London-based Australian Solicitor Alex Ottaway, Senior Associate at Bryan Cave Leighton Paisner, discusses the post-Grenfell liability consequences of high-rise properties containing combustible cladding with reference to a recent UK Technology and Construction Court decision.
I read with interest Paul Bury’s blog, which touched on the case of Zagora Management Ltd v Zurich Insurance plc as it relates to claims against approved inspectors. I’m interested in the case for a different reason: it’s one of the first superior court decisions, post-Grenfell, that deals with the liability consequences of high-rise properties containing combustible cladding.
As is now etched in our collective memory, on 14 June 2017, a fire broke out in Grenfell Tower, in West London, resulting in the tragic loss of life. Since the time of this event, many owners of high-rise buildings across the UK have learned that their cladding contains combustible components, which may include aluminium composite panels with combustible cores (ACPs), phenolic insulation, or a wide range of other components – or is missing cavity barriers or other fire protection measures.
A challenging question that owners and contractors may ask their legal advisors is the extent to which the (potentially very substantial) cost of removing and replacing the combustible components, or rectifying these other issues, can be recovered. Since Grenfell, claims of this nature have been (and are being) made against a variety of participants including contractors, subcontractors, consultants, approved inspectors and insurers.
Who is liable for the remedial costs?
Not surprisingly, the liability position largely turns upon the circumstances of the property in question. In the context of a claim against a contractor, relevant circumstances will include the contractual matrix, the standards and requirements that the contract imposes, and the fire performance of the cladding as installed. Nonetheless, decisions such as Zagora can give us clues as to how the courts are likely to deal with such issues.
At a high level, Zagora involved a high-rise apartment block in Manchester which was designed to provide housing for students attending local educational institutions. Inspections revealed that the cladding featured oriented strand board (a combustible component), missing cavity barriers, inadequate compartmentation to prevent the spread of fire, and inadequate fire stopping. The property was considered sufficiently unsafe, from a fire safety perspective, as to justify the evacuation of the residents. The management company/owners incurred remedial costs of around £10m in rectifying these issues, and sought to recover these costs from the insurer and the approved inspector.
The matter came before HHJ Stephen Davies in the Technology and Construction Court (TCC). The insurer was ultimately found to be liable to the owners for around £3.6m of the remedial costs. The judge said that its liability would have been substantially higher had it not been for a limitation of liability in the insurance policy in question. The fire safety risks were treated as posing a “present or imminent danger” to the residents, and it was considered to be legitimate for the owners to carry out major and expensive remedial works.
A further interesting aspect of the case is the Court’s consideration of whether the owners’ remedial solution of choice was reasonable. The judge said that, if they opted for a “globalised” solution – one that involved reinstating all of the cladding – a detailed survey report and cost analysis may be expected, so as to explain how such a solution would be more economical than the rectification of defects individually. However, with that caveat, it appears that the courts will normally be slow to second‑guess the chosen remedial solution. Indeed, on the facts of the Zagora case, the judge rejected an argument that the owners had to account to the insurer for any betterment that the remedial works brought about.
However, the case leaves some important questions unanswered. For example, in relation to the somewhat controversial Approved Document B (pertaining to fire safety), what does it purport to require, and are those requirements legally binding? The issue may come to the fore particularly in claims against contractors and subcontractors. I was interested to see that, in Zagora, it was submitted that compliance with Approved Document B is not mandatory. Presumably (although the judgment does not state it), the submission relied upon section 7 of the Building Act 1984, a provision that suggests that compliance with Approved Documents may be evidentially relevant, but is not conclusive, on the question of whether a person bears civil or criminal liability for contravening the Building Regulations.
In my view, while every property needs to be assessed on its own merits, the decision in Zagora should provide comfort for owners who are faced with the question of who bears liability for combustible cladding. The fire safety concerns in that case were taken seriously, and the owners received a substantial award in their favour, which, according to the judge, would have been much higher had it not been for a liability cap.
In terms of the questions that this leaves unanswered, we will need to wait for further judicial guidance in what appears to be a growing body of post‑Grenfell jurisprudence.
Alex Ottaway, Senior Associate (Australian Solicitor) – London, specialises in dispute avoidance and resolution concerning construction projects. He advises and acts for construction participants in diverse industries such as housing (prime residential/student), healthcare (hospitals), industrial (chemical/concrete plants), resources (LNG/oil & gas), and energy and infrastructure (tunnels/bridges). Alex’s practice encompasses all forms of dispute avoidance and resolution (including mediation, adjudication, arbitration and litigation), acting as solicitor-advocate or instructing solicitor. His litigious experience includes running trials in the Technology and Construction Court, as well as trial and appellate experience in Australian courts. Contact Alex at Alex.Ottaway@bclplaw.com