The Building Safety Act 2022 ("BSA"), which received Royal Assent on 28 April 2022, was intended by the Government to provide a wide ranging "toolkit" of measures to enhance the ability of building owners, landlords, homeowners, and leaseholders to seek compensation for defective work carried out on their properties and for the use of defective construction products.
Building Liability Orders
In order to avoid a wronged party being left uncompensated when a liable party is no longer in existence or has insufficient assets, section 130 of the BSA gives power to the High Court to extend the specific liabilities of one company to any other associated companies, and to make those associated companies liable with the original company on a joint and several basis, if the Court considers it just and equitable to do so – a Building Liability Order ("BLO").
A claimant can request that a BLO be made when a claim is being advanced under:
- the Defective Premises Act 1972;
- section 38 of the Building Act 1984 (which has yet to be brought into force); or
- any other claim which is advanced as a result of a risk to safety from fire spread or structural failure.
By virtue of section 131, a company is considered to be associated with another company if one of them controls the other (parent/child companies), or if both are controlled by a third company (sister companies). Section 131 sets out the specific cases in which one company is controlling another company.
Recognising that development deals can be structured in complex ways, and can involve various special purpose vehicles, section 132 allows parties to apply for the making of an Information Order, which will require a specific body corporate to provide information or documents relating to persons who are, or have at any time in a specified period been, associated with that body corporate. A party can, therefore, with the assistance of the Court, obtain the information that is necessary in order to apply for a BLO.
Willmott Dixon Construction Ltd v Prater and others [2024]
Although the BSA received Royal Assent some two years ago, there has been little authority from the Courts on BLOs until recently. In the recent case of Willmott Dixon Construction Ltd v Prater and others [2024] EWHC 1190 Jefford J. considered the new regime for the making of a BLO in the context of an application that was being made for the stay of an additional claim.
Background
The dispute concerns a mixed use commercial and residential development project in Woolwich. The Claimant is the Design & Build contractor for the project, advancing claims against its subcontractors and consultant members of the project team for losses which are said to arise from the use of materials for the external wall construction of the development which are alleged to be unsuitable or defective from a fire safety perspective. Each of the defendants to the claim have denied liability.
Various contribution claims were commenced by the defendant parties against each other, including a contribution claim by the fourth defendant (AECOM, the building services engineer) against the first and second defendants (Prater Ltd, a Design & Build envelope subcontractor, and Lindner Exteriors Holding Ltd, Prater Ltd's parent company who had guaranteed Prater's services).
The application
The application before the Court arose out of the Part 20 proceedings that had also been commenced by AECOM against four other companies in the Lindner Group seeking BLOs against them in relation to the liability of the first and second defendants. These additional claims were being brought, it was said, because of significant concerns about the financial position of the first and second defendants following corporate restructuring of the group after the main claim had been intimated.
The four Lindner Group companies applied to have AECOM's Part 20 claims against them stayed until after judgment in the main claim, and for the Part 20 claims to be heard separately from the main claim. The application for a stay was heard before those four companies had filed their defences to AECOM's Part 20 claims.
Although the four Lindner Group companies had agreed to be bound by the findings of liability in the main claim, the Court considered that would likely still leave open issues which were relevant to whether a BLO should be granted or not; as such, the stay application was refused.
Judgment
In its judgment the Court noted that BLOs are a "relatively new creation" with there being little authority available as to their use. The Court noted that the BSA did not require a party against whom a BLO is sought to be made a party to the main claim, or to participate in those proceedings – not least because the company against whom a BLO is sought may be one that does not exist at the time of the proceedings, or because the circumstances in which a BLO is sought may not even be in contemplation at the time of the proceedings.
Whilst the Court took the view that the BSA did not require a party against whom a BLO is sought to be made a party to the main claim, it was "sensible and efficient" in this litigation to hear the claims together. Although the Court said that it would generally be sensible and efficient to proceed in that way, the Court stated that such an Order does not and would not bind a judge to determine that application as part of the main claim, and would leave it open to the judge to direct a further hearing in that respect.
A number of reasons were given by the Court for refusing the stay which was sought, and as to why it would generally be more sensible and efficient for the main claim and additional claim to be heard together, including that:
- by hearing the claims together, the court would avoid arguments from the associated company at a later stage that it was not "just and equitable" to make a BLO against it or indeed that the liability was not a "relevant liability";
- hearing the claims together would give the parties facing a claim for a BLO the opportunity to actively participate in the main claim and to know the issues they faced. It would be open to those parties to determine how active a part they played in the main claim, and for the claim to be case managed accordingly;
- it would be unsatisfactory for the court in a subsequent hearing to need to review evidence which had already been covered in the main hearing, or for the Court to hear further evidence some considerable time after the main hearing had taken place.
Comment
AECOM appears to have advanced its Part 20 claims against the four Lindner Group companies on the basis of information that was contained in the published accounts of those companies; it does not appear to have considered it necessary to seek an Information Order to obtain any further information as to the corporate restructuring arrangements in issue. The fact of there being a movement of assets which may ultimately mean a judgment liability going unmet was apparently sufficient.
It is important to note that the Court in this instance was considering what was essentially a procedural issue, and the Court did not determine whether AECOM was entitled to apply for a BLO, or whether it was likely to succeed in that application – those were decisions for another day and are awaited with interest.
Following the BSA coming into force, the making of BLOs and Information Orders is likely to be a rapidly developing area of the law which will have a tangible impact on the industry. A BLO will have the effect of making one legal entity jointly and severally liable with another entity purely as a result of them being associated through some form of common control. In making a BLO the Court must ignore issues such as privity of contract, and simply "pierce the corporate veil". We may even see a reduction in the use of special purpose vehicles for developments if the use of such vehicles no longer provides the same shield from liability which they did previously.
