Product Liability under the BSA 2022 – Another String to Add to Your Bow

When the Building Safety Act 2022 (the ‘BSA’) came into force, section 149 drew a lot of attention because it created an entirely new liability for past defaults relating to cladding products. While numerous claims will now have been made as a result of this new liability, Mulalley v. Sto is the first published case where the TCC has assessed the quantum of a contribution claim arising from a section 149 liability. It is also another example of the TCC granting a building liability order (‘BLO’), this time to extend the liability of the original cladding supplier / manufacturer based in the UK to its parent company in Germany.

Section 149 of the BSA

Section 149 imposes a new and retrospective statutory liability for past defaults relating to cladding products if certain conditions are met. Those conditions are:

• Condition A – At any time before Section 149 came into force on 28 June 2022, a person fails to comply with a cladding product requirement in relation to a cladding product OR a person who markets or supplies a cladding product makes a misleading statement in relation to it OR a person manufactures a cladding product that is inherently defective. A ‘cladding product requirement’ is defined as a requirement under certain construction product regulations.
• Condition B – The cladding product is attached to or included in the external wall of a relevant building. A ‘relevant building’ is a building which consists of a dwelling or which contains two or more dwellings.
• Condition C – When those works are completed, the building or one or more of the dwellings in the building is unfit for habitation.
• Condition D – The facts referred to in Condition A are the cause or one of the causes of the building or dwelling being unfit for habitation.

Section 149(6) states that the person referred to in Condition A is “liable to pay damages to a person with a relevant interest in relation to the relevant building”. That ‘relevant interest’ is a legal or equitable interest in the building or any dwelling contained in the building. It follows that Section 149 creates a liability for a cladding supplier / manufacturer which is owed to the owner of the building or dwelling that might not otherwise have been available under contract, tort or existing statutes.

Significantly, the limitation period for an action brought under Section 149 is 30 years (if the right accrued before 28 June 2022) or 15 years (if the right accrued or accrues on or after 28 June 2022). Cladding suppliers / manufacturers are therefore potentially on the hook for projects stretching as far back as 1992.

However, the new liability under Section 149 should not only be of intrigue to owners and leaseholders but also to defendant contractors and consultants who currently face a cladding claim against them. That is because it potentially opens the door for those defendant contractors and consultants to bring the cladding supplier / manufacturer into the claim, or commence an entirely new claim against the cladding supplier / manufacturer, by seeking a contribution under the Civil Liability (Contribution) Act 1978. In general, it can be argued that, to the extent the upstream claim from the owner is established against a contractor / consultant, the supplier / manufacturer is also liable to the owner under Section 149 and this in respect of the same damage as the upstream claim. In those circumstances, the contractor or consultant would say that there is a shared liability between them for the cost of remedying the defects.

However, a contribution claim brought on the basis of a liability under Section 149 has not yet been fully tested in the TCC and so the law in relation to it is far less developed than other new remedies introduced by the BSA.

Case Facts

In Mulalley v. Sto, Mulalley was engaged to design and build various refurbishment works at the site of a residential tower block known as Parkside Court in Chelmsford. Mulalley sub-contracted the cladding works specifying the use of the StoTherm Classic System. Following the Grenfell fire, it was identified that the cladding system was defective and Mulalley entered into a settlement agreement with the employer to remove and replace the defective cladding and to pay certain sums.

In these proceedings, Mulalley brought claims against two defendants:

1. A contribution claim based on Section 149 against Sto Limited, the company who supplied the cladding system (‘Sto’); and
2. A claim for a BLO against Sto SE & Co KGaA, Sto’s parent company in Germany (‘Sto Germany’).

Sto entered administration after the claim was issued and so the claim against it became subject to a statutory moratorium. As for the claim against Sto Germany, it failed to defend the claim and so default judgment (a procedural remedy where a claim is not responded to) was entered, with damages to be assessed.

Because of the default judgment against Sto Germany, Mulalley’s allegations in the Particulars of Claim were deemed admitted and so liability was already established. Amongst those admitted liability findings were that:

• Sto failed to supply a cladding product that complied with the functional requirement B4(1) and regulation 7 of the Building Regulations;
• Sto made misleading statements about the StoTherm Classic system;
• The StoTherm Classic system was inherently defective; and
• The misleading statements and the inherently defective nature of the StoTherm Classic system were the causes of the apartments being unfit for habitation.

The only live issue left for the TCC to determine was the amount of damages that should be awarded. This required the TCC to assess the just and equitable contribution payable by Sto by virtue of the contribution claim based on Section 149 and, in turn, by Sto Germany pursuant to the BLO ordered against it.

Judgment

The court found that the total remedial costs incurred by Mulalley due to the defective StoTherm Classic system were £2,025,499.62 and that Sto Germany was responsible for 87.5% of this figure. This means that an order was made against Sto Germany in the amount of £1,772,312.17 plus interest.

In reaching this assessment, the TCC found that the principal cause of the remedial works was plainly the fact that Sto marketed and supplied an inherently defective product.

While workmanship issues were also alleged in respect of the fire barriers, the primary issue for the barriers was that Sto’s standard detail included a layer of combustible insulation over the face of the fire barriers. This was the very same fault considered in another case that involved Mulalley (Martlet Homes Ltd v. Mulalley & Co Ltd [2022]). There, it was observed that the detail was “fundamentally deficient” and “would have allowed any fire to bypass the fire barrier in direct contradiction of the design philosophy behind the specification of fire barriers”. It followed that the fire barriers had to be replaced in any event because of the infill panel defects.

Take Aways

Save for providing an example assessment of what the court considered to be a just and equitable contribution, Mulalley v. Sto arguably does not raise anything substantially new or surprising. Because the claim was not defended and default judgment was entered as a result, the viability of a contribution claim based on a Section 149 liability remains, strictly speaking, untested by the TCC.

If such a claim was defended, we would expect to see various arguments deployed by the cladding supplier / manufacturer. These might include what constitutes a “misleading statement” or whether a cladding product is “inherently defective” (in relation to Condition A) and whether the misleading statement or inherently defective cladding product was causative of the building or dwelling being unfit for habitation (in relation to Condition D). As with almost all contribution claims, we would also expect the contribution defendant to argue against a contribution being ordered because the damage for which it is liable is not the “same damage” for which the contribution claimant is also liable. Accordingly, although Mulalley v. Sto brings into sharp focus that cladding suppliers / manufacturers are significantly exposed where their defective product caused or contributed to building safety failures, the outcome of such claims will inevitably differ from case-to-case.

We will very likely continue seeing contribution claims based on a Section 149 liability which are brought by contractors and consultants against cladding suppliers / manufacturers. However, where contractors and consultants have agreed settlements upstream, they should be mindful of the short limitation period that applies to contribution claims: claims must be brought within two years of a judgment establishing liability or the date on which a settlement amount is agreed, noting that the latter can include a payment in kind such as an agreement to carry out remedial works.