Introduction
In one of our recent legal update we discussed the judgment of Mrs Justice Jefford DBE in the case of 381 Southwark Park Road RTM Company Limited & Others v Click St Andrews Limited (in Liquidation) & Another [2024] EWHC 3179 (TCC) in which a "relevant liability" had been found for the purposes of section 130 of the Building Safety Act 2022 ("BSA"). At the end of that article it was noted that a BLO had subsequently been made in that same case at the end of last year, with an ex tempore judgment being handed down. A transcript of that later judgment has now become available (381 Southwark Park Road RTM Company Limited & Others v Click St Andrews Limited (in Liquidation) & Another [2024] EWHC 3569 (TCC)), and is the subject of this article.
The First BLO
In its earlier judgment the Court had found that Click St Andrews Ltd (a "SPV" - Special Purpose Vehicle that was being used for a single development) had incurred relevant liabilities in respect of a building safety risk arising due to inadequate fire protection and to structural inadequacies in certain beams that were supporting the upper storey of the property.
On 19 December 2024 the Court heard the Claimant leaseholders' application for a BLO (under s.130 of the BSA) in respect of Click St Andrews Ltd's "relevant liability". The BLO was sought against Click Group Holdings Ltd (the ultimate parent company), on the basis that company was a company "associated" with Click St Andrews Ltd in accordance with the provisions of s.131 of the BSA.
The Court found that Click St Andrews Ltd was a wholly owned subsidiary of another company, Click Above Ltd, and that Click Above Ltd was itself a wholly owned subsidiary of Click Group Holdings Ltd. The controlling or directing mind of those companies was determined to be the same individual (who had in fact appeared at the earlier trial on behalf of Click Group Holdings Ltd). As a result, the Court held that Click Group Holdings Ltd exercised control over Click St Andrews Ltd, and therefore it had no hesitation in finding that Click Group Holdings Ltd was an associated company of Click St Andrews Ltd.
Was it just and equitable to make a BLO?
In light of the Court's finding of a relevant liability on the part of Click St Andrews Ltd, and that the claim for a BLO was being advanced against a company associated with Click St Andrews Ltd, the Court's attention therefore turned to whether it was "just and equitable" to make a BLO pursuant to s.130 of the BSA.
In construing the phrase "just and equitable" the Court considered a recent decision of the First Tier Tribunal (Triathlon Homes LLP and Stratford Village Development Partnership [2024] UKFTT 26 (PC)) relating to remediation contribution orders, in which that same phrase (which also appears in s.124 of the BSA, relating to the new jurisdiction to make Remediation Contribution Orders) had been considered. Whilst the Court agreed with the FTT that there was no guidance as to how these new powers should be used, both were also agreed that the powers need to be exercised having regard both to the purpose of the BSA and to all relevant factors.
The Court quoted from the FTT's judgment that:
"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 remedying the relevant defects by hiding behind the separate personality of the development company."
In that light, the Court commented that:
"This case seems to me to have similarities [to Triathlon Homes LLP] … in that Click St Andrews, to whom the relevant liability attaches, was a special purpose vehicle whose sole existence was to acquire the freehold of the property, in due course to develop the top floor of the property, and then to divest itself of the freehold as it sought to do through the Freehold Purchase Agreement. It was inevitably thinly capitalised and dependent on inter-company or inter-group loans for its financial wellbeing. "
Whilst there were doubts expressed as to the financial standing of Click Group Holdings Ltd, the Court stressed that when considering the making of a BLO, emphasis should be placed only on the financial standing of the liable party (i.e. Click St Andrews Ltd itself), and not that of any other entity. The Court ultimately determined that it was just and equitable to make the BLO, sharing the relevant liabilities of Click St Andrews Ltd with Click Group Holdings Ltd.
Whilst in this instance the target company, Click Group Holdings Ltd, had been a party to the substantive proceedings, the Court stressed that need not always be the case when seeking a BLO (albeit noting that it would be sensible to join the potential BLO target company to the substantive proceedings if possible).
The Court was also clear that the BLO was only made in respect of the specific relevant liability that had been found against Click St Andrews Ltd – the BLO would not extend to all of the leaseholders' claims against Click St Andrews Ltd, as some of those claims did not themselves give rise to a relevant liability; that is to say claims that do not relate to a risk to the safety of people in or about the building arising from the spread of fire or structural failure cannot be the basis of a BLO. S.130 of the BSA is not a gateway to the making of broad orders sharing the liabilities of companies with their associated companies.
The Court also concluded that the BSA did not require the Court to quantify the liability in respect of the relevant liabilities at the point of making the BLO. Given that precise identification and quantification of losses, beyond the direct costs of remedial work, can often be a difficult task, as was the case here, this is clearly a practical approach.
Discussion
In previous discussions about the BSA we speculated that the new Act and its provisions may mean a reduction in the use of SPVs, as the apparent protection offered by a limited liability status of such companies would be restricted. This judgment makes clear that the Court will have no qualms using the powers granted by the BSA, and that wealthy parent companies or other wealthy entities associated with thinly capitalised or insolvent development companies which have been found liable for relevant liabilities are likely to find themselves a target for BLOs sharing the liabilities of those SPVs. The decision in this case was very clearly influenced by the financial dependency and control relationship which the Court found to exist between the Click group companies.
It remains to be seen what approach a Court will take where a BLO is sought in circumstances where the relevant liability lies with a company which was not an SPV, and whose limited means or insolvency arise through a legitimate organisational restructuring (possibly on the basis of an understanding of limitation periods as they applied prior to the BSA coming into force, and the resulting extension of relevant limitation periods for claims under the Defective Premises Act 1972). We await the Courts' view as to whether it would it be just and equitable to make a BLO in such circumstances.
