Here’s our bitesize guide to the lengthy judgment in Martlet Homes Limited v Mulalley & Co. Limited  EWHC 1813 (TCC).
Five high-rise towers were built in Gosport, Hampshire, in the early 1960s to provide social housing. In 2005 the defendant contractor (Mulalley) was retained via a design and build contract made under deed to refurbish the towers. The main objectives of the refurbishment were to improve resistance to cold and damp penetration.
Mulalley installed a ‘StoTherm Classic’ EWS manufactured by German company StoTherm. This comprised combustible expanded polystyrene (EPS) insulation boards, two acrylic organic non-cementitious render coats and horizontal mineral wool fire barriers. The towers achieved practical completion at different times between December 2006 and April 2008.
Nine days after the Grenfell tragedy in June 2017, the claimant housing association (Martlet) began investigating this cladding. This revealed the combustible EPS boards and installation defects to the fire barriers and EPS boards. Martlet immediately implemented a 24-hour waking watch patrol to protect residents and then replaced the system with a non-combustible alternative using stone wool insulation panels (the replacement works). The waking watch remained until the combustible cladding had been removed.
In December 2019, after losing an adjudication, Martlet issued court proceedings against Mulalley for the £8 million costs of the replacement works and waking watch for four of the towers. It claimed these were caused by Mulalley’s installation breaches; that is, workmanship breaches. No claim was brought in relation to one tower because the 12-year limitation period since practical completion had expired. (The limitation period for claims such as these in relation to refurbishment works, if brought under the Defective Premises Act 1972 has now been extended to 15 years by the Building Safety Act 2022.)
Mulalley admitted to some installation defects but disputed the extent and denied they were the real cause for the replacement works and the waking watch. It argued that the real cause was Martlet’s realisation, triggered in no small part by the Grenfell disaster, of the risk posed by the combustible insulation not meeting the heightened fire safety standards, which had come into force after the works had been completed.
Mulalley also argued that a less expensive repair (rather than replacement) solution would have sufficed to remedy the installation breaches. It contended that the claimed costs were irrecoverable because Martlet chose to replace, rather than to repair, which therefore represented a failure to mitigate its loss.
Martlet, in response to this argument, obtained permission to plead in the alternative to installation breaches, a failure to specify a compliant EWS; that is, the EWS did not meet applicable fire safety standards at the date of the contract (in other words a design breach was now in the pleading). Martlet contended that the replacement works and waking watch costs were also caused by the specification breach.
Decision on breach
The court held that Martlet had proven both the installation and specification breach cases.
As regards the installation breaches, the parties’ architectural experts agreed that the works did not comply with the relevant fire safety requirements and standards. The fire engineering experts reached essentially the same agreement.
The specification breach case was considered on the hypothetical basis that the installation breaches did not exist. By doing so, an assessment could be made as to whether the specification breaches would have justified replacement in any event.
BBA (British Board of Agrément) Certificate 95/3132 issued in 1995 covered the StoTherm Classic system. It confirmed that the system met the functional requirement B4(1) of the Building Regulations 2000 due to the inclusion of fire barriers. The judge said the certificate was not a “guarantee” of compliance with the building regulations. He accepted that in the “real world” professional designers would place great weight on the existence of the certificate and this was relevant when considering potential professional negligence, but it did not carry “significant weight” as regards the strict design and materials obligations in the contract.
Mullaley was contractually required to ensure its system complied with BR 135 (2003) which sets out the criteria and fire spread performance characteristics that cladding must meet in a fire test. This recommended that a system comprising combustible thermoplastic EPS insulants and an organic surface render should not be specified for high-rise buildings unless it had been shown to meet the performance standard in Annex A of BR 135 (2003) via a BS 8414-1 test.
It would not have been possible “for the conscientious specifier” to be satisfied that the StoTherm Classic system could properly have been specified in this case without having met that standard. Mullaley had not provided any evidence which demonstrated that the StoTherm Classic system passed the Annex A performance criteria. There was no evidence that Mullaley ever believed it would have passed.
A question for the reasonably competent designer or specifier was whether it was sufficient that the StoTherm Classic system incorporated fire barriers which appeared to comply with the design principles within BR 135 (2003), even though it had not been demonstrated that this met the Annex A performance criteria. For a contractor such as Mulalley, constructing a high-rise residential building, that would not have been enough given there were alternatives in the market which either had passed or would pass a BS 8414-1 test. Since Mulalley has been unable to identify particular features of the StoTherm Classic system which made it more appropriate for use for other, non-fire safety, reasons which outweighed the fire safety perspective, then the use of that system contravened its absolute contractual obligations.
The judge concluded that, given all of the above issues on the specification breach case, the system failed to satisfy functional requirement B4(1).
The judge also considered the test for professional negligence in Bolam v Friern Hospital Management Committee  2 All ER 118 in the context that it was common at the time of the contract to specify the StoTherm Classic system even for high-rise residential buildings. He said the “argument that ‘everyone else was doing it’ does not, on a proper application of the ‘Bolam’ principle, operate as a get out of jail free card”. It was not enough to prove that others were just as negligent and especially where perhaps not “everyone” was doing it and others were selecting an EWS that was compliant.
Had Martlet succeeded only on the installation breach case, it could only have recovered the cost of repair, not replacement. However, as Martlet succeeded on the specification breach case, it was entitled to recover the entire replacement works costs.
The waking watch costs were also recoverable in relation to the specification breach case. These costs were held to be not too remote and in any event were a reasonable step in mitigating the far greater loss which would have flowed from an evacuation of the towers.
The court indicated that Martlet would also have been able to recover waking watch costs had it only succeeded on the installation breach case but they would have been assessed for a lesser time period.
This ruling is of interest to all those involved in the construction industry. Although this was contract and fact specific, the key points of interest are:
- The BBA certificates issued for the system in question could not be said to “amount to a form of ‘guarantee’ or ‘passport’ to compliance with the building regulations”. The decision to playdown the relevance of the certificates where the contractor had a strict contractual obligation is in line with Dame Judith Hackitt’s comments about the need for greater rigour in the construction industry in her review of the building regulations following the Grenfell fire.
- The judge was influenced in finding for the claimant in relation to the specification breaches by the fact that there was a lack of evidence of compliance provided by the contractor; that is, no successful BS 8414 test evidence was presented. He was not satisfied on the balance of probabilities and based on the expert evidence available, that the system would have passed the testing. He concluded on this point that “in a case such as this the only way of clearly demonstrating compliance or non-compliance with the performance standard is to carry out a BS 8414-1 test”. Alternatively, it is acceptable to match the make-up of a successful test rig.
- The judge found there was a strict contractual obligation to comply with the building regulations. The relevant clause in the contract is a common amendment which states that “the Contractor hereby accepts responsibility for the design of the Works and every part thereof and for the selection and standards of all and any materials, goods and workmanship forming part thereof”.
- Having succeeded on its case for specification breaches, the claimant was held to be entitled to recover its entire loss including full replacement costs and waking watch costs. However, if it had only succeeded on the installation breaches, then its recoverable losses would have been limited to the repair costs, not replacement costs, and a portion of the costs of the waking watch.
- While we do not know the background or detail of the adjudication, it is perhaps surprising that the claimant issued adjudication proceedings in respect of a matter of relative complexity. It is also of interest that at the claimant’s ‘insistence’ the judge did not see nor was he referred to the adjudicator’s decision. This is only an option where there was no money award which the paying party is seeking to have reversed or reduced. Lastly, the adjudicator and judge appear to have come to different conclusions. It seems unlikely that the specification breaches were included in the adjudication given Martlet subsequently issued court proceedings which only later on (but not initially) pleaded these breaches. However, the court held that Martlet would have recovered losses on the installation breaches alone.