In LDC (Portfolio One) Ltd v George Downing Construction Ltd and European Sheeting Ltd [2022] EWHC 3356 (TCC) the Technology & Construction Court has issued its most recent judgment in relation to cladding defects since the Grenfell Tower Fire.

Background

LDC (Portfolio One) Ltd ("LDC") owns three student accommodation high rise tower blocks in Manchester, constructed in 2007 and 2008 (the "Towers"). The defendants ("Downing" and "ESL") were the main contractor and the specialist cladding sub-contractor, respectively, for the construction of the Towers. Both had design and build responsibility.

The cladding system on each of the Towers used Structural Insulated Panels ("SIPs"). LDC discovered defects in the external cladding which resulted in water ingress and deterioration of the SIPs, as well as fire barrier and fire stopping issues. LDC raised proceedings against Downing and ESL in respect of these defects.

In October 2021 a settlement agreement was reached between LDC and Downing for the sum of £17.6m in relation to the defects ("Settlement Agreement"). During the court proceedings, Downing brought a contribution claim against ESL in respect of the full £17.6m. In May 2022, ESL was placed in creditor’s voluntary liquidation and ceased to actively participate in the action.

The issues

The TCC was asked to consider several issues including:

  1. The scope of ESL's obligations under the subcontract and whether it was required to comply with the Building Regulations 2010.

There was a requirement in the main contract for Downing to comply with "all Statutory Requirements" which included the Building Regulations. ESL argued that, as there was no equivalent obligation in its subcontract, there was no general obligation on it to comply with the Building Regulations. Instead, it said it was only liable for design matters if it failed to exercise reasonable skill and care.

The TCC disagreed. It referred to the subcontract which stated that ESL was obliged not to place Downing in breach of its obligations under the main contract, and said that a reasonable skill and care clause could not supersede this obligation. If two contract clauses could potentially impose different standards, the clause imposing the lesser standard should be treated as a minimum requirement. Therefore, as the cladding did not comply with the Building Regulations, ESL was in breach of its obligations under the subcontract.

  1. The reasonableness of the remedial works.

ESL argued that LDC failed to mitigate its loss and said the cost of the remedial works was "unreasonable". However, on the basis that (1) LDC had relied on expert advice in deciding to carry out the remedial works, (2) the works were effective to cure the defects and (3) the works complied with the updated Building Regulations, the TCC held that ESL had failed to demonstrate that the remedial works were unreasonable. The court also agreed with the decision in Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1812 (TCC) (covered in our earlier blog) which said the courts would not be too critical of a choice of remedial works if that choice was made as a matter of urgency.

  1. Whether ESL could challenge Downing's settlement contribution claim.

ESL argued that the Settlement Agreement was not reasonable. The Court dismissed this argument on the basis that the Settlement Agreement was entered into following legal advice and was reasonable based on the quantum advice before the Courts.

Implications of the judgment

Whilst ESL's liquidation meant that a number of its lines of argument were not developed before the Court, the decision makes it clear that the courts are continuing to take a robust approach to claims concerning cladding defects. The key takeaways are:

  • Parties need to be aware of the exact scope of the contractual obligations they are signing up to. ESL were held to a higher standard because of their agreement not to place Downing in breach of the main contract. This is not an unusual contract term, but those signing up to it need to do their due diligence on the scope of that obligation and price works accordingly.
  • Contractors will struggle to successfully challenge the cost of an implemented and effective remedial solution, especially when expert advice is sought. The TCC gave a clear message that it is not enough to say that the defects could have been remedied through an alternative scheme for a lower cost – they will need to show the approach taken was unreasonable.

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Emily O'Sullivan

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Eric Johnstone

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