What are the implications for manufacturers of defective construction products?

Following the publication of the Grenfell Tower Inquiry Report, manufacturers of products installed in building envelopes, in particular Arconic, Celotex and Kingspan, were all condemned for their dishonest practices. The Report identified that the manufacturers misled the construction industry as to the fire performance of their products.

In this article, Construction Partner Ed John and Senior Associate Nadine Obayda consider the litigation expected to follow since the publication of the Report.

Product liability claims brought by residents

Residents and leaseholders living in uninhabitable dwellings will typically find it most straightforward to seek compensation from the contractor or developer under the Defective Premises Act 1972 (DPA 1972).

The limitation period for claims under the DPA 1972 which accrued before 28 June 2022 is 30 years; for those claims accruing after 28 June 2022, the limitation period is 15 years under section 4B of the Limitation Act 1980.

Building Safety Fund to recover funding

Under the standard terms of grant funding agreements between building owners and the Department of Levelling Up, Housing and Communities (DLUHC), applicants receiving Building Safety Fund (BSF) support for remediation costs are required to:

1. Use all reasonable endeavours to seek remedies for building defects, including potential claims against insurers, contractors, manufacturers, or warranty providers responsible for the defects or liable for issues related to the building.
2. Alternatively (at DLUHC’s discretion), assign their rights, title, and interest in any claims to DLUHC, allowing the department to recover the funding by pursuing those remedies, with the applicant providing necessary assistance.

Although no reported cases exist of DLUHC pursuing claims against manufacturers or requiring applicants to do so, given the Inquiry’s findings regarding dishonest marketing and supply of building envelope products, it seems likely that DLUHC will soon target a manufacturer to set a precedent. There is a clear policy imperative to hold those responsible accountable for their actions and ensure they pay for the harm caused.

Claims against main contractors

Typically, a building owner who has incurred the cost of replacing cladding would look to the main contractor in contract (where the owner is the contracting party or has a collateral warranty). There is an implied contractual term (under section 14(2B) of the Sale of Goods Act 1979) that materials supplied must be fit for their intended purpose.

A building owner may also bring a claim against contractors under the DPA 1972 for using defective materials (the statutory duty to build properly in section 1 of the DPA 1972 includes a duty to ensure that the work is done with “proper materials”), as was the case in Martlet Homes Limited v Mulalley & Co. Limited [2022].

Third-party and contribution claims against manufacturers and suppliers

If a main contractor is liable for defective construction products, they may make such third-party claims as available under contract or warranties from product manufacturers or suppliers, or under section 1 of the Civil Liability (Contribution) Act 1978 (CLCA 1978).

These third-party and contribution claims are most likely to be made against the manufacturers and suppliers of defective construction products. It is likely that any defective product may well be part of a wider set of failures among suppliers, certifiers, construction professionals, contractors and sub-contractors.

Under section 10 of the Limitation Act 1980, claims for a contribution under CLCA 1978 can be brought within two years of the date of a settlement payment, judgment or award – even where the primary limitation period for the claim has expired.

The Building Safety Act 2022

Sections 147–149 of the BSA 2022 introduced a new cause of action enabling claims to be brought against the manufacturers and suppliers of construction products where they are defective, and that defect is a contributing factor affecting building safety.

Claims may be brought by any person who has suffered a loss because of a dwelling being “unfit for habitation”.

There are four conditions to establish liability for cladding products installed before 28 June 2022 under section 149 of the BSA 2022. These are as follows:

1. a person or entity:
   a. fails to comply with one of the following cladding product requirements in relation to a cladding product:
   i. Regulation (EU) No. 305/2011 (regulation laying down harmonised conditions for the marketing of construction products);
   ii. the Construction Products (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/465); and
   iii. regulations made under Schedule 11 of the BSA 2022 (although none have yet been made).b. markets or supplies a cladding product and makes a misleading statement in relation to it, or

   c. manufactures a cladding product that is inherently defective.

2. that construction product is installed in a relevant building (a building which consists of a dwelling or a building which contains two or more dwellings – note that “relevant building” in this part of the Act is a building of any height, although confusingly in Part 5 of the BSA 2022 those same words mean a building of at least 11m or 5 storeys);
3. when those works are completed:
   a. where the building is a dwelling, it is unfit for habitation, or
   b. where the relevant building contains one or more dwellings, any dwelling contained in the building is unfit for habitation.
4. that product is the cause, or one of the causes, of the building or dwelling being unfit for habitation.

Almost identical provisions under section 148 of the BSA 2022 apply to all (not just cladding) construction products installed after 28 June 2022.

What happens when conditions for section 148 or 149 BSA 2022 claim are met?

Once liability is established under either section 148 or 149 BSA 2022, the person who manufactured, marketed or supplied the product (as the case may be) is liable to pay damages to a person with a legal or equitable interest in relation to the relevant building for:

• personal injury,
• damage to property,
• economic loss (which may, for example, include loss of value as well as loss of the ability to remortgage or let property and the costs of a waking watch),
• which is suffered by that person as a result of the unfitness for habitation.

It is not possible to contract out of, exclude or restrict liability under either section 148 or 149 BSA 2022, and any agreement purporting to do so is void.

Costs contribution orders under BSA 2022

The BSA 2022 granted the Secretary of State the authority to create regulations for “costs contribution orders”. These orders would require individuals convicted of offences related to “failing to comply with a construction product requirement” to pay an amount deemed “just and equitable” for the cost of remedial work. However, the regulations to enforce these orders have not yet been established.

Furthermore, no prosecutions, let alone convictions, have occurred under the Construction Products Regulations 2013, which were designed to regulate construction product standards. This is despite the Grenfell Inquiry’s findings of dishonesty and fraud in the marketing of several construction products. While Kingspan (for Kooltherm K15) and Unilin (for other insulation products) have been issued Prohibition Notices under these regulations, requiring their withdrawal from the market, neither company has faced prosecution to date.

If you have concerns about defective construction products, please contact Ed John and Nadine Obayda.

To read a more detailed analysis of the Grenfell Tower Inquiry Report findings on product liability, please click here.