Cladding and fire safety defect claim: LDC (Portfolio One) Ltd v (1) George Downing Construction Ltd and (2) European Sheeting Ltd

In this insight, we discuss what is only the second reported cladding case since the Grenfell Tower tragedy which illustrates the commitment of the courts to deal with cladding and fire safety defect claims robustly.

In LDC (Portfolio One) Ltd v (1) George Downing Construction Ltd and (2) European Sheeting Ltd the court found a specialist cladding subcontractor liable for defects in composite cladding elevations that led to water ingress and fire barrier and fire stopping defects.

Background

LDC (Portfolio One) Limited (LDC) was the freeholder of three tower blocks constructed in 2007/2008 (the Buildings). Issues with the Buildings were originally noticed due to defects in the external wall cladding which had resulted in water ingress. On further investigation, fire barrier and fire stopping issues were also identified across each of the blocks.

Claims were brought against the main contractor, George Downing Construction Limited (Downing) and a specialist subcontractor, European Sheering Limited (ESL), who were in liquidation at the time, under collateral deeds of warranty. LDC sought the costs of the remedial works, as well as loss of income, because the Buildings were used as student accommodation.

LDC and Downing reached a confidential settlement in relation to the claim, however, a trial was still required for the claim against ESL because the liquidator did not consent to a judgment being entered against ESL. The judgment gave us some valuable insight into the approach of the courts in these cases.

The key takeaways are addressed below.

What is the relevant duty?

Under the subcontract ESL had a duty to exercise reasonable skill and care, however, it also contained a clause which required ESL not to put GDC in breach of its obligations under the main contract.

The main contract imposed a higher duty, which was to “comply with Development Control Requirements, all Statutory Requirements and Consents […]”.

ESL had previously argued that it was not required to comply with the conditions of the main contract in so far as they imposed a greater obligation than under the subcontract. However, LDC argued that on a proper interpretation of the obligations under the subcontract, the correct duty of care would be the higher duty imposed under the main contract. To this end, LDC relied on the recent judgement in Martlet Homes Ltd v Mullaly & Co Ltd.

The court held that LDC’s interpretation of the contract was correct. The wording made it clear that the contracts were intended to be back-to-back, and the more onerous condition should be followed. This followed the approach taken in Martlet.

LDC did run an alternative argument, stating that a breach of building regulations would be a breach of the obligation to exercise reasonable skill and care. As LDC were successful with their primary argument, the judge did not consider this within the judgment so it is unclear whether this argument would succeed.

Remedial works

LDC claimed for both temporary remedial works which were carried out in 2018 and permanent remedial works carried out in 2021/2022.

In considering the remedial works undertaken, the court confirmed that demonstrating that an alternative scheme could have been implemented at a lower cost, was not sufficient to determine the works were unreasonable.

In assessing the reasonableness of any remedial works undertaken, the judgment highlighted that the following will be considered:

1. The extent to which expert evidence was relied upon in deciding to carry out the works. Where expert evidence has been provided, the court will consider the decisions made considering the opinions provided at the time the decision was made.
2. The cost, efficiency and any guarantees offered by the relevant manufacturer/ contractor.
3. The extent to which claimant sought to mitigate loss. However, the judgment followed the approach in Martlet, confirming that the court would not be too critical of a claimant where the decisions were made as a matter of urgency or on incomplete information.

Settlements

LDC and Downing had already reached a confidential settlement at the time of the trial. The amount of this settlement was £16,457,825.87.

Under the contract, Downing pursued a contribution claim against ESL to recover the settlement amount, and their legal costs in defending the claim by LDC.

The court relied on the test in Siemens Building Technologies FE Limited v Superchild Ltd which states the following circumstances will generally be considered:

• the strength of the claim;
• whether the settlement was as a result of legal advice;
• the uncertainties and expenses of litigation;
• the benefits of settling the case rather than disputing it. 

It was held that Downing was right to settle the claim. As ESL were in liquidation they were not fully engaged with the claim, however the judge considered that the evidence LDC relied on against Downing, would have been substantially the same as LDC would rely on against ESL.

It also held the amount of the settlement fell within a reasonable range. It was taken into consideration that the settlement was less than the amount claimed by LDC in the proceedings, and that the figure was reached upon consideration of expert evidence.

This case is only the second reported judgment of its type following a full trial post-Grenfell, but illustrates the commitment of the courts to deal with cladding and fire safety defect claims robustly. A duty to exercise reasonable skill and care is likely to be construed as a minimum requirement, and one which does not derogate from the designer’s strict obligation to comply with building regulations.

Many of the issues touched upon in this case featured in the crucial earlier decision in Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC).