Contains public sector information licensed under the Open Justice Licence v1.0.
Martlet Homes Ltd v Mulalley & Co Ltd
Factual and Procedural Background
The Plaintiff, owner of five high-rise residential tower blocks in The City (the "Towers"), brought a claim against the Defendant, a building contractor, seeking approximately £8 million in damages. The claim related to costs incurred from 2017 onwards investigating and remedying defective installation and specification of combustible external wall insulation ("EWI") rendered cladding originally installed by the Defendant between 2005 and 2008 under a design and build contract. The Plaintiff also claimed costs for providing a waking watch as a fire safety precaution until the removal of the combustible cladding.
The Defendant admitted some installation defects but denied these caused or justified the full replacement works or the waking watch. It argued the replacement works were primarily due to post-Grenfell Tower fire heightened fire safety standards, and that only limited repairs were reasonably required to remedy installation defects.
The Plaintiff obtained permission to plead a fallback case alleging a specification breach, contending the specified EWI cladding did not meet applicable fire safety standards at the date of contract, entitling recovery of replacement and waking watch costs alternatively. A further fallback was for damages representing the reasonable cost of repair works to remedy installation breaches.
The case focused primarily on causation of loss for installation breaches, merits of the specification breach case, and quantum of recoverable loss for replacement works, repair works, and waking watch costs. The trial was heard over several days in March and April 2022 before Judge [Last Name].
Legal Issues Presented
- Whether the Plaintiff could recover the full costs of replacement works and waking watch arising from installation defects.
- Whether the specification of the EWI cladding breached applicable fire safety standards at the date of contract, entitling recovery of replacement and waking watch costs.
- The appropriate measure of damages and causation principles applicable to the installation and specification breaches.
- The reasonableness and recoverability of the costs incurred for remedial works, alternative repair schemes, and waking watch.
- The applicability of limitation, mitigation, and remoteness principles to the claimed losses.
Arguments of the Parties
Plaintiff's Arguments
- The Defendant was responsible for installation defects in the EWI cladding, including inadequate fixing of fire barriers and insulation boards, which breached contract terms and Building Regulations.
- The specified EWI system was combustible and did not meet the fire safety performance standards required by BRE 135 (2003) and associated guidance, constituting a specification breach.
- The Plaintiff was entitled to recover the full costs of the replacement works and waking watch as damages caused by either the installation or specification breaches.
- The decision to replace rather than repair was reasonable and supported by expert advice, considering the serious fire safety risks and regulatory context post-Grenfell.
- The waking watch costs were a natural and reasonably foreseeable consequence of the breaches and necessary to mitigate fire safety risks pending remedial works.
- The Plaintiff acted reasonably in procuring the waking watch services, including employing trained ex-firefighters and varying providers as circumstances required.
- The Plaintiff is entitled to interest on damages at 3% per annum from appropriate midpoints.
Defendant's Arguments
- The Defendant admitted some installation defects but denied these caused the wholesale replacement or waking watch costs, which were primarily due to changes in fire safety regulations and Grenfell-related heightened standards.
- The replacement works were not causally linked to installation breaches and only limited repairs were reasonably required and recoverable.
- The specified EWI system complied with the applicable standards and BBA certification, and the Plaintiff cannot prove it would have failed the BS 8414-1 test.
- The Plaintiff failed to mitigate losses by choosing replacement over repair and by maintaining an excessive duration and cost of the waking watch.
- The waking watch costs were excessive, including employing more operatives and supervisors than reasonably necessary and extending beyond the period when cladding was removed.
- The costs of the replacement works included unreasonable variations and additional costs, and the Plaintiff failed to deduct liquidated damages from payments to the remedial contractor.
- The Defendant disputed that the waking watch costs were properly included in the remedial works contract and challenged the absence of evidence substantiating the build-up of these costs.
Table of Precedents Cited
Precedent | Rule or Principle Cited For | Application by the Court |
---|---|---|
MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59 | Interpretation of contract clauses imposing design obligations and professional negligence standards. | Supported the court’s interpretation that the unqualified design duty was not limited by the lesser duty in another clause. |
Skinner v Crest Nicholson Residential (South) Limited [2003] EWHC 2984 (TCC) | Weight and evidential value of BBA certificates in establishing suitability of materials. | Confirmed BBA certificates as evidence of suitability but not guarantees of compliance. |
Beattie Passive Norse Ltd v Canham Consulting Ltd [2021] EWHC 1116 (TCC) | Causation principles, including the effective cause test versus but for test. | Guided the court’s approach to causation as fact sensitive and the application of effective cause in multi-causal loss. |
County Ltd v Girozentrale Securities [1996] 3 All ER 834 | Legal principles on causation and multiple causes. | Supported the view that more than one effective cause can give rise to liability. |
Financial Conduct Authority v Arch Insurance UK Ltd & others [2021] UKSC 1 | Limitations of the but for test and recognition of effective cause in causation. | Informed the court’s rejection of a strict but for test in favour of effective cause in this case. |
Greenwich Millennium Village Ltd v Essex Services Group plc [2013] EWHC 3059 (TCC) | Causation and effective cause test in construction cases. | Supported the application of effective cause where multiple causes contribute to loss. |
McGlinn v Waltham Contractors Ltd & others [2007] EWHC 149 (TCC) | Assessment of damages, mitigation, and reliance on expert advice in remedial works. | Informed the court’s approach to reasonableness and mitigation in assessing recoverable remedial costs. |
Hirtenstein v Hill Dickinson LLP [2014] EWHC 2711 (Comm) | Mitigation principles and recoverability of costs where multiple remedial options exist. | Guided the court’s assessment that recovery is limited to the least expensive reasonable remedial option. |
Hadley v Baxendale (1854) 156 E.R. 145 | Remoteness of loss and foreseeability in contract damages. | Applied to assess whether waking watch costs were reasonably foreseeable losses. |
Parsons Ltd v Uttley Ingham & Co [1978] 1 QB 791 | Foreseeability of loss type for remoteness. | Supported the court’s approach that it is sufficient that the type of loss was reasonably foreseeable. |
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 | Objective test of foreseeability of loss in contract. | Confirmed that the test is what a reasonable person would have contemplated at the time of contract. |
The Achilleas [2009] 1 AC 61 | Remoteness and assumption of responsibility in contract damages. | Considered but did not alter the court’s application of reasonable contemplation in this case. |
Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 | Refinement of remoteness and assumption of responsibility principles. | Not necessary to decide; court applied traditional remoteness principles. |
Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 | Reasonableness in mitigation and assessment of damages. | Supported the court’s approach to assessing reasonableness of claimant’s remedial measures. |
Wilding v British Telecommunications plc [2002] ICR 1079 | Burden of proof in mitigation and reasonableness of claimant’s conduct. | Guided the court’s approach that defendant must prove claimant acted unreasonably in mitigation. |
Skandia Property UK Ltd v Thames Water Utilities Ltd [1999] BLR 338 | Reliance on expert advice in remedial works and recoverability of costs. | Confirmed that reliance on expert advice is a significant factor in assessing reasonableness. |
John F Hunt Demolition Ltd v ASME Engineering Ltd [2007] EWHC 1507 (TCC) | Causative link between breaches and settlement costs. | Guided the court’s approach in assessing causation of settlement payments with third parties. |
Court's Reasoning and Analysis
The court undertook a detailed and structured analysis of the contractual obligations, statutory Building Regulations, and associated guidance documents relevant to the EWI cladding system installed on the Towers. It found that the Defendant bore responsibility not only for the execution but also the design and specification of the works, including compliance with Building Regulations and BRE guidance.
The court identified serious installation breaches, including defective fixing of fire barriers and insulation boards, which compromised fire safety and breached the contract and Building Regulations.
Regarding the specification breach, the court examined the evolution of fire safety guidance and concluded that the specified StoTherm Classic EWI system, containing combustible EPS insulation and organic render, did not conform with the requirements and recommendations of BRE 135 (2003), which introduced a performance standard assessed by BS 8414-1 testing. The Defendant failed to demonstrate that the system met this standard or that it was reasonable to specify it without such evidence.
The court rejected the Defendant’s argument that the Plaintiff could only recover repair costs, finding that the Plaintiff succeeded on the specification breach and was entitled to recover replacement costs. However, it also found that even on the installation breach case alone, the replacement costs would be capped at the reasonable cost of repair works, which was likely close to the replacement costs when properly assessed.
On causation, the court applied the effective cause test, concluding that the installation breaches were an effective cause of the decision to replace and to provide the waking watch, alongside the changed regulatory regime and post-Grenfell fire safety concerns. The Defendant’s argument that the but for test was not satisfied was rejected as unrealistic in the context of multiple contributing causes.
The court addressed mitigation and reasonableness principles, finding that the Plaintiff acted reasonably in deciding to replace rather than repair based on expert advice and the serious fire safety risks. The waking watch costs were held to be a natural and reasonably foreseeable consequence of the breaches and necessary to mitigate risk pending remedial works.
In quantifying damages, the court accepted the Plaintiff’s costs for the replacement works as broadly reasonable and supported by expert evidence. It allowed most disputed variations and additional costs except for Covid-related delay costs, which were disallowed due to lack of justification given the agreed walk-away settlement with the remedial contractor.
The court found the Defendant liable for waking watch costs, subject to a reduction for the unjustified provision of two fire marshals rather than one. It rejected the Defendant’s challenges to the overall duration and reasonableness of the waking watch, finding the Plaintiff’s approach prudent and justified by expert advice and regulatory requirements.
The court concluded that the waking watch cost paid as a variation under the remedial works contract was properly recoverable, rejecting the Defendant’s argument that it was included in the contract sum or unsupported by evidence.
Interest was awarded at 3% per annum from appropriate midpoints for remedial works and waking watch costs.
Holding and Implications
HOLDING: The Plaintiff’s claim is allowed in substantial part. The Plaintiff is entitled to recover the costs of the replacement works and waking watch arising from the specification breach and installation breaches, subject to certain reductions and adjustments as identified in the judgment.
The Defendant was found to have breached its contractual obligations by specifying and installing a combustible EWI cladding system that did not meet applicable fire safety standards and by defective installation of fire barriers and insulation.
The court applied the effective cause test for causation, holding the Defendant liable for losses caused by both specification and installation breaches.
The Plaintiff’s decision to replace rather than repair was reasonable and supported by expert advice, and the waking watch costs were a natural and foreseeable consequence of the breaches.
The Plaintiff is entitled to interest on damages at 3% per annum.
Implications: The decision confirms the importance of strict compliance with fire safety standards in the specification and installation of external cladding systems, particularly on high-rise residential buildings. It clarifies the application of causation and mitigation principles in construction defect claims involving complex multi-causal losses. The judgment emphasizes the necessity for contractors to ensure that specified systems meet current performance standards and that installation defects may give rise to significant liability, including for consequential safety measures. No new legal principles were established; the ruling applies existing principles to the detailed facts and evidence in this case.
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