This is the second of our summer series of updates, dealing with defective cladding and external wall claims and published before the second reading of the Building Safety Bill in Parliament on Wednesday.
In this update we will be focusing on the initial considerations that building owners and leaseholders should bear in mind when investigating their potential to bring a claim(s) for defective / dangerous cladding and external wall systems. We will also be looking at considerations for developers, builders and other third parties who might be on notice or at risk of such a claim.
Establishing the extent of the defects to the external wall and remedial works.
Many building owners and leaseholders who come to us for advice are concerned because their building is clad, whether in full or in part, with ACM. However, the fact that ACM cladding may be present on a building does not, in itself, mean that the external wall is necessarily unsafe or requires remedial work. Neither does it mean that the parties who developed, designed, built or otherwise supervised or certified the construction of the external wall were prima-facie negligent in the performance of their professional duties – establishing proof of which would, in practice, be a necessary perquisite for pursuing a claim against them.
Accordingly, as a first step, expert evidence from a cladding or external wall specialist or fire engineer will be required in order to discern whether the current arrangements are ‘safe’ when taking into account current fire safety standards versus those that applied during construction. Expert evidence will also be required in order to determine whether the original developer, builder, designer or other third parties were negligent in the performance of their duties when designing, building or overseeing the construction of the external wall.
As a very general guide, the subject Building Regulations that were in force when many of the extant / defective external walls were constructed required that, in buildings which were 18 metres tall and above (measured from the ground floor level to the top floor of habitable accommodation), any insulation based products, fillers or components etc which were used in their construction must be of limited combustibility. This would extend to ACM panels which have insulation based cores, such as polyethylene which is not of limited combustibility. The Regulations went on to state that, insofar as any insulation based products and components etc. were not of limited combustibility, compliance with the relevant fire safety standards was required to be demonstrated by one of two alternative means:-
- BR135 certification of the entire external wall. This required a ‘mock up’ of the external wall to be built and then set on fire, in order for the assessors to record the spread of fire and to assess various other criterion. If this was deemed to be within acceptable parameters, the proposed composition of the external wall would be certified as acceptable.
- Demonstrated compliance by way of alternative means. In practice this often involved a fire engineer’s desktop appraisal of the external wall, so to ascertain its performance in the event of a fire.
In many of the cases that we have dealt with, investigations have revealed that external walls contained combustible materials, and further that no BR135 certification or demonstrated compliance had been achieved at the time of construction – placing the developer / builder etc. in prima facie breach of the subject Building Regulations and contemporaneous standards.
In our experience, invasive opening up works more often than not reveal further defects within the external wall – such as missing, loose or poorly installed fire cavity barriers and defective insulation. Such defects can also place the developer / builder and other members of the design and build team in breach of said Regulations.
However, before deciding whether or not to replace ACM (or other) cladding or to carry out remedial works to external walls, it is essential that expert evidence be obtained from the outset so to determine (i.) whether this is necessary when taking into account current Regulations and safety standards and; (ii.) if it is, whether the as-constructed external wall met the standards that were in force at the time of the works – a process which will involve the interrogation of the construction issue or as-built external wall drawings and/or invasive opening up works at key locations. If no remedial work is necessary then, even if there is a breach of contract / duty, there will be no merit in pursuing a claim because there will no loss to the resident / owner of the unit / building.
For those parties who may be on notice of a claim, it is equally important that you engage with the building owners / residents etc. at the outset, so to mitigate your potential exposure in the event of a formal claim. This includes attending site to view any opened up areas, so to make sure that any defects that are discovered were not occasioned by the act of physically opening up the external wall.
Establishing who is to blame – analysing the contractual and tortious duties owed by the designers and installers of external walls as well as other third parties.
If remedial work is required, and if it can be shown that the as-constructed external wall did not comply with the regulations and standards that were in force at the time of the works, then the next step will be to discern who is to blame and, crucially, whether the claimant has a cause of action to pursue a claim(s).
To pursue a claim, claimants will need to show that they have a direct contract or right to pursue claims against the proposed defendant(s). In practice, and subject to supporting expert evidence, this will likely be demonstrated (amongst others) in one of the following ways:-
- If the Building Owner contracted with a design and build contractor to construct the building, its right to pursue a claim will turn on / be set out in the Building Contract.
- Likewise, the Building Owner’s right to pursue claims against any construction professionals that it may have employed direct during the design / construction phase (such as an Employer’s Agent or Contract Administrator or Clerk of Works) will be set out in the respective professional appointments.
- If the Building Owner has the benefit of any collateral warranties that were issued in its favour by the sub-contractors or consultants of its contractor / other parties, this will afford a further cause of action against said parties, subject of course to the terms of the warranty.
- If the Building Owner purchased the building from a developer, its right to pursue a claim will turn on / be set out in the Development / Sale and Purchase Agreement. Often, there are strict time limits to pursuing such a claim. It is however, and in our experience, normal practice for the Developer to obtain collateral warranties in the Building Owner’s favour from the parties whom it employed to design and build the external wall.
- Where a Building has changed hands, the current owner’s ability to pursue a claim against the parties referred to above will likely depend on whether the benefit of the original Development / Sale and Purchase Agreement, Building Contract / Professional Appointments and collateral warranties etc. have been assigned to them. This would in our experience be normal practice.
- Leasehold owners of individual flats first right of recourse will likely be to their landlord (the Building Owner) or the developer / builder via the Defective Premises Act.
- Leaseholders should be aware that pursuant to the Building Safety Bill, which is currently before Parliament, landlords are entitled to charge them for the cost of making good any defective or dangerous cladding / external walls but before doing so, Landlords will now have a statutory obligation to pursue any grant funding that may be available, insurance, guarantees and of course claims against culpable third parties.
- Leaseholders (and indeed Building Owners) should also be aware that the Defective Premises Act will, if the Bill passes, extend the period in which they can claim for defective works from 6 to 15 years.
- Insofar as funding is available, it will likely be a condition of the funding that the Building Owner pursues claims for an indemnity in respect of the loan amount against culpable third parties – as outlined above.
- Likewise, insofar as a Building Warranty Policy is in place, and insofar as it responds to the defects in question, Insurers will likely seek to exercise their rights of subrogation by pursuing a claim(s) against culpable third parties in the name of the Building Owner – as outlined above.
Accordingly, and as a very general guide, subject to supporting expert evidence and provided there is a contract or collateral warranty in the favour of the Building Owner, this should be sufficient to afford said Claimant a cause of action to pursue a claim against culpable third parties for design and/or workmanship defects which necessitate remedial works.
For parties who may find themselves on notice of such a claim, it is important that they analyse the contractual matrix so to work out which other party or parties had design or workmanship or supervision or certification responsibilities etc. in connection with any allegedly defective external wall. By way of example, insofar as a Building Owner pursues a claim against the design and build contractor who was responsible to it for the adequacy of construction of the building as a whole, said contractor may seek to pass this on to any specialist sub-contractor that it employed itself to design or to build the external wall. In addition, pursuant to the Civil Liability (Contribution) Act 1978, Defendants are also entitled to seek indemnities / contributions from other culpable third parties who are themselves liable to the Claimant for the same damage. By way of an example, a contractor who is being sued for a defectively designed and built external wall may, under said Act, pursue a claim for an indemnity or contribution from any Employer’s Agent or Contract Administrator or Clerk or Works who may have been employed by a claimant Building Owner during the design and construction phase, and who should have but failed to identify errors.
Important insurance considerations – both for claimants and defendants.
In practice, it is generally safer to pursue claims against defendants who have the benefit of insurance – so to avoid / mitigate the risk of litigating with a party who may not have sufficient funds / assets to satisfy the claim.
Design and Build contractors should have some form of professional indemnity insurance to cover claims against them for inter-alia negligent design of defective external walls. Such policies will not however extend to poor workmanship by the policyholder itself and, being claims made policies, may also have exclusions about cladding in the current policy.
Construction professionals such as specialist external wall designers, Employer’s Agents, Contract Administrator or Clerk or Works should also have professional indemnity cover to protect them in the event of claims for negligent design of external walls, or for failing to identify design or workmanship defects / certifying defective work (although these too often have exclusions within the policy).
Contracts and professional appointments which the Building Owner has the benefit of should be thoroughly checked as it is normal practice in our experience for said contracts to oblige the contractor / construction professional to take out and maintain such policies and, crucially, to provide proof of cover if requested. Sub-contracts often have similar such clauses. If there is any doubt about a potential defendants ability to satisfy a claim, obtaining information about their insurance should assist in determining whether such a claim will be covered by insurers.
Protecting your Position – Notification Issues
In the case of Building Owners / the leasehold owners of individual flats, if there is a suspicion that the cladding or external wall system may be defective or require remedial work, it is important to notify any Building Warranty Insurers immediately. Whilst all policies are different and are subject to different exclusions / terms etc., defective cladding and external wall claims generally, in our experience, fall to be dealt with by Warranty providers during the defects liability period of the Policy – which is usually 2-3 years depending on the Policy in force. Such claims are not always covered under the subsequent structural or building warranty period – which is usually a further 8 or so years. Where they are covered, it is essential that a notification is made before the end of the Policy period – whereupon Insurers liability under the Policy ends.
Likewise, any potential defendants should also be placed on notice of any potential claim as soon as possible. Such defendant will likely be obliged under their own insurance policies to notify to Insurers immediately any claim or circumstance which might lead to a claim. Delays may prejudice the amount of cover available and it is therefore always the interests both of claimant s and defendants alike to involve insurers as soon as possible.
In our next article, entitled ‘Crafting the Claim’ we will be exploring how to pursue claims for defective / dangerous cladding and external wall systems and paying particular attention to the key requirements that claimants (and defendants who wish to pass on such claims to other third parties) need to consider.
You can read our analysis of the Building Safety Bill here