New Guidance on Building Liability Orders

This new ruling provides clarity on how the Courts may treat Building Liability Orders in the future.

What is a Building Liability Order (BLO)?

The Building Safety Act 2022 (BSA) provided the High Court with the power to issue a new remedy, through which the costs of rectifying building safety risks could be obtained from companies which were not directly involved with the original construction. Once ordered, subsidiaries, shell companies or special purpose vehicles (which are often dissolved after the works are complete) as a means to reduce exposure to risk may be jointly and severally liable for remedial costs.

BLOs may be made in relation to a ‘relevant liability’ ; this means a liability incurred:

• under the Defective Premises Act 1972 (DPA) where either workmanship or materials result in a dwelling being unfit for habitation;
• under section 38 of the Building Act 1984 where there has been a breach of building regulations which has caused damage (however section 38 is not yet currently in force); or
• as a result of a building safety risk; i.e., a risk to the safety of people in or about a building arising from the spread of fire or structural failure.

The court will only order a BLO against a ‘specified’  body corporate. A body corporate will be specified only if it is, or was, associated with the original party at any time from the date of the beginning of the works up to the date the BLO is made. A body corporate is associated with another body corporate where one of them is controlled by the other (e.g., holds at least half of the issued share capital or hold at least half the voting rights), or where a third party controls them both. 

Wilmott Dixon v Prater and Others

This case concerned a claim for damages relating to alleged defects in the design and construction of the external walls of a development. Wilmott Dixon was seeking around £47 million from a number of defendants which, they stated in their strategic report with their filed accounts, were focusing on 

"escaping, reducing or deferring liability rather than facing up to their obligations".

Once two of the defendants (Prater Limited and its guarantor Linder Exteriors Holding Limited) were made aware of the potential claim, it was alleged by another defendant (AECOM Infrastructure & Environment UK Ltd) that they underwent restructuring and disposed of their assets to members of the same corporate group to which they belonged so it appeared that they would be unlikely to be able to satisfy a judgment against them. As a result, an additional claim was issued by AECOM for BLOs against the group companies of Linder. 

The BSA is silent about who may apply for BLOs, but the assumption was that it would be the relevant Claimant to the proceedings that would seek the remedy; however, this is the first reported case of a defendant seeking a BLO against associated companies to another defendant to the claim so that all defendants bear their respective responsibility. 

In response, the Linder group companies made an application requesting that AECOM's BLO application was to be heard separately and be stayed pending the judgment of the main claim. It was claimed that the additional claim did not concern all the parties to the main claim and that it would increase costs unnecessarily. Further, it was claimed that the additional claim would be conditional on the main claim, so requiring Linder to defend this additional claim would be unjust.

Judgment 

The Judge rejected the Linder group companies' application. It was found that, while a party seeking a BLO does not have to bring its claim for a BLO at the same time as the primary claim, if it does seek a BLO at the same time then the correct approach would be to hear both claims at the same time. 

It was deemed appropriate to hear both applications at the same time for an number of reasons. For example, the BLO claim will involved consideration of the evidence as that in the main claim, so this would allow a cost-effective means to deal with the claim and prevent duplication of work by the court. Similarly, there is nothing in the BSA to suggest that BLOs can only be sought in the event that the primary defendant was unable to satisfy any judgment against it; therefore, considering both claims at the same time is the sensible approach. 

The Court also noted that the interactions between the group companies did not require any bad faith in order for it to be just and equitable for the imposition of a BLO. Whether or not the restructuring was intended to deprive the defendants of assets, a BLO can still be ordered. 

Key Points

This judgment provides useful new guidance in relation to how BLOs will work in practice. It confirms that BLOs have a wide remit and can be used not just by claimants, but also by co-defendants in a claim.  Also, it appears that BLO applications do not need to be made at the same time as making or responding to a claim. 

This further reinforces the wide scope and power of the BLO as a tool to remediate defective buildings, including medium-rise and tall buildings with fire safety defects arising from the external wall systems. For developers and freeholders, this means the fact that a party that built or designed your building has entered insolvency, been dissolved or holds little to no assets, is not the end of the road. The BSA widens the group of potential defendants by giving you the right to pursue associated parties; that is a hugely significant tool, as the Courts have begun to confirm.

If you have any queries relating to making or responding to a BLO, please contact Mark London or William O’Brien.