St James’s Oncology SPC Limited v Lendlease Construction (Europe) Limited & Another [2022]

Fire safety defects: what remedial works can be claimed for and what remedial costs and indemnities can be recovered?

Since the Grenfell Fire tragedy, the fire safety of buildings (particularly hospital buildings) has rightly been brought under the spotlight. Immediately following the tragedy, the fire safety of the external cladding systems was frequently the main focus of attention, but now it is increasingly common for the fire safety of internal elements of buildings to come under scrutiny. Where fire safety defects are found, questions arise as to what remedial works ought to be undertaken, and what remedial costs can be recovered.

The St James’s Oncology case raised these issues. It concerned alleged fire safety and electrical engineering defects in the basement plantroom (the Plantroom) of an oncology centre (the Centre), which had been designed and built at a hospital, as part of a PFI project. The defects allegations mainly related to the compartmentation and fire safety of the plant and equipment in the Plantroom, and the electrical systems which served them. The case was heard in the Technology and Construction Court (TCC), and the TCC’s judgment is noteworthy, not only because of how it determined the defects allegations, but also because of how it decided what remedial works could be claimed for and what remedial costs and indemnities should be awarded.

In the St James’s Oncology matter, the claimant was St James’ Oncology SPC Limited, the Project Company (Project Co) in the PFI scheme. The defendants comprised Lendlease Construction (Europe) Limited, the design and build contractor (the Contractor), engaged by Project Co under a design and build contract (the D&B Contract) for the design and construction of the Centre, and its parent company guarantor.

The Plantroom housed three transformer rooms, two generator rooms, five switchrooms, and two mechanical risers. The original fire strategy for the Plantroom at the start of the construction of the Centre (the Revision 12 Fire Strategy) provided that each room and riser would be a separate fire compartment, with its own compartmentation. However, towards the end of the construction period, the Contractor produced a revised fire strategy (the Revision 19 Fire Strategy), which detailed the whole Plantroom as one single fire compartment.  The Revision 19 Fire Strategy also showed the internal walls of the rooms comprising the Plantroom as non-compartment/internal partition walls, which had openings in them for services to pass through.

Project Co contended that the Revision 19 Fire Strategy’s conversion of the Plantroom from numerous fire compartments into a single fire compartment was not fire safe, and that it contravened the requirements (the Requirements) of a number of NHS Health Technical Memoranda (HTMs), Building Regulations, and British Standards, which Requirements were individual obligations of the Contractor under the D&B Contract. Project Co therefore maintained the Contractor’s failures to meet the Requirements placed the Contractor in breach of many of the terms of the D&B Contract and liable for damages and indemnities.

The Fire Strategy Defence

At trial, the Contractor admitted some of the alleged defects, but denied the others, and advanced a main line of defence in relation to the disputed defects which the TCC termed the “Fire Strategy Defence” in its judgment. In essence, it involved the Contractor arguing that the NHS Trust and its Fire Officer, the Project Co, the Building Inspector, the local Fire Service and the Independent Certifier for the PFI scheme had all approved the proposals in the Revision 19 Fire Strategy (issued by the Contractor towards the end of the construction phase of the Centre) for the conversion of Plantroom into a single fire compartment, and that the relevant Requirements of the D&B Contract had been derogated from or varied accordingly.

Perhaps surprisingly, given the nature of the Contractor’s Fire Strategy Defence, Project Co did not argue until the end of the trial that the supposed derogations from or variations to the D&B Contract should be rejected, because they did not comply with the formal provisions for variations set out in the D&B Contract. Essentially, the TCC ruled that that argument had been raised by Project Co too late. The TCC therefore proceeded to address the Fire Strategy Defence on its merits.

In short, the TCC rejected the Fire Strategy Defence, finding that the changes to the Revision 12 Fire Strategy in the Revision 19 Fire Strategy had not been approved by the Trust or Project Co or any of the other parties mentioned above. They had not been provided with clear proposals for variations to the original Requirements of the HTMs, Building Regulations or British Standards. The TCC found that the Revision 19 Fire Strategy had actually been produced by the Contractor, simply to reflect the as-built condition of the Plantroom which it had already constructed.

What remedial works could be claimed for?

Regarding the remedial works necessary to rectify the defects, the Contractor contended that instead of introducing fire compartments into the Plantroom, a water mist fire suppression system deployed over the generators and switchgear and the replacement of some defective cables to the smoke extract panels were all the remedial works that were required. It argued that such works would remedy “the real fire risk.”

However, the TCC rejected those arguments and held that the more extensive remedial scheme contended for by Project Co’s experts (which involved introducing fire compartmentation and re-cabling the electrical systems) was necessary to meet the contractual Requirements of the D&B Contract. In so holding, the TCC ruled that where a defendant was liable for defective works, in deciding what remedial scheme ought reasonably to be adopted, the Court would consider whether and to what extent the claimant had obtained expert advice in relation to the remedial works to be carried out. Where such advice had been obtained, and it had been implemented, a claimant could ordinarily recover the cost of the remedial works from the defendant, unless the expert’s advice was unreasonable. If the expert’s advice was reasonable, the defendant could not evade or reduce its liability by demonstrating that the defects could have been rectified via an alternative, cheaper remedial solution.

What remedial works costs should be allowed?

The Contractor also tried to escape liability for Project Co’s costs of its remedial scheme by alleging that Project Co did not intend to carry out those remedial works, and in this regard, it noted that Project Co had not commenced them by the time of the trial. The TCC gave this allegation short shrift, by finding on the facts that Project Co did intend to carry out its remedial scheme. It also confirmed that, as a matter of law, the usual measure of damages for defective work would be the cost of making the defects good, provided that such cost was proportionate. Where the Court was to find that a claimant did not intend to make the defective work good, the Court could take that factor into account in determining the extent of the damages to be awarded to the claimant.

The TCC also held that, where, as in this case, a claimant was litigating with a defendant in relation to the defective workmanship, and the defendant was denying the existence of the defects, the claimant could seek to have the cost of the remedial works assessed at the date of the trial, rather than at the time of the defendant’s defective workmanship and breach of contract. That is an important ruling in a period of increasing construction costs and rising inflation.

What indemnities should the Court grant?

Given that the TCC had found the Contractor to be in breach of the D&B Contract, Project Co asked the TCC to order that the Contractor should indemnify it against any claims which it received from the Trust or any deductions to its Service Payments made the Trust under the PFI Project Agreement, in respect of the breaches. Whilst the TCC found that it had the power under the Senior Courts Act 1981 to make such an indemnity, in exercising its discretion as to whether to grant one, it declined to do so. In this regard, the TCC noted that it had awarded Project Co substantial damages for the Contractor’s breaches, and that there was no evidence before the TCC that the Trust would raise any claims or payment deductions against Project Co. The TCC considered that it would be more proportionate and just to consider the matter of an indemnity in future proceedings, once the Trust had raised such claims or payment deductions.

Conclusion

The TCC’s judgment in the St James’s Oncology case is therefore important for a number of reasons.

It shows that contractors who have worked on PFI schemes will ordinarily be held to their contractual obligations, particularly those obligations which require the implementation of fire safety measures. If contractors wish to vary the terms of their contracts with their employers/ PFI project companies, they should ensure that their proposals to do so are clear and that they follow any formal provisions which regulate variations to their contracts.

It confirms that employers who have defects claims against their contractors would be well advised to obtain expert advice as to the scope of remedial works that are reasonably necessary, and if they intend to defer the carrying out of the remedial works, to gather evidence that demonstrates their intention to execute the remedial works in future. They should then claim the expected remedial costs as at the date of trial and include allowances for inflation.

As regards requests for indemnities in respect of possible claims from parties higher up the contractual chain, the Court will require employers to provide evidence that those claims are likely to be made.

Crucially, the TCC found that the timing and nature of expert evidence will be key to arguments that can be raised regarding the proportionality of remedial works. These findings could have significant implications on cases concerning the fire safety of cladding systems. In circumstances where an employer is advised to completely replace a cladding system but after the fact, and a PAS 9980 assessment shows that a lesser remedial solution was viable from a life safety perspective, then the TCC seems to be indicating that the Employer will not be criticised for implementing the more comprehensive remediation, unless its expert’s advice was unreasonable, perhaps by not taking PAS 9980 into account. The timing of the publication and use of PAS 9980 are therefore likely to have a considerable impact on some cladding cases and some would argue that this latest judgment slightly reduces the influence of PAS 9980 and the ability of contractors to argue for a lesser, albeit sufficiently safe, remedial solution in all contexts.