In December 2022, the Technology and Construction Court handed down its decision in LDC (Portfolio One) Limited v (1) George Downing Construction Ltd and (2) European Sheeting Ltd [2022] EWHC 3356 (TCC), which is only the second substantive decision of the Court concerning cladding defects post-Grenfell after Mulalley & Co Ltd v Martlet Homes Ltd [1] [2022] EWCA 1813 (TCC).
The claimant was LDC (Portfolio One) Limited (“LDC”). LDC is the freehold owner of three high rise blocks, constructed between 2007 and 2009 and over 18 metres high, with a mixture of types of cladding:
The first defendant was George Downing Construction Limited (“Downing”), which was the main contractor. The second defendant was European Sheeting Limited (“ESL”), which was in liquidation, and was the specialist external wall sub-contractor with responsibility for the installation of the cladding.
Due to various fire safety defects in the cladding, in contravention of the guidance in Approved Document B, and water ingress issues, LDC brought a claim in respect of the re-cladding of the towers and associated remedial works required to address fire safety, water ingress and cavity barrier adequacy issues. LDC’s total claim was valued at £21,152,198, broken down as follows:
Two weeks prior to trial, Downing agreed a settlement with LDC for £17,650,000. Therefore, Downing was able to adopt LDC’s position without any adverse consequences. In summary, LDC and Downing both agreed that the blocks did not comply with Building Regulations as a result of numerous defects in its design and installation.
In the proceedings, Downing sought an indemnity and/or contribution from ESL in the amount of the settlement sum, plus its reasonable costs of defending the claim brought against it by LDC. The liquidator for ESL stated that she did not object to judgment being entered. ESL also submitted a defence which was, therefore, considered by the Court.
The ESL Sub-Contract – JCT standard form with amends
The Downing Main Contract – JCT Standard Form of Building Contract with Contractor’s Design and bespoke amendments
ESL raised a number of arguments denying liability. However, perhaps the most interesting and relevant arguments raised by ESL relate to points which crop up time and again in defects disputes:
LDC / Downing’s position in response to ESL’s defence was clearly articulated, as follows:
The Court found that ESL was obliged to comply with provisions of the Main Contract and, therefore, had a strict obligation to comply with the Building Regulations (citing Martlet Homes Ltd v Mulalley & Co Ltd). In this respect, the Court commented that treating the more onerous strict obligation as qualified by the duty of reasonable skill and care would render the more onerous strict obligation redundant (following the reasoning in MT Hojgaard A/S). Additionally, the Court also commented that ESL’s interpretation would defeat the commercial intent to create back-to-back contracts.
The Court also found, with respect to the water ingress issues and fire safety defects, that where there is a failure to comply with Building Regulations, it is also a failure to act with reasonable skill and care. Significantly, and while not an automatic presumption, this appears to indicate that, if guidance in Approved Document B and the Building Regulations have not been complied with, the starting assumption may well be that a party is negligent (subject to the Bolam defence).
In respect of ESL’s position that the remedial costs were unreasonable, the Court commented:
With regards to ESL’s argument that the remedial works constituted a betterment to LDC, the Court stated that a deduction for betterment will not usually be made where the Claimant has no choice but to carry out the repair or reinstatement work even where that results in the Claimant having a newer or better building. The Court also noted that this is still the case where, by virtue of passage of time, the Claimant is obliged to comply with new or more onerous Building Regulations. This seems particularly relevant given the recent changes to the Building Regulations requiring non-combustible products to be used in the external wall of residential buildings over 18 metres high.