Practical Law

Cladding disputes have been ubiquitous in recent years. They are a consequence of the tragic fire at Grenfell Tower in June 2017, which led to a wave of inspections, investigations and scrutiny across the UK as building owners sought to ascertain whether or not their buildings were similarly defective. That process has resulted in numerous disputes relating to all sorts of different buildings – whether residential or commercial, old or new, publicly owned or private developments – which have kept practitioners extremely busy over the past five years.

However, none of those numerous disputes had fought through to a TCC trial. That has now changed with the judgment in Martlet Homes Ltd v Mulalley & Co Ltd, which was handed down earlier this month, following a trial in March and April of this year.

Martlet v Mulalley: background

The claimant (Martlet) was a housing association that owned five 1960s tower blocks in Gosport (the Towers). The defendant (Mulalley) was a design and build contractor who was engaged in 2005 to install external wall insulation on the Towers in the form of rendered cladding. In the weeks following the Grenfell Tower fire, Martlet discovered that the insulation that had been used in Mulalley’s refurbishment works consisted of expanded polystyrene (EPS), which was extremely combustible. It also discovered that the mineral wool fire barriers the system required at each floor level in order to mitigate the risk of fire spread had been defectively installed.

Martlet responded by organising a “waking watch” fire patrol system at the Towers to mitigate the risks of a fire until a permanent solution could be implemented. In due course, it decided to completely remove the cladding and replace it with a similar system using non-combustible stone wool insulation instead of the EPS panels.

The dispute

In the proceedings, Mulalley admitted the majority of the installation breaches, that is, the workmanship failings in the installation of the fire barriers and the EPS panels. However, it denied that those breaches of contract were sufficient to justify what was referred to in the judgment as “the replacement works scheme” (the removal and replacement of the cladding that Martlet procured). It contended that Martlet would have been entitled to recover only the cost of the more limited “repair works scheme”.

Martlet also advanced what the court referred to as its “specification breach case”, contending that the cladding system specified and installed by Mulalley did not meet the applicable fire safety standards at the date of the contract. Mulalley denied this, maintaining that the cladding system it had installed complied with the applicable standards at the time. It also argued that its workmanship breaches had not in fact caused Martlet to suffer any loss, and that the waking watch costs were too remote to be recoverable in damages.

HHJ Stephen Davies resolved the issues essentially in Martlet’s favour. He found that if Martlet had succeeded only on the “installation breach case” it could only have recovered the costs of the repair works scheme. However, he upheld the specification breach case, finding that the system that had been designed and specified did not comply with the fire safety standards that were current in 2005. Specifically, he found that the system failed to meet functional requirement B4(1) of the Building Regulations. The judge also rejected Mulalley’s arguments on remoteness and made only relatively modest reductions to the quantum of Martlet’s claim for damages.

A judgment of wider applicability?

The question that will perhaps be of most interest to readers of this blog is how far the judgment in Martlet v Mulalley resolves or provides guidance on issues that arise in other cladding disputes. A substantial degree of caution is necessary here. Other disputes will involve different external wall systems, designed and installed pursuant to different contracts and at different points in time. As the judge himself put it, while the design and specification issues might be “of particular interest”:

“… like most other similar cases this case turns very much on the specific contractual provisions and the specific fire safety standards applicable to the particular product chosen as well on the particular cases pleaded and argued and the evidence called.”

Nevertheless, the judgment does address a number of points that occur in other cladding disputes of this sort. We think there are five points of particular interest, and we will leave practitioners to make their own assessments of the extent to which the judgment could be of wider application or significance.

Points of interest

First, the judgment contains a detailed discussion of the relevant Building Regulations and Approved Documents issued thereunder. All sorts of different points might be of interest in particular cases, but the following are perhaps the most noteworthy:

• A relatively nuanced approach to whether or not functional requirement B4(1) of Schedule 1 of the Building Regulations had been met, and thus whether or not the particular system as designed had meant that the external walls adequately resisted the spread of fire having regard to the height, use and position of the building, was appropriate, at least in the particular circumstances of this case.
• Approved Document B, Fire Safety, 2000 edition, 2002 revision (ADB 2002) should not be construed as meaning that whatever was not expressly prohibited was permitted and acceptable.
• The guidance in Approved Document B, 2006 (ADB 2006), which came into effect in April 2007, constituted a significant change from the regime in ADB 2002, in that it introduced clear guidance that in buildings of over 18 metres only materials of limited combustibility should be used as external wall insulation.

Second, the judgment resolves a number of disagreements about the proper interpretation of the Building Research Establishment (BRE) report, BRE 135 (2003), which provided guidance on the use of external thermal insulation systems. Although he noted that the drafting “could have been clearer”, the judge accepted Martlet’s case that BR 135 (2003) did not merely provide guidance but also created a defined performance standard against which systems could then be assessed by means of a large-scale test, albeit that meeting that performance standard was not itself a mandatory requirement. The judge reiterated that, in reaching his conclusions, he had relied primarily on his own reading of BRE 135 (and the other relevant standards and guidance documents) and the words used, rather than on the opinions of the experts as to what those documents meant.

Third, the judge also found that, in selecting and using a cladding system that included combustible EPS insulation, Mulalley had been in breach of its contractual obligation to exercise the same degree of skill and care in its design of the work as would an architect or other professional designer. In doing so, he rejected arguments frequently advanced by designers in these sorts of cases to the effect that:

• It was sufficient simply to have relied “blindly” on statements contained within a British Board of Agrément (BBA) certificate that systems where appropriate.
• They cannot have been negligent because “everyone else was doing it” (that is, making the same mistakes).

Fourth, although the discussion was technically obiter given his conclusions on the specification breach case, the judge’s rejection of Mulalley’s case on causation may well be of interest. Mulalley had argued that because Martlet had chosen to remove and replace the cladding rather than to repair it, and would have done so even “but for” its defective installation of the cladding system following the Grenfell Tower fire, those workmanship breaches had not caused Martlet to suffer any loss.

The judge firmly rejected those arguments:

• He accepted Martlet’s case that it was wrong to identify its loss narrowly as incurring the cost of replacing the cladding. Rather, its loss was the diminution in the value of the Towers, even if it was the cost of cure that was ordinarily the proper measure of that loss in construction cases.
• He agreed that if the application of the “but for” test for factual causation produced the answer that the installation breaches had not caused Martlet any loss, then there was a good cause for applying a different test.
• He concluded that the installation breaches were an effective cause of Martlet’s loss, but that if (contrary to his findings elsewhere) they had been Mulalley’s only breaches of contract, Martlet would have been entitled only to the cost of the lesser “repair works scheme”.

Fifth, the judge also rejected Mulalley’s argument that the costs of the “waking watch” were too remote to be recovered in damages. He held that the type or kind of loss, namely the need for temporary safety measures as a result of fire safety defects, was certainly foreseeable. To the extent that it was not understood or appreciated that there might be a need for a waking watch in these circumstances, that merely reflected what the judge referred to as:

“… a culture of endemic complacency within the construction sector about the true nature and extent of the fire safety risk associated with the use of combustible external cladding on high-rise residential tower blocks.”

The judge also made clear that he would have accepted Martlet’s fallback case, which was that the cost of a waking watch ought to be recoverable as a reasonable step taken in mitigation of the far greater loss that it would have suffered had it had to conduct a full-scale evacuation of the Towers and provide alternative accommodation.

Conclusion

The wave of litigation in relation to cladding fire safety issues shows no sign of abating. Indeed, it may have been given new impetus by the Building Safety Act 2022, with its new causes of action and extended limitation periods. Whether the judge’s careful and thoughtful judgment in this case has told us all we need to know about these sorts of claims is a question that will have to be left for another day.