The cladding blame game

On 14 June 2017, 72 people lost their lives in the Grenfell tower disaster. The resulting damage and loss were enormous, the full extent of which has not yet been fully appreciated.

As investigations are gradually leading to findings, so claims and attempts at settlement and litigation are following in their wake. Clients are consulting their lawyers, the evidence is being assembled, the arguments analysed and prepared and matters are proceeding.

So, what are the arguments lawyers have to consider and, ultimately, the judges may have to resolve?

The problem

The client has a cladding problem. He is the leaseholder of a flat in a block of flats bought a few years ago with a mortgage. He has every reason to believe that the cladding, if high pressure laminate (HPL), expanded polystyrene insulation (EPS) or aluminium composite material (ACM), is inflammable.

For the moment, he cannot obtain an external wall safety inspection report (EWSI) because there are only a few specialist surveyors and fire risk assessors available able to do the work - and they are all busy (and not inexpensive).

So, he cannot sell the flat, it is unmortgageable and he cannot sublet it as this is prohibited in the lease.

The cost of replacing the cladding is high, many thousands of pounds, well beyond his means. He may be facing the end of a favourable fixed term mortgage and be compelled to move to the standard rate. He cannot obtain a mortgage from a new mortgagee without an EWSI; and even if he has an EWSI it may well be difficult.

Meanwhile, the necessary fire patrols are expensive, the cost of insurance has leapt up and so has the service charge. Professional advice and assistance does not come cheap. Taking the matter to the tribunal or the court is seen by many as a formidable and uncertain undertaking. Seeking a remedy involves delay, red tape, expense and worry. The client is suffering enormous loss, costs, anxiety and psychological damage – the victim of an urban nightmare.

In March 2021, the Ministry of Housing, Communities and Local Government (DHCLG) issued its prospectus for the building safety fund. This fund is to support the remediation cost for unsafe non-ACM cladding on residential buildings 18 metres and over that do not comply with the building regulations. Applicants must register for the scheme, which is directed primarily at the private sector. £5.1b has been provided by government for the building safety fund.

Legal responsibility

There have been many allegations and accusations as to who is, or may or should be morally, ethically, socially, economically and politically responsible for the cladding problem. But who is or may be legally responsible? 

Leaseholder – As a matter of strict law, the leaseholder is usually liable under the lease. Their legal liability is clearly stated in the lease and the judge will have little difficulty with this. The real issue is whether anybody else is, or might be legally liable and could be joined in the proceedings.

Freeholder/lessor – The freeholder and lessor will probably point to the lease, exonerating themselves. However, if they had dishonestly lied or concealed a material fact (eg the cladding was known to be dangerous), then it is possible that a prosecution for fraud by false representation or by failing to disclose information under sections 1 to 3 of the Fraud Act 2006 might meet the evidential test. A civil claim for misrepresentation under the Misrepresentation Act 1967 could also succeed.

Before Grenfell, the cladding risk did not appear to have been widely known or appreciated, though a similar albeit lesser incident happened at Lakanal House in Camberwell, London on 3 July 2009. The lessee may argue that the lessor could and should have resolved any possible problem of the cladding before granting the lease.

Parliament – Parliament passed the statute authorising the making of the building regulations, which may have been badly or defectively drafted and negligently passed. But parliament is sovereign and our constitution does not provide for liability for negligence.

Government – That said, as an administrative body the executive may be legally responsible for negligence. The advice given to Her Majesty the Queen by prime minister Boris Johnson regarding the prorogation of parliament was found by the Supreme Court to be unlawful (R (Miller) v The Prime Minister [2019] UKSC 41). Statutes and regulations should be carefully drafted. The careful selection and supervision of staff and management of the work of the civil service is a clear responsibility of the department involved.

The local authority – The local planning authority, consulting with professional officers from various departments, granted the planning permission. The local authority employed the building inspectors and was responsible for the satisfactory performance of their work. But it transpired that the planning officers, building inspectors and other officers involved did a bad job, overlooking the most serious defects in the cladding.

Some of the building inspectors may have been independent building inspectors and unconnected with the local authority – and potentially personally liable. But they may plead that they carried out conscientious inspections in accordance with the regulations.

The manufacturer – The manufacturer put the material on the market, knowing of its intended use. It could be potentially liable for error, omission, false promise or dishonesty (likewise, the wholesaler and supplier). Material described as ACM or flammable polyethylene core is usually involved. At the Grenfell enquiry, a manufacturer (Arconic) gave evidence that known unsafe flammable cladding (Reynobond polyethelene) was sold and no disclosure of the defect made to the purchaser.

The developers – The developers commissioned the building and may have ensured the current regulations were followed (or maybe not). They may have sold on their freehold interest in the land and building. If they owed a duty of care, to whom was it owed?  And did the duty pass beyond the original owner developers through to successive owners and others interested in the property?

The contractors – A multiplicity of contractors would have been on site during construction. Identifying individual negligent acts will be difficult and liability may not extend to third parties.

NHBC – The National House Builders Council (NHBC) should, through its standards and 10-year guarantee, warranty and insurance, cover defects in new build.

The surveyor and fire risk assessor – The lessor and/or the lessee may have instructed a surveyor or assessor to inspect and report before the lease was granted. The surveyor could and should have expressly drawn attention to the cladding, its unsatisfactory quality and suitability and the risk. However, there are usually carefully drafted standard contractual limitations on surveyor liability; reports are usually expressly said to be limited to certain purposes and matters.

Managing agents – The block may be managed by managing agents. They owe their duty to the freeholder lessor instructing them, not to the lessee. But there could be a duty to the lessee, in that the lessee is known to rely upon the competence of the managing agent (Hedley Byrne v Heller [1964] AC 465), though the argument seems rather thin. The relationship is more a business-like commercial relationship rather than a trustee or reliance type of relationship.

Insurers – Insurance is governed by the terms of the particular policy and judges have shown themselves well-disposed to consumers (eg businesses suffering interference due to covid-19 FCA v Arch [2021] UKSC 1). Insurers are expected to take a proportionate view of risk for the future in light of current circumstances and current knowledge.

Solicitors – The buyer’s solicitors were under a duty to advise and assist the client to avoid the inherent pitfalls. The cladding problem has been known for many years now and the client should have been warned. Not to warn could be negligent.

The Moore-Bick report

The first report on the Grenfell Tower fire by Sir Martin Moore-Bick, with the accompanying submitted evidence, was published in October 2019 and some of the evidence is revealing. The report is a mine of information to be thoroughly searched before negotiation and litigation is commenced. Government has committed itself to accepting and following the recommendations.

Support and protection

The Law Commission has proposed a substantial scheme of reform and government has accepted the proposals, in principle. Though legislation has not yet been passed, various government, departmental and local authority information, advice and assistance publications and piece of guidance have appeared.

There are also voluntary organisations such as Citizen Advice, the Leasehold Knowledge Partnership, the UK Cladding Action Group, End Our Cladding Scandal and the Manchester Gladiators. The New Homes Quality Board has also been set up with a new homes ombudsman service.

Remediation and compensation

Recent developments include an extra £3.5billion fund (an increase from the original £1.6b) to fund grants from the Building Safety Fund in respect of high or tall buildings, over 18 metres high. A number of the eligible buildings have now had their cladding replaced or are in the process of being done.

In respect of medium height buildings (11-18 metres, 4-6 storeys, where the risk is less) a low interest loan scheme will be available with a £50 per month cap on repayment. An average loan of £40,000 is anticipated and repayment may extend over many years. The liability to repay will run with the land and pass to any future purchaser, meaning the property will probably remain difficult if not impossible to sell or mortgage.

Also, the public money will need to be recouped and the industry will be required to contribute. So, buildings developers will have to pay a gateway 2 developer levy as part of planning permission on high rise developments. From 2022, the residential property industry will be required to contribute additional tax.

Average payments from the building safety fund have been about £22,500, though commentators claim that some £15b is in fact needed to carry out all the necessary work.

Payments have been made under standard commercial models, carrying a non-disclosure clause preventing contact with the media, without the prior government approval.

What’s next?

The Fire Safety Bill 2021 has been introduced to amend the Regulatory Reform (Fire Safety) Order 2005 SI 1541. Key provisions include:

·         A fire safety order covers all the structure.

·         Risk based guidance to be issued.

·         The fire safety duties of the owner and the manager are set out.

·         A public register of fire risk assessment will be created.

·         The owner of a building may not pass the costs of any remedial work attributable to the provisions of this Act on to leaseholders or tenants of the building.

·         A fire safety order will apply to the external walls, the structure, including the cladding and balconies, and the individual entrance doors.

Visual non-invasive structural assessments will be acceptable and buildings may be assumed to be built to resist early collapse in a fire, unless there is strong reason to suspect otherwise.

All common parts are included and this legislation would apply to all multi-occupied dwellings. Building owners will be held to account and enforcement action may be taken where necessary.

Under the Building Safety Bill 2021, the use of combustible material has been banned for residential blocks, hospitals, care homes and student accommodation. It will create a new national building safety regulator for higher rise buildings, provide for clearer accountability, improve enforcement and clarify the duties of duty holders. Residents will have improved access to safety information, clarified rights and direct access to the regulator and to the new homes ombudsman over their concerns.

An extra £30m has also been provided to the fire service.

Alec Samuels is a barrister

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