For contractors working across Essex, Kent and London, the recent Mullalley & Co Ltd v Sto Ltd & Sto SE & Co KGaA [2026] EWHC 1552 (TCC) judgment is important for two reasons.
First, it shows that a contractor with design-and-build responsibility may still recover most of its remediation costs from a manufacturer or supplier whose product was found to be inherently defective.
Second, it confirms that a corporate structure will not necessarily prevent recovery. Through a Building Liability Order, the liability of an insolvent UK company was passed to its German parent, even though that parent was not involved directly in the Parkside Court works in Chelmsford.
The case is a useful companion to recent Building Safety Act decisions, but this time the practical message is aimed squarely at contractors: when a building safety problem arises, the supply chain may provide a substantial recovery route.
What happened at Parkside Court?
Chelmer Housing Partnership engaged Mulalley to design and build refurbishment works at Parkside Court, a residential tower block in Chelmsford, Essex. The project included a new podium containing 27 flats, refurbishment of the existing 54-flat tower and the design and installation of external cladding.
Mulalley subcontracted the cladding works and specified the StoTherm Classic system, supplied by Sto Ltd.
Following the Grenfell Tower fire and the wider review of external wall systems, Chelmer identified serious problems with the cladding. The system was found not to comply with the functional requirement in Building Regulations B4(1) or regulation 7. The apartments were consequently considered unfit for habitation.
Mulalley settled with Chelmer in December 2022. Under that settlement, it agreed to remove and replace the defective cladding and pay additional sums. Mulalley then sought a contribution from Sto Ltd under section 149 of the Building Safety Act 2022.
Sto Ltd subsequently went into administration in January 2025. That created a practical problem for Mulalley because claims against the company became subject to the statutory moratorium. The company’s German parent, Sto SE & Co. KGaA, was therefore pursued through a Building Liability Order under section 130 of the Act.
Sto Germany did not defend or participate in the proceedings. A default judgment was entered in December 2025, but the court still required Mulalley to prove the amount of its loss. As Mr Justice Pepperall’s decision makes clear, a default judgment establishes liability, but it does not automatically establish the value of the claim.
How did the court assess the claim?
The court considered four practical questions:
- What costs had Mulalley actually incurred?
- Which costs were caused by the defective Sto system?
- Were the costs reasonably incurred?
- What contribution was just and equitable, taking account of each party’s responsibility?
Mulalley’s total gross costs were initially put at approximately £3.73 million. After reviewing the evidence, including subcontractor costs, preliminaries, consultancy fees and legal costs, the court accepted total costs incurred of £3,431,633.53.
However, the remedial works went beyond the work strictly required to remedy the defective render system. The court therefore separated costs caused by the Sto system from other work. After further reductions, the reasonable costs attributable to the defective cladding were assessed at ÂŁ2,025,499.62.
This is a point contractors should take seriously. Even where a supplier is clearly at fault, recovery depends on evidence. Contractors need to retain contracts, specifications, drawings, inspection records, invoices, expert reports, settlement documents and records showing why the chosen remediation was necessary.
The court was also realistic about the difficult conditions in which remediation decisions are made. It relied on the approach taken in Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC), where the court noted that it is generally reluctant to criticise remediation expenditure with the benefit of hindsight, particularly where safety is involved.
That does not mean every cost will be accepted. It means a contractor acting responsibly, efficiently and on professional advice is less likely to be criticised simply because another technical option might later be suggested.
Why was Sto held 87.5% responsible?
Mulalley argued for a 90% contribution. The court awarded 87.5%, leaving Mulalley with the remaining 12.5% of the relevant loss.
That produced a judgment of ÂŁ1,772,312.17 plus interest against Sto Germany.
The percentage was assessed under section 2(1) of the Civil Liability (Contribution) Act 1978. The test is whether the contribution is “just and equitable”, having regard to the extent of each party’s responsibility for the damage.
Mulalley was the main contractor and had responsibility for design and construction. That did not, however, make it responsible for the majority of the loss. The court found that the liability findings included that:
- Sto had supplied a cladding product that did not comply with the Building Regulations.
- The StoTherm Classic system was inherently defective.
- Sto had made misleading statements about the system.
- Those matters caused the apartments to be unfit for habitation.
- The Sto product was the principal reason why the remedial works were required.
Mr Justice Pepperall considered that an architect might commonly receive a contribution assessment of between 67% and 80% for a design breach. In this case, the combination of an inherently defective product, misleading compliance statements and the product’s central role in the remediation justified the higher figure.
For contractors, this is a significant recovery principle. Design responsibility does not automatically mean that the contractor must carry the main financial burden where the underlying product itself was unsafe and promoted as suitable.
Corporate structures are no longer a complete shield
The Building Liability Order is equally important.
A BLO can extend certain building safety liabilities from one company to an associated company where the court considers that making the order is just and equitable. In this case, Sto Ltd’s liability was passed to its German parent.
The practical lesson is not that every parent company will automatically be liable for the debts of a subsidiary. That would be too broad. The lesson is that a parent or associated company cannot assume that separation of corporate entities will always prevent a claim, particularly where a UK operating company is insolvent and the wider group remains capable of meeting the liability.
This matters to contractors dealing with manufacturers, distributors and specialist subcontractors in international groups. When a serious defect emerges, it is worth identifying:
- The exact contracting entity.
- The manufacturer and supplier behind the product.
- Any parent or associated companies.
- The location of relevant assets and records.
- Whether the company has entered administration or another insolvency process.
- Whether a Building Liability Order or another recovery route may be available.
These are legal questions for construction solicitors, but they should be raised early. Delay can make evidence harder to obtain and limitation issues more complicated.
What does this mean for construction insurance?
The judgment does not mean that an insurance policy will automatically pay a contractor’s contribution claim. Cover depends on the wording, the insured activity, the policy period, exclusions, notification requirements and whether the alleged liability falls within the relevant insuring clause.
It does, however, highlight why contractors and manufacturers need insurance arrangements that reflect the way modern construction disputes actually develop.
For contractors, Construction Contractor Insurance should be reviewed alongside:
- Public and General Contractor Liability Insurance.
- Products liability cover where the business supplies, distributes or installs products.
- Professional indemnity insurance where the contractor designs, specifies or advises on systems.
- Contract works and non-negligent damage cover where appropriate.
- Employers’ liability insurance.
- Legal expenses and access to specialist claims support.
- Cover for work carried out across Essex, Kent, London and other required territories.
Our General Contractor Insurance Brokers explain that contractor packages can include employers’ liability, public liability, products liability, contract works, hired-in plant, tools, goods in transit and failure to perform, depending on the business and the policy selected.
Manufacturers and suppliers should also review their products liability and professional indemnity exposures. A product liability claim may arise many years after the product was supplied, and the financial impact can include investigation, legal costs, remediation contributions and settlement payments.
Cross-border groups should not assume that the UK subsidiary’s policy is sufficient. The group structure, contractual arrangements, territorial limits and applicable law all need to be considered.
Five checks contractors should make now
1. Review your supply contracts
Check contribution clauses, indemnities, limitations of liability, insurance obligations and governing law. Do not assume a short-form subcontract gives you meaningful protection against a major product failure.
2. Preserve technical evidence
Keep the specifications, product literature, compliance statements, test information, approvals, emails and meeting records that influenced the design decision. These may become central to proving causation.
3. Check your contractual and statutory recovery rights
Review collateral warranties, third-party rights, manufacturer warranties and potential claims under the Building Safety Act. A contribution claim may be available even where you have already settled with the building owner.
4. Notify insurers early
Potential building safety claims can develop slowly. Notify relevant insurers as soon as a circumstance may give rise to a claim, while avoiding unnecessary admissions of liability. Late notification can create avoidable coverage problems.
5. Test the policy against the work you actually do
If you design, specify, supply, alter or install external wall systems, make sure the insurer knows. The policy should reflect your real activities, not simply the broad description “general contractor”.
The practical takeaway for Essex, Kent and London businesses
The Mulalley v Sto judgment is a reminder that contractors should not treat remediation liability as the end of the process. A contractor may have to settle with its client first, but that does not necessarily mean it must absorb the full loss.
Where a manufacturer supplied an unsafe product and made misleading statements about compliance, the manufacturer may bear the majority of responsibility. If the UK entity is insolvent, a Building Liability Order may provide a route to pursue an associated or overseas parent.
At the same time, recovery depends on preparation. Strong records, carefully drafted contracts, prompt insurance notification and appropriate liability and professional indemnity cover all matter.
At Moyak Insurance Services, we take an individual approach to business insurance. We work with growing businesses and established contractors across Essex, Kent and London, using leading master insurance brokers to find cover that matches the work you undertake and the risks you face.
If you are a contractor, manufacturer or supplier, now is a sensible time to review your arrangements. Contact Moyak Insurance Services for a practical insurance review and discuss your Business Insurance Essex or Business Insurance London requirements with our team.
This article is for general information only and is not legal advice. Construction businesses should obtain specialist legal advice on any potential claim or Building Liability Order, and professional advice on the suitability of their insurance arrangements.
Frequently asked questions
What was decided in Mullalley v Sto?
The Technology and Construction Court awarded Mulalley a contribution of 87.5% of the reasonable remedial costs attributable to the defective StoTherm Classic cladding system. The award was ÂŁ1,772,312.17 plus interest.
Can a contractor recover costs from a manufacturer?
Potentially, yes. The contractor must establish the manufacturer’s legal responsibility, causation and the amount of loss. The court will then decide what contribution is just and equitable based on each party’s responsibility.
Can a Building Liability Order reach an overseas parent company?
A Building Liability Order can extend certain building safety liabilities to an associated company, including an overseas parent, where the statutory requirements are met and the court considers the order just and equitable. It is not automatic and requires proper legal analysis.
Does General Contractor Liability Insurance cover a defective cladding claim?
Not necessarily. Cover depends on the policy wording, the insured activities, exclusions, notification provisions and the nature and timing of the alleged liability. Contractors should review public liability, products liability, professional indemnity and contract works cover together.
What insurance should construction contractors review?
Contractors should review Construction Contractor Insurance, public and General Contractor Liability Insurance, products liability, professional indemnity, employers’ liability, contract works, hired-in plant, tools and business interruption cover where relevant. The appropriate combination depends on the business and its contracts.