Spec Finish

Legal KarynWatt , Partner and Paul Henderson , Trainee Solicitor at Anderson Strathern discuss the decision in the English case of LDC (Portfolio One) Ltd. vs George Downing Construction Ltd. (GDC) and European Sheeting Ltd. (ESL) which has helped provide some fresh insight into how construction claims will be heard in relation to cladding defects and fire safety. 22 www.thefis.org Background LDC (Portfolio One) Ltd. (“LDC”) owned and operated three high-rise tower blocks as student halls of residence in Manchester which were constructed between 2007-08. GDC were the main contractors pursuant to a building contract with GMD Developments Ltd. (GMD) of 11 June 2007 (the “Main Contract”). ESL were then appointed as a specialist contractor under a sub-contract (the “Sub-contract”) on 8 September 2008 for the design and construction of the external walls, cladding and rainscreen. Both contractors had design and build responsibilities and issued Collateral Deeds of Warranty on 17 October 2008 in favour of GMD. These were later assigned to LDC on 2 September 2015. Each of the three buildings were over 18 metres in height and had different configurations of external wall cladding. These utilised a breather membrane and structural insulated panels (SIPs) fixed to a concrete frame. Following investigations into the buildings, LDC discovered defects in the external cladding which resulted in water ingress and led to the deterioration of the SIPs. Fire barrier and fire stopping issues were also discovered at all elevations. In light of these findings, LDC sued both GDC and ESL under the respective warranties in relation to re-cladding and remedial works required to address the water ingress and fire safety issues. In October 2021, LDC and GDC reached a settlement for the sum of £17,650,000. Having settled with GDC, LDC brought a claim of £21,152,198.87 against ESL. This figure £16,457,825.87 to cover the remedial works and £4,694,373.00 for loss of income. GDC also claimed against ESL for an indemnity in relation to the £17,650,000 settlement sum, along with reasonable costs for defending the claim brought against it by LDC. ESL was placed in creditor’s voluntary liquidation in May 2022 and was therefore not represented and did not participate in the proceedings. Summary of Judgement 1. Scope of the Sub-contract In theMain Contract, there was an obligation for GDC to comply with “all Statutory Requirements” which included the Building Regulations. ESL’s position was that this obligation was not passed down to the Sub- contract, so its only obligation was to ensure that it exercised reasonable skill and care. This view however was dismissed by the court, referring to a clause within the Sub-contract which obliged ESL not to place GDC in breach of its contractual obligations with LDC. Both contracts were intended to be interpreted “back to back”, and where there were differing standards, the lesser of these should be regarded as the minimum. An obligation to exercise reasonable skill and care could not supersede compliance with the Building Regulations and the terms of the Main Contract. If it did, it would have the effect of qualifying, and in effect removing, a more onerous obligation. The Architectural Specification also expressly formed part of the contracts, and as the works did not comply with the Building Regulations, ESL was found to be in breach. 2. Remedial Works The deterioration of the SIPs due to water ingress were held not to be the failure of LDC, with all mitigatory action taken being held as reasonable. This included relying on expert advice and taking urgent action to cure the defects to meet the Building Regulations. In the court’s view, ESL had failed to take appropriate and necessary action to address the issues, despite being given opportunities to do so. 3. GDC Contribution Claim GDC sought to recover from ESL the settlement amount of £17,650,000, plus the reasonable costs for its defence to the LDC claim. With design and construction FURTHER CLARITY FOR CLADDING REMEDIATION CLAIMS IN ENGLAND ANDWALES KarynWatt, Partner at Anderson Strathern Paul Henderson,Trainee Solicitor at Anderson Strathern