The first Building Liability Order from the TCC...and it wont be the last

In the most recent judgment concerning the dispute between 381 Southwark Park Road RTM Co Ltd and others v Click St Andrews Ltd and another [2024] EWHC 3569 (TCC) The Technology and Construction Court (TCC) has handed down a concise and clear decision granting a Building Liability Order (BLO) against an associated company of the defendant company. The judgment provides some welcome clarity over the court’s approach to BLOs.

Background

• The case concerned defects in and damage to a block of flats at St Andrews House, London (the Property).
• The claimants (a resident’s right to manage company and a number of leasehold owners of flats at the Property) had previously obtained judgment in 2024 against the defendant (freeholder) which included an award of damages and confirmation that structural and fire safety breaches gave rise to a building safety risk as defined under the BSA ([2024] EWHC 3179 (TCC)).
• The defendant freeholder, Click St Andrews Ltd, was a special purpose vehicle, now in liquidation. The claimants therefore sought a BLO against the second defendant, Click Group Holdings, on the basis that Click Group Holdings was an ‘associated company’ within the meaning of the BSA, and that it would be just and equitable for the court to make this order.
• Following a clear summary of the relevant statutory provisions, the TCC granted the BLO against Click Group Holdings with welcome guidance over interpretation of s.130 of the BSA which should help others applying for BLOs in the future.

What is a Building Liability Order?

s.130 of the BSA states that a BLO is an order providing that any relevant liability of a body corporate (the original body) relating to a specified building, is also a liability of an associated company – being a company which is or has at any time in the relevant period been associated with the original body. The High Court may make a BLO if it considers it just and equitable to do so.

For this purpose:

• "relevant liability" means a liability under the Defective Premises Act 1872 or s.38 of the Building Act 1984 or, as was found here, is as a result of a building safety risk, being a risk to the safety of people in or about the building arising from the spread of fire or structural failure.
• The "relevant period" is widely defined as any time from when the building works started up to the date the BLO is made.
• A company is associated with the original body if a) one of them controls the other, or b) a third company controls both of them. A company can be regarded as controlling another if it has the power, directly or indirectly, to secure that the affairs of the other company are conducted in accordance with its wishes.

So in summary, if a claimant can show that it has suffered a "relevant liability", it may be able to obtain a BLO against a company previously and/or currently associated with the original body, even if it has no contractual tie to that associated company and would therefore normally be precluded from bringing a claim to recover damages from that associated company. This is of particular importance where the original company may be insolvent or otherwise not hold sufficient resources to meet a claim.

What did the court decide?

1. Relevant liability – in the previous judgment the TCC had found that there was a relevant liability in that there was inadequate fire protection within the building and issues with the structural adequacy of certain beams which support the upper storey of the Property.

2. Associated company – the court found that there was no real issue in finding that Click Group Holdings was an associated company of Click St Andrews. Click St Andrews was a wholly owned subsidiary of Click Above Limited and Click Group Holdings held all of the shares of Click Above Limited. Therefore, due to the corporate structure, Click Group Holdings was able to secure that the affairs of Click St Andrews Limited were conducted in accordance with it wishes.

3. Just and equitable – the court considered the 2024 case of Triathlon Homes LLP where the First Tier Tribunal (FTT) considered these words in the context of a remediation contribution order. Although in a slightly different context, the court found that the FTT’s comments were relevant, and in particular quoted the following "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."

In this case, Click St Andrews was a special purpose vehicle, set up specifically to acquire the freehold of the property and in due course to develop the top floor and then divest itself of the freehold. As the court commented ‘it was inevitably thinly capitalised and dependant on inter-company or inter-group loans for its financial wellbeing’. While Click Group Holdings was not a "wealthy parent" and there was considerable doubt as to the financial standing of Click Group Holdings, the court agreed with the claimants that when considering whether it was just and equitable to grant the BLO, the emphasis should be on the financial position of the first defendant original company, rather than on the parent company.

4. Opportunity for a fair trial? - Click Group Holdings had previously argued that it was not just and equitable for the order to be made as it had not had the opportunity to a fair trial on the basis that:
   1. the relevant liability arguments ought not to be allowed because there was no expert evidence in relation to the fire safety and structural matters relied upon. The court found this was a bad argument, and the architectural expert gave evidence in this regard, and
   2. it had been deprived of the opportunity to cross-examine specifically on whether there was a building safety risk under the BSA. The court again found this was a bad argument as in this case, the nature of the risks was straight forward being inadequate fire protection and insufficient load bearing capacity of beams. Nothing was identified that could have suggested by way of expert evidence that those did not pose a risk to safety of people from spread of fire or structural failure, which reflected the definition of a building safety risk.

The court found that Click Group Holdings had been a party to the trial and did have a fair trial.

5. Party not identified in pleadings - Click Group Holdings had also argued that it would not be just and equitable to make the BLO because at the time the BLO was pleaded, no party was identified against whom the order would be sought. The court confirmed that the BSA does not require a party to be identified in pleadings or joined into pleadings before a BLO is made. The court noted that where it is known that an application will be made against a specific party, it is sensible to join them into the ongoing proceedings to ensure that all issues are dealt with, but that does not preclude the seeking of a BLO against a party not joined. Although in this case, the court noted that Click Group Holdings was a party to the proceedings in any event.

For the reasons given above, the court granted the BLO against Click Group Holdings.

One final issue was the level of liability to be included in the order. The court did not quantify the liability of the defendants and concluded that the BSA did not require the court to identify the extent of the liability under the BLO in monetary terms and to make an order in a specific amount. The court instead granted the BLO to provide that the relevant liability of Click St Andrews to the leaseholders, as set out in the previous judgement, was also the liability of Click Group Holdings to the same leaseholders.

Key takeaways

• The court is likely to closely follow the wording and intention of the BSA when considering its discretion to grant BLO applications.
• It is not necessary to name the entity against whom the BLO may ultimately be requested, but if known, it is good practice to join them into the underlying proceedings as soon as possible.
• The financial standing of the associated party is unlikely to be a factor when considering whether to grant the order.
• The court has confirmed by making this order that associated companies cannot "hide" behind the separate personality of the original development company and the court is willing to exercise its discretion to grant a BLO where there is a relevant liability, an associated company and the claimant can satisfy the just and equitable requirements.