What routes do contractors have to claim against cladding firms?

“One very significant reason why Grenfell Tower came to be clad in combustible materials was systematic dishonesty on the part of those who made and sold the rainscreen cladding panels and insulation products. They engaged in deliberate and sustained strategies to manipulate the testing processes, misrepresent test data and mislead the market.” – Grenfell Tower Inquiry: Phase 2 report overview.

The Grenfell tragedy is a damning indictment of how the industry runs some projects, how “value engineering” became a euphemism for “cheapest” and how fragmentation of the supply chain encouraged a race to the bottom. However, the most shocking aspect of all is how the cladding suppliers, according to the report, paid only lip service to safety.

Developers, contractors, subcontractors and other construction professionals have been on the receiving end of claims from property owners and the government in recent years. But what of the cladding suppliers?

Could the claimants have ignored warnings from the cladding suppliers? To what extent was the contractor relying on the suppliers?

Existing claim routes based upon suppliers taking on design obligations, assuming duties of care in tort, or the existence of collateral contracts may be available to parties depending upon the individual circumstances.

However, a new cause of action was created by section 149 of the Building Safety Act 2022 (BSA) enabling residential building owners or leaseholders to pursue claims against cladding suppliers for past defaults relating to their products.

Notably, the Contribution Act can still be used where the contractor settled with the owner

Under section 149, a cladding supplier is liable for personal injury, damage to property and economic loss resulting from a dwelling being unfit for habitation, if that was caused (at least in part) by a cladding product that does not comply with certain product requirements, was marketed or supplied subject to a misleading statement, or was inherently defective.

Section 149 has retrospective effect for past defaults relating to cladding products, allowing claims to be brought for any works completed within 30 years before the BSA came into force (to be specific, that means works completed between 28 June 1992 and 28 June 2022).

The person bringing a claim must have a relevant interest in the relevant building (in other words, a legal or equitable interest in a residential building or any dwelling contained in a residential building).

However, many potential claimants no longer have or never had a “relevant interest” in the building that is the subject of potential claims. Let’s say an owner of a block of flats claims against the contractor who built the block. The contractor used combustible ACM cladding and the contractor has no relevant interest in the block. The contractor replaces the cladding or pays damages for such replacement.

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This is where the Civil Liability (Contribution) Act 1978 comes into play. The contractor has a right to bring a contribution claim against another person (such as the cladding supplier) but only if that supplier is liable in respect of the same damage to the owner.

The owner does have a potential claim against the cladding supplier by virtue of section 149 of the BSA, and therefore the contractor can seek a contribution from the cladding supplier, even though the contractor does not have its own right to claim against the cladding supplier. Notably, the Contribution Act can still be used where the contractor settled with the owner.

There are limitations, however. Recovery under the Contribution Act is limited to what is just and equitable having regard to the extent of that person’s responsibility for the damage in question. There are also potential limitation issues, with a contribution claim having to be brought within two years of either a judgment against the party seeking a contribution, or that party entering into a settlement.

Therefore, any court will look carefully at who is actually responsible for the placement of the materials on the building. Did the cladding suppliers know what their product was being used for, how it was to be used, and still advised it was suitable? Could the claimants have ignored warnings from the cladding suppliers? To what extent was the contractor relying on the suppliers? Was a misrepresentation by the cladding suppliers relevant to the use of the product on the building?

Any claim involving section 149 of the BSA will require extensive factual investigation. For some developments this may be problematic because of their age or simply because the supplier provided products with no knowledge of how they were to be used.

Nevertheless, section 149 is a powerful tool for parties looking to share losses with cladding suppliers.

Steven Carey is head of the construction, engineering and projects group at Charles Russell Speechlys.