At the end of December 2022, the TCC provided us with further guidance on the assessment of the "reasonableness" of selecting a recladding scheme during necessary remedial works in the case of LDC (Portfolio One) Ltd v George Downing Construction Ltd and European Sheeting Ltd [2022] EWHC 3356 (TCC).
Following LDC's discovery of fire safety and water ingress defects in the external cladding of three of their high-rise university halls, LDC raised proceedings for the cost of recladding and associated remedial works against George Downing Construction Ltd (Downing), the main contractor on the project, and European Sheeting Ltd (ESL), the specialist cladding and rainscreen subcontractor, the latter of which was in creditor's voluntary liquidation. Following settlement between LDC and Downing, both parties sought to claim a contribution from ESL for the settlement sum Downing was to pay LDC.
A standout feature of this case is the extent to which the experts of the parties agreed in relation to points of liability, but how far apart they were on questions as to whether certain elements of the permanent remedial scheme adopted by LDC were reasonable.
ESL argued that LDC’s permanent remedial scheme was a significant enhancement to what was reasonably necessary and put LDC to proof as to its alleged losses. As such, ESL argued, LDC failed to mitigate its loss and that the cost of the remedial works was unreasonable.
However, the role of expert advice in deciding the scope of remedial works was crucial to the works being accepted as reasonable by the Court. The onus was placed on ESL to prove that the works were unreasonable as the remedial works applied were both effective to cure the defects and complied with the updated Building Regulations. ESL was unable to prove this, perhaps in no small part due to their insolvency and associated lack of resources, and thus did not reach the threshold required to prove that LDC's remedial works were unreasonable.
In this, it would appear that the Court has reinforced 2022's earlier decision in Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1812 (TCC) that remedial schemes, even in decisions to fully replace cladding, should not be criticised too readily in hindsight, especially when undertaken having taken professional advice and where the defects involve serious design issues.
This case further demonstrates that an "upgrade", in this case even referred to as such in the judgment, will not be considered betterment when made to comply with updated Building Regulations which is applicable such as where LDC substituted structural insulated panels with a steel framing system so, as LDC's fire engineering expert put it, it could adhere to the revised building regulations, and in particular regulation 7(2) that “building work shall be carried out so that materials which become part of an external wall, or specified attachment, of a relevant building are of European Classification A2-s1,d0 or A1”.
It should be worth noting that it was accepted, following LDC's submission, that neither Downing nor ESL had put forward a viable alternative remedial scheme which amounted to a complete and definitive alternative solution to LDC's scheme. Both the experts for LDC and Downing agreed that the costs for the permanent remedial scheme would sit at £16.4 million, and so it was accepted that an expert instructed by ESL would come to a similar figure. By contrast, the proposed alternative remedial scheme was valued at £17.3 million by LDC and £15.1 million by Downing. One might question the extent to which the scheme would be seen as reasonable if there was a considerably larger gap between these figures or indeed if ESL had presented a complete and definitive solution.
To conclude, whilst it should be noted that this case would appear to continue a trend towards remedial schemes being viewed as reasonable if a) it works b) an expert's advice was taken and c) it adhered to regulations, regardless of apparent betterment, it should be noted that when attempting to disprove the acceptability of the scheme, the Court did highlight ways in which a future challenge to the reasonableness of a scheme could be improved.
