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This week's update includes the first ever substantive judgment in a post-Grenfell fire safety claim, a look at the creation of a new offence for unauthorised encampments in the Police, Crime, Sentencing and Courts Act, and a report on a recent High Court case that held a payment tied to commencing development was an unenforceable penalty.

Upton Rocks Healthcare Limited v Halton Borough Council

In 2019 the claimant, Upton Rocks Healthcare Limited, purchased land for development of a healthcare centre. The land was part of a wider development site which had originally been sold by Halton Borough Council in 2011. Overage covenants were agreed at the time of the original sale and, following a series of variations to the original terms, a covenant had been imposed requiring the payment of £240,000 to the Council in the event development works had not commenced on the land within 36 months of the original sale (the Covenant). The Council's apparent aim was to ensure the land was developed rather than being land banked.

A dispute then arose as to whether sufficient development works had been undertaken within this timeframe to satisfy the Covenant and avoid the payment falling due. On the sale of the land to Upton, the dispute continued and the Council refused to release a restriction over the land, preventing its sale, until the sum of £240,000 was paid. On completion of the purchase, Upton brought a claim in restitution pleading, amongst other points, that the payment required under the Covenant was actually a penalty which imposed a detriment out of proportion to the Council's interest in the development of the land.

The High Court agreed with Upton on this point, repeating the key position on penalties decided by the Supreme Court in Cavendish Square Holdings BV v Makdessi and ParkingEye Limited v Beavis. Where a contract requires a payment from the person in breach of a primary obligation under the contract that is out of proportion to the injured party's legitimate interest in the other party's performance of that primary obligation, it will be a penalty and will therefore be unenforceable.

In this case, the High Court found that whilst the Council had a legitimate interest in ensuring the site was developed in a prompt manner, it did not accept the Council's argument that the Covenant protected this interest or its right to overage payable on development. Other provisions in the 2011 transfer were held to be already very extensive in protecting the Council's right to overage. The Covenant was also held to be of very limited utility or value to the Council as it only ensured development was commenced but not completed within a set time. It was therefore held to be an 'extravagant, exorbitant or unconscionable' penalty clause which had unjustly enriched the Council who were ordered to repay the £240,000 to the Claimant along with interest and costs.

First Substantive TCC Judgment in a Post-Grenfell Fire Safety Claim

The Technology and Construction Court has now handed down Judgment in the case of Martlet Homes Limited v Mulalley and Co Limited, the first substantive decision from the Courts in respect of a claim arising from external wall fire safety defects since the tragic fire at Grenfell Tower in 2017.

Following the Grenfell Tower fire and in common with other organisations, Martlet Homes Limited ('Martlet') carried out investigations into the design and construction of the external walls in a number of its residential towers. Those investigations revealed fire safety defects in the external walls of five high-rise towers in Southern England. The design and construction of the refurbishment works, including significant works to the external walls, had been carried out on behalf of Martlet by Mulalley and Co Limited ('Mulalley').

Having taken expert advice, Martlet decided to replace the external wall systems installed by Mulalley with a non-combustible system, while also addressing other identified defects. Martlet sought to recover the cost of these remedial works from Mulalley, along with other costs incurred including the costs of providing a 'waking watch' service at the towers in the interim period between the defects being identified and the remedial works being completed.

Mulalley position was that its liability to Martlet was limited to the cost of procuring certain remedial works only, and that it had no liability in relation to the majority of the costs incurred which related to the wholesale replacing of the external wall systems. This was on the basis that, Mulalley said, Martlet's decision to procure the complete replacement of the external wall systems was a reaction to the tragic events at Grenfell Tower, and heightened fire safety standards introduced after their work had been completed.

Martlet's position was that this was not correct, and that the external wall systems designed and constructed by Mulalley did not meet the relevant fire safety standards in force at the time when the work was carried out by Mullaley such that it was not only justified in procuring the removal of those systems, but that it was also entitled to recover the cost of doing so from Mulalley.

The Court gave detailed consideration to the provisions of the entire relevant regulatory framework relevant to the works in question, including the Building Regulations, Approved Document B, and relevant BBA Certificates relating to the system, and found in Martlet's favour.

The Court concluded that Martlet had successfully demonstrated the existence of defects in the design and construction of the external wall systems, by reference to the relevant regulatory framework in force at the time, that it was entitled to recover damages from Mulalley calculated by reference to the cost of procuring a remedial scheme, and that it was further entitled to recover the cost of implementing a waking watch scheme to keep residents safe pending the completion of the remedial works. This was found to be a reasonable approach to mitigation of loss, as compared to the cost of decanting all residents while the remedial work was undertaken.

This Judgment will be met with widespread interest from any party currently involved in a dispute relating to fire safety issues connected with the external walls of high rise buildings, as the positions adopted by the parties in this case broadly reflect the positions that are typically adopted in such disputes. While no two disputes are ever truly identical, we now have welcome guidance from the Courts as to how it might view such arguments.

The Police, Crime, Sentencing and Courts Act 2022 ("the Act") came into force on 28 June 2022 and introduced, among other things, a new offence relating to unauthorised encampment of land.

The Act provides that an offence will now be committed if a person:

  • Resides or intends to reside on land in or with a vehicle;
  • Fails to leave the land or remove their property without reasonable excuse when asked to do so; and
  • They have caused, or are likely to cause, significant damage, disruption or distress

The Act gives the police a power of arrest if the landowner, its representative or a police officer asks the person to leave and/or to remove their property and they fail to do so as soon as reasonably practicable. The Police can also seize and remove any relevant property (including a vehicle) from the person if the officer suspects an offence under the Act has been committed and ban the person from returning to the land for a period of 12 months.

The definitions within the Act are broad. Vehicle includes any vehicle, irrespective of whether it is in a fit state for use on roads, as well as any chassis or body (with or without wheels), plus any load carried by and attached to a vehicle. Caravans are also caught by the scope of the Act, provided they fall within the definition at section 29 (1) of the Caravan Sites and Control of Development Act 1960.

The definition of damage includes damage to the land and any property as well as damage to the environment i.e. excessive noise, smells or waste. Disruption can include interference with a person's ability to access any services or facilities on the land or otherwise make use of the land as well as interference with a supply of water, energy and fuel. The use of threatening, abusive or insulting words, whether in signs, language or disorderly behaviour, amounts to offensive conduct that causes or is likely to cause significant distress. This could catch verbal abuse or intimidation of local residents or those passing by an unauthorised encampment.

The maximum penalty for the offence, if the individual is prosecuted and found guilty, is up to three months' imprisonment, a level 4 fine (currently £2,500) or both.

This will be welcome news to landowners and may provide an avenue for developers in particular to resolve issues swiftly where any unauthorised encampment could have an impact on any wider development timetable.

It is worth noting, though, that while the Act supplements and builds on current civil enforcement options as well as existing police powers, its use will be subject to the availability of the Police to assist.

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