Government success with a Remediation Contribution Order

In the case of Secretary of State for Housing, Communities and Local Government v EDR Builders (1) Hollybrook (UK) Limited (2) LON/00BB/BSB/2024/0011 the First Tier Tribunal (‘FTT’) recently granted a Remediation Contribution Order (‘RCO’) in favour of the government for reimbursement of sums paid out by the government’s Building Safety Fund to rectify defective works in connection with the Building Safety Act (2022) to the tune of c.£3.6 million. This case is useful as it builds on the body of FTT decisions available in relation to when and under what circumstances an RCO may be granted and provides guidance on a number of issues which may commonly arise when considering making or responding to an RCO application.

Background

• The application related to two residential blocks connected by balcony deck access walkways, known as Hallings Wharf Studios, London.
• The Secretary of State (‘SoS’) provided funding (via payments from the Building Safety Fund) to the current leasehold company, Halling Wharf RTM Company Limited (‘RTM’), to enable it to execute remedial works in respect of alleged fire safety defects. The works were completed in the sum of c.£3.6 million.
• The SoS made an application for a RCO against both the original developer (EDR Builders) and an associated company of the original developer (Hollybrook). The original developer went into liquidation in 2018 and the claim against them was stayed. The RCO application proceeded against the associated company, Hollybrook.
• The FTT confirmed that the SoS was an interested person under the BSA, capable of bringing an ROC application and that Hollybrook was an associated company of the original developer, for the purposes of the application.

Key points of interest

Hollybrook raised a number of arguments in opposition to the RCO, on the basis that in summary: the remedial works were overengineered, for various reasons it would not be just and equitable to make an RCO and alternatively any RCO should be for a lower sum than claimed by SoS. Some of the arguments made were case specific, but below I have set out a few of the more general points considered as part of the application, which may provide useful guidance to parties who may be considering making or defending an RCO application in the future.

Defects and fire safety risk

The tribunal found that it was not necessary or relevant to determine the presence of a ‘defect’ first before assessing the building safety risk for the purposes of the BSA. The tribunal also pointed to the earlier decision of the Upper Tribunal in Edgewater (Stevenage) Limited & Ors v Grey GR Limited Partnership (Vista Tower) [2026] UKUT 18 (LC) (‘Vista Tower’) where the tribunal found that a ‘risk’ does not refer to any particular level of risk, it refers to any risk.

Furthermore, the FTT did not accept that whether something is a defect should be assessed by reference to the Building Regulations in existence at the time of construction. This follows the decision in Vista Tower and confirms that compliance with relevant Building Regulations at the time of construction will not necessarily be a defence to a claim under the BSA. The FTT noted that it is possible for a building to have complied with the relevant Building Regulations, but to still be deemed to be a risk to the health of people in or around the building. 

These are potentially problematic issues for developers and their supply chain by creating potential liability for a risk that would not have been envisaged at the time of construction. This could also affect insurance, where e.g. professional indemnity insurance would usually respond to claims for negligence. But if a design complied with Building Regulations at the relevant time, this would presumably not be negligent, and therefore such insurance is unlikely to respond.

We have not seen much on this in the BSA cases that have come through the tribunal and the courts to date, but it is undoubtedly an issue that will arise in due course, when claims start to flow from developers down the supply chain to contractors and designers. We will need to wait to see how this issue is treated by the tribunal and the courts in due course.

Overengineered remedial works

Hollybrook raised several arguments regarding the extent of the remedial works and put forward expert evidence to support their contention that a remedial scheme could have been carried out more cheaply. The key question the court asked here was ‘if a scheme of works is within the range of reasonable responses, should a RCO nevertheless be limited if and to the extent that works could have been carried out more cheaply?’.

The tribunal agreed with SoS that ‘the fact that a remedial scheme could have been done more cheaply does not mean that it should have been.’ The FTT went on to confirm that, although there was no direct authority in relation to this matter in connection with interpretation of the BSA, the principle applied to other types of remedial claims still held, so that as long as the works were within the range of reasonable responses, it did not matter whether an alternative scheme might have addressed the risk at a lower cost.

In this particular case, the tribunal found that there were doubts as to the adequacy of Hollybrook’s alternative scheme and in the light of this uncertainty, it would be appropriate to adopt a cautious approach. However the FTT noted that in any event, the key point was that the remedial works carried out were in the range of reasonable responses and therefore even if they could have been carried out more cheaply, this was not a reason to limit the value of the RCO. 

This decision suggests that as long as a remedial scheme is within the range of what the tribunal consider to be a reasonable response, the paying party will be able to recover the full value of the relevant remedial works under an RCO, even if it was not the cheapest option available. It is also worth noting that the fact that RTM had taken professional advice at all stages of the remedial design was a point in SoS’s favour as to the remedial scheme being within a reasonable range of responses.

Litigation costs

SoS made a late application to recover its costs of the RCO application, including e.g. legal and expert costs, which came to c.£1 million. The FTT considered whether it had jurisdiction under the BSA to award litigation costs in respect of an RCO application.

SoS made various arguments as to why litigation costs should be recoverable under s.124(2) of the BSA as ‘costs incurred or to be incurred….in connection with relevant defects’  on the basis that, although the legal costs have not been directly incurred in remedying the relevant defects, they had clearly been incurred ‘in connection with’ those defects. Hollybrook contended that the tribunal did not have jurisdiction to include litigation costs within an RCO, as the FTT is generally a no costs jurisdiction and the legislation does not refer to such costs as being recoverable in the illustrative examples given of the types of costs recoverable under an RCO.

The FTT considered the arguments but concluded that on construction of the legislation terms as drafted, litigation costs were not recoverable as part of an RCO in a case such as this. The tribunal further commented that even if it were wrong as to its jurisdiction to award litigation costs, they would not have considered it just and equitable to do so in this case, where SoS’s application to include litigation costs was very late during the proceedings and Hollybrook had obviously conducted the litigation on the clear understanding that costs recovery was not in issue between the parties.

A point to note that is that SoS had relied on the earlier FTT decision in the case of Empire Square (LON/00BE/HYI/2023/0013 and LON/00BE/BSB/2024/0602) where litigation costs were included in an RCO. The FTT in this case distinguished the decision in Empire Square on the basis that the Empire Square case involved applications for a Remediation Order (‘RO’), as well as an RCO, and the tribunal in that case had commented that the claimant had to make the application for the RO and the RCO to achieve remediation of the building. Therefore, the costs were incurred during an application which was made ‘in connection with’ remediating a building. This was different to the present case, where the building had already been remediated, and the litigation costs incurred in this case were for reimbursement of sums paid, not to achieve remediation of the building.

This seems a fine distinction and if applied moving forwards, would appear to penalise the party carrying out remedial works (or in this case, funding the carrying out of remedial works) and then claiming for sums paid from another party, as opposed to a party making an application for works to be directly funded and/or carried out by another party. FTT decisions are not binding on future tribunals and in this case, the tribunal had obviously decided that even if it were wrong on the jurisdiction point, it would not be just and equitable to award litigation costs due to the actions of the SoS in the litigation process in any event. But it will be interesting to see if and how this issue is dealt with in future RCO claims, particularly where the just and equitable point does not apply.

Just and equitable

Speaking of ‘just and equitable’, the FTT finally had to determine whether it would be just and equitable to award the RCO under s.124(1) of the BSA. The legislation simply states that an RCO may be made where the tribunal ‘considers it just and equitable to do so’. The extent of this test has already been the subject of comment in the Vista Tower case, where the Upper Tribunal determined that it is not appropriate to impose any factors which may limit this test, and that this would be determined on a case-by-case basis.

In this case, it was accepted that Hollybrook was an associated company of the original developer, EDR Builders for the purposes of the BSA. SoS had argued that it was just and equitable to make the RCO as the association between Hollybrook and EDR Builders was a close one, with the companies being owned and controlled by members of the same family. Hollybrook argued that the respective positions of EDR Builders and Hollybrook were ‘materially distinguishable’ and Hollybrook did not have any contractual claims which would enable it to pass down any liability.

However, no evidence was put forward by Hollybrook in support of its arguments. In the absence of any contrary evidence, the FTT found that it was just and equitable to make an RCO against Hollybrook, given its connection to EDR Builders as submitted by SoS.

Key takeaways

Although FTT decisions do not establish legal precedents and are not binding on future tribunals or courts, the reasoning set out by the tribunal judges is likely to have weight with future cases of a similar nature and is a useful guide to parties considering making or responding to future RCO applications where similar issues may arise.

In this case, some key points to note arise from the above in relation to RCO applications under the BSA, including:

• It is enough to establish that there is a fire safety risk without needing to first find a ‘defect’.
• The fact that the works may have complied with Building Regulations at the time of construction is not an automatic defence to the claim, where there is a current fire safety risk.
• Where the remedial works fall within the range of a reasonable response, the fact that a cheaper remedial scheme may have done the job, is unlikely to succeed as an argument to limit or reduce the value of the RCO.
• On the face of it, litigation costs do not appear to be recoverable for an RCO application where remedial works have already been carried out, or the RCO application itself is not made to achieve the carrying out of remedial works. In any event, a party wishing to recover litigation costs in an RCO would be well advised to include these costs at an early stage and make it clear to the tribunal and the RCO defendant(s) that it will seek to recover these costs, so as not to fall foul of the ‘just and equitable’ test.
• If a party wishes to raise arguments against the RCO being just and equitable, it should include appropriate evidence for consideration by the tribunal. Otherwise, its arguments are unlikely to carry much, if any, weight.