Spec Finish

Legal www.thefis.org 23 obligations for the cladding being passed to ESL, GDC were entitled to seek an indemnity for breaches of the Sub-contract and non-observance of Main Contract terms. As a result, ESL were required to meet the full costs, after the settlement between LDC and GDC was held to be reasonable. Key Takeaways for FIS members Following the earlier decision in Martlet Homes Ltd. v Mulalley and Co Ltd., this case represents the second major decision since the Grenfell Tower fire in 2017. Martlet said that the courts would not take a hard line in respect of solutions where works had to be undertaken as a matter of urgency. Both cases give a flavour of how the courts will approach other pending claims in relation to cladding and fire safety in England and Wales. 1. Collateral Warranties and Building Liability Orders The case provides a clear example of how Collateral Warranties operate by creating a contractual link between the warrantor and the beneficiary to guarantee compliance with the Main Contract. However, the exact scope of any prospective professional indemnity claim (especially with ESL being in liquidation) remains unclear, in particular whether claims will be commensurate or if further action could be brought against duty holders associated with ESL. With the introduction of Building Liability Orders, the relevant liability of the “original” corporate body can be attributed to an “associated” corporate body, irrespective of whether the original is trading, dissolved or in liquidation. As the association test is based on control (direct or indirect) exercised during the works, the scope of potential impact is broad, although the personal liability of individuals remains excluded. A company in the finishes and interiors sector can expect to hear more on this aspect of the case in the coming months, given the lack of precedence with Building Liability Orders. 2. Extended Limitation Periods Prior to the Building Safety Act 2022 being passed, any claims in England and Wales under the Defective Premises Act 1972 had to be raised within six years of project completion. These timescales were significantly extended on 28 June 2022 with a limitation period of 15 years introduced for jobs starting after this date, and 30 years for retrospective claims. Practically, this means: 1. Claims can be brought for projects dating back as far as 28 June 1992. 2. Works completed on 27 June 2022 will be open to potential claims until 27 June 2052. 3. Projects completed on 28 June 2022 can have claims raised until 28 June 2037. This increase to limitation periods has the potential to open the floodgates from a claims perspective. The scope is widened further as the changes introduced also enable claims to bemade against remedial works, in addition to those carried out under the original contract. 3. Scope of Contractual Obligations It is essential that FIS members are fully aware of their contractual obligations. The obligation to ensure that GDC was not in breach of the Main Contract is not an uncommon provision! The case also underpinned the decision in Mulalley by further confirming that compliance with the Building Regulations falls under terms to exercise reasonable skill and care and to adhere to all statutory requirements in the design and build Sub-contract. Another interesting point to note concerns exclusions and caveats. ESL maintained that they were instructed to omit the vertical cavity barriers and EPDM membrane included in the Architectural Specification which ultimately caused or contributed to the water ingress issues. However, with no clear instruction or record of the decision, it was held that the elements were essential to the design of the cladding and for compliance with the Building Regulations and therefore could not be excluded. This aspect of the judgement is perhaps the most significant and will understandably raise concerns among contractors. What is now apparent is that the approach of caveat emptor (“let the buyer beware”) is no longer sufficient. FIS members with design obligations and responsibilities must ensure the installation is compliant and safe. In these circumstances, the buildings were unsafe and ESL were in breach, therefore they were left with the liability. 4. Remedial Works What was also made clear in the judgement was that contractors, such as ESL, will find it difficult to challenge remedial solutions when they have been implemented successfully and in accordance with expert advice. A claimant will need to show that the approach taken was unreasonable, not that any defects could have been fixed through alternative means at a lower price. In this instance, LDC’s replacement of the cladding and glass panel elevations, along with the removal and replacement of the SIPs with a Steel Framing System (SFS) was regarded as proportionate and in line with current Building Regulations. Concluding Thoughts ESL’s liquidation has meant that it was absent from proceedings and therefore could not advance or develop many of its arguments. The fallout from the judgement will take some time to be fully understood, but it does raise a number of concerns for FIS members. This includes the heightened risk of legacy claims, ensuring that any changes to specifications are properly approved and documented, and that all parties are aware of their core contractual obligations. On this latter point, FIS members should exercise caution and not assume that express exclusions and caveats automatically release them from existing requirements. www.andersonstrathern.co.uk