Matthew Taylor is a partner and Aidan Steensma is of counsel at law firm CMS Cameron McKenna Nabarro Olswang
A recent Technology and Construction Court (TCC) decision has significantly limited the scope for claimants in building safety cases to make related parties of an original developer or contractor liable for their claims. Building Liability Orders (BLOs) enable parties related to a building safety claim to be made liable for it where the court considers it “just and equitable to do so”.
“This decision will inevitably make BLOs less accessible to claimants”
The orders were introduced with the Building Safety Act (BSA) 2022 and were intended to ensure that developers and contractors would not be able to hide behind complex corporate structures to avoid the financial consequences of building safety claims.
An integral part of the BLO regime is to provide for information orders to be made. Such orders are intended to allow claimants to obtain information about associated parties, which would in turn allow potential BLOs to be considered. The TCC’s decision concerned whether information orders can be made directly against associates or only against the original developer or contractor, and the extent to which liability of the original developer or contractor must first be established before an information order is granted.
The case concerned a design-and-build relationship between BDW (i.e. Barratt Homes) and Ardmore Construction, covering five developments that completed between 1999 and 2005. Following the Grenfell Tower fire, fire safety and structural defects were discovered in the developments. BDW accepted responsibility to the building owners for these defects and claimed against Ardmore for the costs of remediating them. In relation to one of the developments, BDW successfully obtained an adjudication decision against Ardmore for the payment of £14.5m in remediation costs. In relation to the other four developments, BDW commenced court and arbitration proceedings against Ardmore. The total amount claimed in these proceedings was approximately £85m.
Although Ardmore had paid the amount of the adjudication decision, BDW became concerned that it would not have the funds to meet similar awards or judgements made in relation to the other four developments. BDW therefore wished to consider the potential for BLOs to be obtained and brought applications for information orders to allow it to do so. BDW applied for information orders from Ardmore itself as well as other companies in the Ardmore group, including Ardmore’s ultimate holding company.
The TCC rejected BDW’s applications in their entirety. Of most significance was:
- The wording of the legislation only permitted information orders to be made against persons with an existing liability for building safety defects. The court did not feel able to follow the explanatory notes accompanying the legislation, which gave examples of BLOs being granted directly against associates.
- It was not sufficient to show that the original developer or contractor “might” be liable to the claimants, rather it must “appear to the court” that it “is” liable. Applications for information orders were intended to be short and uncomplicated and the court would not engage in a mini-trial on issues of liability or undertake a merits review in relation to disputed factual or expert evidence. It was likely, therefore, that “information orders will be made sparingly in cases where liability is in issue”.
Broader effects
Whereas the trend of much of the case law interpreting the BSA has been to give a broad purposive interpretation in favour of claimant parties (as in relation to remediation contribution orders, for example), this decision will inevitably make BLOs less accessible to claimants.
The inability to obtain information orders against associates directly, together with the difficulty of obtaining a BLO while liability remains disputed, means that in most cases claimants are unlikely to be able to form an assessment of whether BLOs can be obtained, and the worth of those companies against whom BLOs might be made, until liability has been established. Where the original developer or contractor does not have sufficient means to satisfy a claim, claimants will need to weigh up the time and cost required to establish liability against the likelihood of obtaining BLOs against more substantial companies based on whatever public information is available to them at the time.
Once liability is established, claimants may still have difficulty in unravelling complex corporate structures due to the inability to obtain information orders against associates directly and the fact that the original developer or contractor entity may have limited information within its control as to the broader corporate structure within which it sits.
While the court’s decision is firmly grounded in the language of the BSA, the contrary guidance contained in the explanatory notes may suggest that the government’s intention has not been carried through in the drafting. It remains to be seen whether the decision will be appealed or whether the government will now consider amending the BSA to accord with the explanatory notes.