Natalie Pilagos
- Partner
- Construction
The Technology and Construction Court (“the TCC“) has made what appears to be the first-ever Building Liability Order (BLO) under the Building Safety Act 2022 (the “BSA”), marking a significant development in building safety litigation.
The BSA was enacted to improve building safety standards and accountability. A BLO is an order that the TCC can make to in effect pierce the corporate veil and hold associated corporate bodies accountable for building safety risks – even if not apparently at fault. The idea is to ensure that those who can pay for building safety remediation do pay. The property and investment industries will therefore need to be aware of the risks BLOs can pose.
The Facts
381 Southwark Park Road RTM Company & Ord v Click St Andrews Ltd & Anor is a two part decision by Jefford J with the first instalment dealing with the substantive claim for defective work and the second instalment dealing with the application for a BLO after the main trial had concluded.
The case related to a residential block in South London, St Andrews House, 381 Southwark Park Road. The residents “Right To Manage” (“RTM”) company and a series of leaseholders brought the claim against the freehold owner at the time and developer, Click St Andrews Limited (in liquidation), a special purpose vehicle (SPV). Click St Andrews is a wholly owned subsidiary of Click Group Holdings Limited.
The court found that Click St Andrews was liable for building safety risks due to structural inadequacies in certain beams supporting the upper storey. It also ruled that Click Group Holdings, as the ultimate parent company, controlled Click St Andrews and should therefore bear liability under a BLO.
In reaching this decision, the TCC provided some helpful guidance on the test for a BLO which can be summarised as establishing 1) a relevant liability 2) that the target is an “associated body corporate” and 3) that it is just and equitable to make the BLO.
Relevant Liability
The first part of the test for a BLO under s 130 of the BSA is whether there is a “relevant liability”.
This can be a claim under the Defective Premises Act 1972 (s 130(3)(a)) or a “building safety risk” (s 130(3)(b)) i.e. “a risk to the safety of people in or about the building arising from the spread of fire or structural failure”.
This was an unusual situation where the RTM had entered into a contractual arrangement with the defendant, a Freehold Purchase Agreement dated 26 February 2020. The presence of this contractual arrangement was key to the decision.
Jefford J held that the inadequate fire protection and structural inadequacy of certain beamswithin the building gave rise to breaches of certain clauses of the Freehold Purchase Agreement which in turn gave rise to a building safety risk and a relevant liability for the purposes of section 130(3)(b) for the RTM. Jefford J was also satisfied that these matters amount to a breach of the covenant of quiet enjoyment the leaseholders were entitled to.
The court also considered Section 2A of the Defective Premises Act which provides for a duty to individual owners of flats in respect of work taken on for or in connection with the provision of a dwelling. However, as this section came into force on 28 June 2022 and was not retrospective, it could not be relied upon in respect of work carried out before that date. The leaseholders could not rely on this as their basis of claim.
Association and the just and equitable test
The case involved a relatively simple corporate structure with a single UK-based parent company. The court therefore did not need to conduct a detailed analysis of how the “association” test applies in more complex international corporate structures. Jefford Jwas quickly able to conclude that Click Group Holdings met the test.
The BSA contains no guidance as to when the court can exercise its discretion to make a BLO – simply stating that it can do so if it considers it just and equitable to do so.
The judge noted the way that the FTT applied the “just and equitable” test from Triathlon Homes LLP v Stratford Village Development Partnership [2024] UKFTT 26 (PC), which emphasised that BLOs are designed to prevent corporate groups from evading liability through complex corporate structures:
“The obvious purpose behind the association provisions is to ensure that where a development has been carried out by a thinly capitalized or insolvent development company, a wealthy parent company or other wealthy entity which is caught by the association provisions cannot evade responsibility for meeting the cost of remedy in the relevant defects by hiding behind the separate personality of the development company.”
Jefford J held that Click St Andrews was a thinly capitalised SPV making it an ideal candidate for a BLO. However, there was some uncertainty about whether Click Group Holdings was a “wealthy parent”. The court ultimately found that financial strength was not the decisive factor, control was.
The Triathlon case has just been heard in the Court of Appeal and there may be further guidance on the “just and equitable” test then – in as somewhat more factually complex situation than was the case in Click.
Confusion Over the Procedure for Obtaining a BLO
A key strategic consideration for claimants is whether to join a parent company as a party at an early stage. If the parent company is added to proceedings, it can be compelled to participate in alternative dispute resolution (ADR), including mediation. This is particularly relevant in light of the Supreme Court’s decision in Churchill v Merthyr Tydfil [2023] UKSC 28, which confirmed that courts have the power to order parties to engage in mediation, even without their consent.
There remains a lack of clarity on the correct procedural route for seeking a BLO. The judgment acknowledged this uncertainty, noting that the BSA does not require a company to be identified or joined to proceedings before a BLO is made.
“Before the order is made, the relevant body corporate must be specified but it does not follow that the associated company must be named or specified in the substantive proceedings.”
However, the court reiterated that where it is already in contemplation that an order will be sought against a particular associated company, it would be “sensible and efficient for that claim to form part of what might be called the main proceedings“. This did not however, preclude a subsequent claim for a BLO against some other associated company.
Conclusion
This judgment is significant as the first known BLO under the Building Safety Act 2022, but key uncertainties remain. It is clear that the TCC is prepared to exercise its discretion to give effect to the purpose of the BSA. However, it is assumed that there will be circumstances where the TCC will decline to exercise its discretion to grant a BLO otherwise on one analysis, the just and equitable test would have no purpose. We are yet to see where the high watermark of BLOs will lie but perhaps the Court of Appeal will apply some guidance in the Triathlon case in the near future. Future cases involving offshore companies or intricate ownership chains may prove more complex and require further judicial guidance.
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