Mulalley v Sto: Cladding supplier held primarily liable and parent company caught by Building Liability Order

The recent High Court decision in Mulalley & Co. Ltd v Sto Ltd & Sto SE & Co KGaA [2026] EWHC 1552 (TCC) is an important one for anyone involved in construction, property, or building safety.

The case looks at a very practical issue: who ends up footing the bill when a building turns out to be unsafe because of defective cladding? In this instance, the Court concluded that most of the responsibility sat with the cladding supplier, which was held liable for 87.5% of the loss.  This is something new – suppliers have until now not been the focus of case law or liability.

What happened?

Mulalley was a contractor hired to refurbish a residential tower block, including installing a cladding system supplied by Sto.

After the Grenfell Tower disaster, concerns were raised about the safety of similar cladding systems. The one used on this project turned out to be defective. As a result:

• Mulalley agreed a settlement with the building owner;
• It carried out costly remedial works to remove and replace the cladding;
• It then tried to recover those costs from Sto.

The claim was not brought directly against Sto Ltd because the UK supplier had entered administration. Instead, Mulalley turned to the wider corporate group.

Pulling in the parent company: what is a Building Liability Order?

The Building Safety Act 2022 introduces Building Liability Orders (BLO). In simple terms, they allow Courts to make a related company (like a parent company) responsible for liabilities that would normally sit with another group company.

In this case, Mulalley successfully obtained such an order against Sto Germany (Sto SE & Co. KGaA), making it liable for the obligations of its UK subsidiary. Crucially, the parent company did not take part in the proceedings, leading to a default judgment on liability.  However, the Court still had to decide how much was owed and how responsibility should be shared.

Who's responsible?

The key issue for the court was how to divide responsibility between Mulalley, as contractor and Sto, as the cladding system supplier using the familiar 'just and equitable' test.

The Court held that:

• Sto was held responsible for 87.5% of the loss.
• Mulalley was responsible for 12.5%.

This outcome was driven by the court’s findings that:

• The cladding system was inherently defective.
• It failed to comply with building regulations.
• It had been misrepresented by the supplier.
• The defects made the building unfit for habitation.

The Court concluded that much of the problem lay in the product itself, not just in how it had been installed. Even issues that might usually be attributed to workmanship (such as fire barriers) were traced back to flaws in the system’s design and specification.

The Court’s allocation of 87.5% responsibility to the supplier is higher than typically seen in construction cases, where designers often carry a substantial but slightly lower share of liability. The difference here was that the defects were found to be inherent in the product, combined with the supplier’s significant role in how the system was designed and performed in practice.

In those circumstances, it was considered logical for the supplier to carry most of the blame. This case indicates that manufacturers of building systems may increasingly be treated like designers and held primarily responsible when their products are fundamentally defective.

What does this mean?

This judgment provides several important points of principle for construction professionals, developers, and insurers:

1. BLOs have real force - BLOs are not just theoretical. They can be used to reach parent companies, including those based overseas, and make them directly liable for building safety claims.

2. Default Judgments are not a shortcut on quantum - While a BLO and default judgment may establish liability, claimants must still prove loss, causation, and reasonableness. The Court will carry out a full evidential assessment of damages and contribution.

3. Product manufacturers face significant exposure - this case shows how much risk suppliers can now face. By placing 87.5% of the liability on the cladding supplier, the court made it clear that where something goes wrong because of the design or performance of a product, the manufacturer may end up carrying most of the blame. In practice, this represents a shift in approach, with manufacturers increasingly treated like designers when things go wrong. This has clear implications for how products are tested, marketed, and insured.  It may also lead to more claims against suppliers for contributions, particularly where contractors or other parties are insolvent.

Practical implications

For those operating in the construction industry, the case highlights several immediate practical considerations:

1. Risk management: manufacturers should reassess product testing, certification, and documentation, given the potential for substantial liability exposure.

2. Contract drafting: parties should carefully consider allocation of risk and ensure indemnities and warranties reflect potential BSA liabilities.

3. Insurance: insurers may need to revisit coverage assumptions, particularly in relation to historic cladding claims.

Conclusion

Mulalley v Sto shows important new applications of the BSA and related liabilities and signals a robust judicial approach to holding product manufacturers accountable for defective building materials.

Our specialist construction disputes and dispute avoidance team can assist with all aspects of Building Safety Claims. For more information, please get in touch with Dickon Court or Chloe Wood.