TCC’s First Section 149 Judgment Signals Wider Cladding Liability

The Technology and Construction Court has recently handed down its first judgment dealing with the cladding product requirements in section 149 of the Building Safety Act 2022 (BSA). This is likely to have significant implications for foreign manufacturers and parent entities involved in the supply of cladding products used on high-rise residential buildings in England.

Background

The three sets of proceedings arose from the use of the StoTherm Classic External Wall Insulation System on 18 high-rise residential buildings. Following post-Grenfell inspections, the claimant developers established that the system contained expanded polystyrene (EPS) insulation boards behind the external render and common detailing which allegedly bypassed cavity barriers, creating a pathway for fire spread.  The first defendant, Sto Limited, and the second defendant, Sto SE & Co KGaA (Sto Germany), were alleged to have designed, manufactured, and supplied the relevant system.

The BBA certificates for the system described it as achieving class 0, apparently satisfying the external fire spread requirements of the relevant Building Regulations, but that description was said to be misleading. The relevant entry in the BBA certificate was amended in July 2017, one month after the Grenfell Tower fire.

Remediation works to all of the relevant developments were funded via the Building Safety Fund, and each claimant developer had signed the Self-Remediation Terms committing to investigate and remedy defects in buildings developed between 1992 and 2022.

The Claims

The claims were brought against three related Sto entities. By the time of the hearing, Sto Limited, a company registered in England and Wales, had entered administration.  The active defendants were therefore Sto Germany, the German manufacturer, and Stotmeister Beteiligungs GmbH (SBG), a German family holding company that holds a majority shareholding in Sto Germany. SBG’s evidence was that, under German law, it is not permitted to influence the management of Sto Germany.

The developers alleged that Sto Germany was liable to building owners under section 149 of the BSA, the new statutory tort creating liability for past defaults relating to cladding products, and sought contribution from Sto Germany under the Civil Liability (Contribution) Act 1978 on the basis of liability to the same people for the same damage.

The developers also sought Building Liability Orders (BLOs) against Sto Germany and SBG under section 130 of the BSA on a just and equitable basis, with contribution claims then following from those orders.

Section 149(2) of the BSA creates liability where a person fails to comply with a cladding product requirement, makes a misleading statement in relation to a cladding product it markets or supplies, or manufactures an inherently defective cladding product, and the cladding is subsequently incorporated into a relevant building that becomes unfit for habitation as a result.

The court found that the section 149 claims against Sto Germany had a real prospect of success on all three routes to liability under section 149(2).  It found that, on the face of the BBA certificates, including a description as designer and manufacturer of the system, and the allegedly misleading class 0 characterisation were matters to be resolved at trial.  This finding came despite arguments by Sto Germany that it never supplied the EPS insulation boards, nor did it itself manufacture or supply a cladding system directly in England and Wales, and that it only supplied certain components of the wider system to Sto Limited.

The most legally significant aspect of the judgment concerned the extra-territoriality challenge raised by SBG in respect of the section 130 BLO claim. SBG is a non-trading holding entity with no presence in the United Kingdom. It argued that Parliament could not have intended section 130 to impose BLO liability on foreign entities of that character.

The court rejected that argument: section 149 of the BSA creates a tortious claim arising from damage to buildings in England and Wales. As such, the applicable law would (on the face of it) be English law and the extra-territoriality objection would not be engaged.

The judge further observed that the ‘just and equitable’ test in section 130 of the BSA (in the context of BLOs) is framed in broad terms and that, given the international character of the construction industry, it would be overly restrictive if the provision were incapable of reaching foreign entities that otherwise fall within the associated body corporate definition in section 131.

The court also addressed, at a conceptual level, whether developers can bring Contribution Act claims before their own liability has crystallised through payment or judgment. Again, in principle, the court found a claimant may issue contribution proceedings before the cause of action has fully accrued – there being no logical reason why a claimant should have to wait until it has been ordered to pay (or had paid) the underlying loss.  This is consistent with the Supreme Court’s decision in URS v BDW.

Significance

It is worth noting this is a first instance decision, and it is unclear at the time of writing whether the defendants will seek permission to appeal (although, given the significance of the court’s findings, it is a real possibility).

Subject to that caveat, the judgment confirms that section 149 of the BSA potentially reaches foreign manufacturers and suppliers who are named in BBA certificates or whose marketing literature circulates in the UK, even where they argue they did not directly supply goods into the domestic market. Second, and relatedly, the rejection of the extra-territoriality argument may make it significantly harder for overseas parent entities and holding companies to resist English jurisdiction in building safety claims.

The substantive questions left open, including the precise scope of section 149, what constitutes a ‘misleading statement’, and when it is just and equitable to grant a BLO against a non-trading holding entity, remain to be resolved at trial.

If you have any questions regarding the information discussed in this article, or what this judgement means for your projects, please contact Michael O’Brien and Andrew Croft.