Chloe Derrick is a partner at law firm Stewarts
The construction sector has been subject to a significant liability shift, following a wholesale review of building regulation and practice after the Grenfell Tower fire in June 2017.
Legal claims for cladding and fire safety losses continue to rise following Grenfell, with claims issued in the Technology and Construction Court (TCC) over the past six years now exceeding £640m in total value. Additionally, we have seen a recent influx of fire safety related applications in the Property Chamber of the First-tier Tribunal (FTT).
“The First-tier Tribunal now has unfettered discretion to issue Remediation Orders against landlords”
So what is causing the ongoing surge in construction litigation, and what do developers and construction professionals need to know?
The introduction of the Building Safety Act 2022 (BSA) altered the landscape for construction professionals and introduced sweeping legal and regulatory changes. It is undoubtedly one of the most radical pieces of legislation introduced in recent times.
One of the most widely commented-on shifts in the law is the significant, retrospective extension of the limitation periods that apply to claims pursued under the Defective Premises Act 1972 (DPA). Claims can now be commenced up to 30 years from the date the right of action accrued, reawakening potential long-tail liabilities for works completed as far back as the early 1990s. That is significant for parties facing DPA claims.
Judgement from the Supreme Court is also awaited (in URS Corporation v BDW Trading) on whether commercial parties can seek to pursue their own DPA claim. Ultimately, as DPA claims increase against developers and other construction professionals, concurrent coverage disputes are also increasing.
Groundbreaking remedies
The BSA also introduced several new duties and liabilities, alongside a handful of groundbreaking new remedies that can give rise to significant liability orders against professionals. The FTT now has unfettered discretion to issue Remediation Orders against landlords, which requires them to remediate defective buildings. Similarly, Remediation Contribution Orders and Building Liability Orders allow the FTT to make financial orders against non-contracting parties, potentially piercing the corporate veil.
The remedies introduced are far broader than would ordinarily be the case and it is possible we will see disputes arising around how orders under the new remedies fit.
According to government estimates, there are thousands of buildings awaiting fire safety remediation woks, or where ‘unsafe’ cladding is yet to be identified. In an effort to reduce remediation delays, the government has published a Remediation Acceleration Plan, which requires certain works or steps to have been taken on high-rise and tall buildings by the end of 2029, with landlords placed under threat of “severe penalties” if they do not comply.
The government has also now largely accepted the recommendations set out in the Grenfell Tower Inquiry’s phase two Report, albeit with some caveats.
Under the inquiry recommendations, a new single construction regulator will be established and there will likely be additional statutory requirements on fire engineers, architects and contractors under an umbrella objective of stricter accountability. It remains to be seen what impact this will have on professional indemnity insurance, which should be monitored closely, although the inquiry’s recommendation as to sweeping personal undertakings from principal designers (which generated some concern among the insurance market) has favourably been watered down.
Under professional indemnity policies, businesses with multiple high-risk buildings will want to bear in mind the policy’s aggregation clauses and how those might apply to policy limits and deductibles, together with policy attachment. It might be possible to obtain multiple limits of indemnity under different policy years, for example, depending on each claim’s circumstances.
Businesses should also carefully consider their policy wording and any arguments raised by insurers to extinguish or reduce cover; for example, reliance on workmanship and contractual warranty exclusions, or other late notification or fair presentation stances. In our experience, counter arguments can often be raised to secure coverage.
