “everyone else was doing it” does not operate as a “get out of jail free card” and following legal principles for assessing professional negligence, defendants will have to demonstrate a logical and rational basis for their conduct to avoid liability.
• Competing causes of loss – The court’s decision to apply the ‘effective cause’ test is helpful guidance for the many fire safety cases where allegations of both defective design and installation go hand in hand. The experience to date has been for designers to contend that installation defects are the cause of the claimed remedial works, whilst installers run the reverse argument. The ‘effective cause’ test is likely to be asserted by claimants to rebut attempts by defendants who seek to avoid any liability for losses arising from defects for which they were responsible, albeit a party’s liability may be capped to the cost of rectifying the defects they are liable for.
• Justifying a remedial scheme – There are many relevant passages in the judgment which highlight the importance of a claimant demonstrating a logical and detailed rationale for deciding upon a particular remedial scheme. The court is likely to have regard to a claimant’s internal decision-making processes, the steps taken to weigh up the pros and cons of different options (including feasibility of schemes and cost factors) and the degree of expert input. Claimants should expect to face close scrutiny of their remedial works decisions and have good evidence in relation to different remedial options. Such evidence will also assist the court in assessing damages in cases where claimants might establish liability against defendants for some defects but not others.

Looking ahead

As Mulalley was the sole defendant in this case, the court was not required to undertake an apportionment exercise between multiple parties, but it seems likely that in such cases the ‘effective cause’ test will be applied to allocate responsibility between parties.

This recent case only concerned allegations of breach of contract against the contractor. The BSA has significantly increased the scope of claims that will now be available in residential developments, as the limitation period for claims under the Defective Premises Act 1972 (DPA) has now been changed, with retrospective effect, from 6 to 30 years. The new section 2A of the DPA (introduced by the BSA) extends liability to the refurbishment of existing buildings, but it only applies to claims that accrue after 28 June 2022, meaning that this provision is unlikely to assist Martlet in relation to the tower that was completed outside the contractual limitation period, or other claimants where non-compliant façade works were undertaken as refurbishments to existing dwellings. However, claimants that are now exploring the viability of claims under section 1(1) of the DPA, in relation to the procurement of (then) new residential developments which now have a 30-year retrospective limitation period, will be closely reviewing the Martlet decision for aspects that will help their cases. Although each case will turn on its specific facts, the court’s approach in Martlet to determining compliance with the Building Regulations and assessing the exercise of reasonable skill and care in external wall fire safety claims will potentially be relevant to assessing whether a party has complied with its duty under section 1(1) of the DPA, i.e. to carry out work in a good and workmanlike or professional manner to ensure a dwelling is fit for habitation on completion.

It is hoped that the guidance provided by the court’s detailed judgment in Martlet v Mulalley will facilitate negotiations and settlements between parties on many cases with similar features. Given the volume of ongoing cases involving many participants, with a range of different wall systems built across different time periods and pursuant to specific contractual arrangements, it is likely that further fire safety litigation will come before the court again in the near future.