Helen Stuart and Alexandra White review the first judgment on building liability orders – a new route for suing bodies associated to those involved in the defective design and construction of buildings under the Building Safety Act.
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What is a BLO?
A BLO is a remedy that was brought in by the BSA which essentially pierces the corporate veil and extends liability to certain group companies in respect of specific liabilities incurred by another group company. These liabilities are:
- A claim under the Defective Premises Act 1972;
- A claim under section 38 of the Building Act 1984 (not yet in force); or
- Any liability incurred as a result of 'building safety risk', which is defined as a risk to people in the building arising from fire or structural failure.
The BSA provides that a person can make an application to the High Court for a BLO:
- against a company 'associated' with the originally liable entity; and
- the court can order the BLO if it is 'just and equitable' to do so.
The BSA sets out which companies would be 'associated' with the originally liable party, and they will be 'associated' if one controls the other or a third body corporate controls both of them. It would therefore include parent, sister and subsidiary companies. However, there is no guidance in the BSA as to what the court will consider when deciding whether a BLO would be 'just and equitable'.
The remedy was brought in by the government to meet concerns that many developers use special purpose vehicle (SPV) companies to develop properties and then liquidate or dissolve them once the development is complete, thereby potentially avoiding liability for defective works.
Case background
Willmott Dixon has brought claims against its supply chain for £47m in order to recoup remedial costs incurred in rectifying alleged fire safety defects in external walls, following their settlement with Tesco in relation to the development of a site at Love Lane, Woolwich, London.
The claim was brought against a range of defendants, including the specialist envelope sub-contractor and its guarantor Prater Limited (Prater), and Lindner Exteriors Holding Limited (Lindner). All of the defendants denied liability and there are various contribution claims between defendants, including between Aecom (the building services engineers) and Prater and Lindner.
During this claim, Aecom alleged that both Prater and Lindner had, after being notified of the claim, moved their assets to related companies, and the current financial positions of both companies now meant both were unlikely to satisfy any judgment against them in the proceedings.
Aecom therefore sought to add an additional claim in the proceedings to bring a BLO against those related companies, who had not been involved in the design or construction of the works, and some of whom were located outside of the UK, but who were companies 'associated' to the defendants. This was to ensure that should the proceedings be decided in favour of Willmott Dixon, there was contribution from all the defendants, including the related companies holding the assets.
The related companies sought an order that the claim for the BLOs was to be heard separately and to be stayed until the main claim was resolved, arguing it was unfair to deal with this until the liability of Lindner and Prater was determined.
The decision
The court rejected the application for a stay. Mrs Justice Jefford held that:
- A BLO does not need to be brought at the same time as the primary claim against a related company.
- However, if a BLO was claimed before the main claim was decided, the correct approach would usually be to hear and deal with the BLO at the same time as the main claim.
- While BLOs could raise separate issues to those in the main claim, resolving them would consider much of the same evidence. It therefore would not be sensible for the Court to deal with those after the main claim as it may have to review the issues more than once or require further evidence on the same or similar issues.
- Although BLOs are contingent on the underlying liability, such contingent claims are frequently seen in litigation, for example, claims for contributions or claims under guarantees.
- A failure to pay the underlying claim was not a pre-condition to entitlement to a BLO under the BSA.
Furthermore, although not noted in the judgment, we understand that the Judge noted that a BLO may be imposed even where the primary company had not disposed of assets due to the claim being brought but for some other innocent reason.
Given that the application for the stay was rejected, whether the BLO will be granted against the associated companies will now be determined in the main proceedings.
Commentary
This is the first judgment we are aware of giving guidance on ordering BLOs, which the Judge described as a 'relatively new creation' with little, if any, guidance.
It is interesting to note that this case concerned a defendant seeking a BLO against associated companies to another defendant. While previously it has been thought that BLOs are a remedy for claimants to rely on, this case makes it clear that another defendant may be able to add BLOs to the proceedings to ensure that if there is liability, associated companies are on the hook to contribute.
It also helpfully clarified that BLOs could be brought prior to the decision in relation to the main claim and indeed it will usually be sensible and efficient to do so.
Helen Stuart is a partner and Alexandra White is an associate at Trowers & Hamlins.
This article was updated on 19 July 2024.
