Reports that Lafarge may have supplied faulty cement raise a host of problems for suppliers and contractors that face legal claims – or want to pass them on
It was reported recently that cement produced by one of Lafarge Cement’s depots may have been defective. It is believed that the alkaline level in the cement was incorrect and may result in concrete cracking. It is thought that the defective cement was produced over a two-year period and that cracks may take up to 10 years to appear. The ramifications for Lafarge, suppliers, contractors, developers and end users are likely to be significant.
Initially, there are the practical problems of establishing whether the cement used in any particular job was from the affected depot. Tracing the origin of the cement back up the supply chain may be difficult.
Secondly, there may not yet be any signs of the cement failing. Proof that the cement is defective and is going to crack resulting in loss and damage is required for a successful claim. This is no easy task. The alternative is to wait until cracks appear. But what if this is not for some time? Legal proceedings usually cannot be started if the cause of action arose more than six years ago. In this case the cause of action would be the supply of defective cement. There is a real risk that cracks may first appear six years after the date of supply, effectively preventing any claim being made.
Thirdly, following the contractual chain may be tortuous. The building owner affected by the cracking is unlikely to have contracted directly with Lafarge for the supply of that cement, so will not have the right in contract to bring proceedings against them. Any action is likely to be against the contractor or the developer. In turn, the contractor or developer will want to seek redress from whichever party supplied it with the cement. The contractual chain gets even more complicated when consideration is given to the party that has the benefit of collateral warranties or is able to rely on the terms of a contract to which it was not a party because of the Contracts (Rights of Third Parties) Act. If all the proceedings in the chain are brought through the English courts then at least they can be joined into one action. But if any parties in the chain have an arbitration clause in a contract then there will be separate actions and the parties run the risk of conflicting decisions. adjudication will not be available if the contract was just for the supply of cement or was just for the sale of property, but it will probably be available for contracts between contractors and employers.
Fourthly, there is the issue of what losses can be recovered. It is likely that Lafarge and its suppliers have contracted on standard terms of business that limit liability and probably exclude any liability for consequential losses. Consideration should be given as to whether a party can rely on the terms of the Unfair Contract Terms Act 1977 (UCTA). UCTA may provide assistance in preventing the other party from having the benefit of any clause that limits its liability if that clause is not reasonable. A contractor might have included in his building contract a clause having the same effect.
There’s a real risk that cracks may first appear six years after the date of supply, effectively preventing any claim
Turning to the supplier, it might have product liability insurance in place to cover a claim of this type. As is usual in insurance matters, the notification of a claim, especially the timing, is pivotal to successful recovery under the policy. Suppliers may consider putting their insurance companies on notice that there may be possible claims, even though the details of those claims are not yet known, to ensure that there cannot be any suggestion at a later date that there has been delay in notification. It is unlikely that a contractor will have insurance to cover defective materials.
The other issue for a contractor or an architect or engineer supervising work is whether it had a duty to warn its employer. That issue has vexed the courts in the past. In these days of corporate killing prosecutions, it is not too far fetched to consider that injury or worse caused by a building collapse might lead to criminal liability for those who might be considered to have a duty to warn.
Ashley Pigott is a partner in Wragge & Co in Birmingham