Housing association wins multi-million pound case against contractor over defective cladding

A subsidiary of Hyde Housing has won a High Court battle with a contractor over cladding installed on towers between 2006 and 2008.

In Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC) Martlet Homes Ltd, a subsidiary of Hyde Housing, as the owner of tower blocks in Gosport sought to recover approximately £8m in damages from the defendant building contractor, Mulalley & Co Ltd for costs incurred from 2017 onwards in:

• investigating and remedying, by removal and replacement, combustible external wall insulation (“EWI”I) rendered cladding, originally fitted by the defendant between 2005 and 2008 under a design and build contract made in 2005; and
• providing a waking watch as a fire safety precaution until the EWI cladding had been removed. 

Mulalley admitted that there were some defects in the installation of the EWI cladding but denied that they caused, or were such as to justify, the scheme for complete replacement works (“the replacement works scheme”) in fact undertaken or the need for the waking watch.

The defendant’s pleaded case and the case advanced at trial was that the real cause and justification for the replacement works and the waking watch was the claimant’s realisation, triggered by the Grenfell Tower fire in June 2017, of the risk posed by the fact that the EWI cladding, being combustible, did not meet the heightened fire safety standards which had come into force after the works had been completed and which were further heightened as a result of the Grenfell fire.

Mulalley contended that only a scheme limited to limited repair works (“the repair works scheme”) was reasonably required to remedy the installation breaches, costing far less than those actually carried out, and that this cost was irrecoverable given that the claimant chose to replace rather than to repair.

In response to that pleaded case Martlet Homes, which had initially only pleaded installation breaches, sought permission to plead a fallback case. It obtained permission from Pepperall J at first instance, whose decision is to be found at [2021] EWHC 296 (TCC). Pepperall J’s decision was upheld by the Court of Appeal, whose decision is to be found at [2022] EWCA Civ 32.

The claimant’s fallback case was that if the court was to agree with the defendant’s case on causation in relation to the installation breaches, so that the replacement costs and the waking watch costs could not be claimed in respect of those breaches, nonetheless the EWI cladding as specified did not meet applicable fire safety standards as at the date of the contract (the “specification breach case”).

The claimant contended that it was entitled to recover the replacement and waking watch costs as having been caused by the specification breach as an alternative to its primary installation breach case. 

The claimant’s further fallback case was that at the very least it was entitled to damages representing the reasonable cost of the repair works reasonably necessary to remedy the installation breaches. It contended that this cost was far greater than allowed by the defendant and, on its valuation, not less than the cost of the replacement works actually undertaken. On the same basis it also claimed its waking watch costs for the period reasonably necessary to undertake those works.

His Honour Judge Stephen Davies sitting as a High Court Judge said: “In the event, therefore, the case as advanced and defended was primarily about: (a) the causation of loss in relation to the installation breach case; (b) the merits of the alternative specification breach case; and (c) the quantum of recoverable loss as regards the replacement scheme costs actually incurred, as regards the defendant’s alternative repair scheme costs, and as regards the waking watch costs.”

The judge said the specification breach case was of particular interest, since it raised for determination the question whether or not the specification of combustible EWI rendered cladding breached fire safety standards as they existed in the early to mid 2000’s, well before the Grenfell Tower fire.

“However, like most other similar cases this case turns very much on the specific contractual provisions and the specific fire safety standards applicable to the particular product chosen as well as on the particular cases pleaded and argued and the evidence called.”

HHJ Stephen Davies summarised his decision as follows:

(1) had the claimant succeeded only on the installation breach case it could only have recovered the costs incurred referable to the repair scheme and not the costs of the replacement scheme;

(2) however, since the claimant succeeded on the specification breach case, it could recover the costs incurred referable to the replacement scheme;

(3) although the final costs of the replacement scheme and the repair scheme would require to be finalised once the quantity surveyors had translated his findings into figures, it appeared likely that on his findings in relation to the repair scheme there would be little if any difference between the replacement scheme costs and the repair scheme costs in any event;

(4) the claimant succeeded on the waking watch claim in relation to the specification breach case, subject to some relatively modest reduction;

(5) the claimant would also have succeeded on the waking watch scheme had it only succeeded on the installation breach case, although the valuation of the waking watch on that hypothesis would have been assessed on the basis of a lesser time period.

Reacting to the ruling, Hyde Group claimed it was the first housing association to win a court case against a contractor for installing defective cladding.

It said: “The ruling sets a crucial example that construction contractors can be held accountable for the remedial costs of removing dangerous cladding. It could help others affected by the crisis – including other housing associations – by paving the way to hold construction contractors to account.”

Hyde said that while the final amount of damages had not been finalised, it was confident it would recover most of the £8m it claimed.

Andy Hulme, Hyde’s CEO, said: “This landmark ruling establishes the costs of defective work must be borne by those responsible. It’s a welcome step forward in helping right the wrongs of the past, and will hopefully mean remedial works can start more swiftly and mean damages sought for remedial works are more likely to be settled out of court with less delay.

“Millions of people are affected by the cladding crisis. The costs of which have for too long been left to  residents, the taxpayer and by the poorest people in society. As a not-for-profit housing association, we’ll continue to work hard to provide safe and decent homes for those who desperately need them. To date, we haven’t passed on the costs of any major fire safety works or waking watch to homeowners.”

Mullaley originally carried out cladding of the residential towers in Gosport between 2006 and 2008, when the towers were owned by another housing association, A2 Dominion.

Hyde Housing said that inspections of the residential towers in Gosport were carried out shortly after the Grenfell Tower tragedy. “Our fire experts concluded the design and use of the cladding systems installed by Mulalley were defective.

“We immediately decided to replace the cladding on the towers, at our own cost, to keep everyone safe. Because we remediated the cladding quickly, we missed out on any government funding.”

Mulalley has been approached for comment.