The potential financial exposure of cladding product manufacturers and suppliers has been clearly illustrated in the recent decision in Mulalley & Co Ltd v Sto Ltd & Anor where a contractor obtained judgment for a contribution of 87.5% of its remediation costs against the supplier of defective cladding.
As one of the few reported recovery actions under the Building Safety Act 2022 (BSA), the case is of interest not only for the size of the contribution order made against the German parent company of the UK supplier but also for the fact that a Building Liability Order (BLO) was made by way of a default judgment.
Factual background
The claimant (Mulalley) had been engaged to design and build various refurbishment works at the site of a residential tower block in Essex. The works included the design and installation of external cladding. Mulalley subcontracted the cladding works specifying the use of the StoTherm Classic System. Defects were subsequently discovered in the cladding system. Mulalley entered into a settlement agreement by which it agreed to remove and replace the defective cladding and pay certain sums to the Employer. Mulalley then sought to recover these costs by bringing a contribution claim against Sto Limited (Sto), the British company that supplied the cladding system, based on Sto's liability to the building owner under s.149 of the BSA.
S.149 is a new remedy introduced under the BSA giving parties with an interest in a building the right to bring a claim against suppliers and manufacturers of cladding products where certain conditions are met.
However, in January 2025, Sto was placed into administration meaning that Mulalley's claim was subject to a statutory moratorium. As a consequence, Mulalley also brought a claim against Sto's German parent (Sto Germany) for a BLO, another new remedy introduced by the BSA which in effect pierces the corporate veil where the court considers it 'just and equitable' to do so. (For an example of the court finding that it was just and equitable to grant a BLO, see our article on the recent decision in Crest Nicholson Regeneration Ltd v Ardmore Construction Ltd (in administration) and others.)
Judgment in default was entered in December 2025 as Sto Germany failed to defend the claim. An assessment of damages then took place. Again, Sto Germany took no part in the proceedings and no evidence was filed on its behalf.
Assessment of damages
Although the case was uncontested, Mulalley was still required to prove its loss or damage. The damages were to be assessed on the basis that Sto Germany was liable to compensate Mulalley for the settlement sum to the extent that it was caused by the defects pleaded in the particulars of claim.
The pleaded claim was for just over £2.4 million. The judge had to decide:
- what costs were in fact incurred,
- whether those costs were incurred in relation to pleaded defects,
- whether the costs incurred were reasonable; and
- the amount that it would be just and equitable for Sto Germany to contribute to such loss.
As the remedial works extended beyond the work necessary to remedy the defective render system, the cost of the additional works were deducted as were the legal costs of achieving the settlement agreement, leaving costs of just over £2 million. The judge held that these costs had been reasonably incurred in carrying out the remedial works caused by the defective cladding works.
In assessing what would be a just and equitable contribution, the judge had to consider both the seriousness of the respective parties' faults and their causative relevance.
By virtue of the default judgment, the judge accepted that the liability findings included that Sto had failed to supply a cladding product that complied with the Building Regulations, had made misleading statements about the StoTherm Classic System and that the system was inherently defective.
The judge held that the principal cause of the remedial works was plainly the fact that Sto marketed and supplied an inherently defective product. He noted that some workmanship issues had been alleged by the building owner but concluded that the just and equitable contribution payable by Sto, and therefore Sto Germany pursuant to the BLO, was 87.5%.
What can we learn from the judgment?
It must of course be borne in mind that this decision was based on a default judgment and that the assessment of damages was uncontested. Nevertheless, an award of 87.5% of the remediation costs represents a huge win for Mulalley. Sto Germany has already failed to pay the interim sum awarded so it remains to be seen whether Mulalley will be able to successfully enforce the judgment against the German company.
In reaching his decision that the remediation costs were reasonable, the judge noted that the courts are “generally reluctant to criticise, with the benefit of hindsight, the reasonableness of the claimant’s expenditure on remedial works.” Further he appreciated that Mulalley was a contractor rectifying defects pursuant to a settlement agreement and consequently had "no interest in gold plating the works"; Mulalley had a direct financial interest in ensuring that the works were conducted efficiently and at reasonable cost. The actual costs incurred were therefore taken as the judge's starting point.
Mulalley had sought a contribution of 90% of the remediation costs so the final award did not fall far short of that figure. Mulalley had argued that the court should adopt a similar approach to that between a contractor and an architect on the basis that Sto, like an architect, was responsible for any design defect. It was accepted that a court might typically award a contribution against an architect in respect of a design breach of between 67% and 80%.
Impact on suppliers and manufacturers of construction products
This decision comes shortly after the government's announcement in the King's Speech that it will include the long awaited Remediation Bill in the next legislative programme. In the background briefing notes issued by the Prime Minister's Office, it is stated that the Bill will "Make construction product manufacturers pay towards fixing the problem they caused, by fixing long-standing gaps in the law and ending years of inaction. For the first time developers, contractors and others who have paid to make buildings safe will be able to properly pursue manufacturers, rather than being blocked by technical legal barriers". How this will be achieved is not yet known. However, the policy intention is clear and the decisions of the courts to date have been to implement the policy of the BSA.
This judgment reinforces the judicial approach to facilitate recovery for parties who have reasonably incurred costs in building safety remediation and that product manufacturers may be held liable for the majority of those costs, particularly if they supplied an inherently defective product.
With many recovery actions already being pursued against cladding suppliers and manufacturers, it may now be the turn of construction product suppliers and manufacturers to face claims for remediation costs. In the light of this decision, the prospects for recovery are looking more promising for developers and contractors.
