Episode 3: Building Liability Orders – A New Route to Recovery

[Music]

Michael

I'm Michael Comba, and you're listening to the Sharpe Five podcast series. Today, it's about building liability orders, or BLOs.

Joining me is Stephen Evans, barrister at Five Paper, specializing in property and landlord disputes, and with particular experience in Part 4 and Part 5 building safety applications and other building safety claims. From Sharpe Pritchard, Rachel Murray-Smith is a partner in our construction team and has experienced all kinds of construction projects and advising on building safety concerns.

Rachel, going to kick off with an easy one (hopefully). What are BLOs?

Rachel

Thank you, Michael.

So, building liability orders, or BLOs as they're often shortened to, are a statutory remedy that was introduced by the Building Safety Act 2022. They allow courts to extend liability incurred under Defective Premises Act 1972, section 38 of the Building Act 1984, or as a result of building safety defects, from one company to another on a joint and several liability basis.

So, essentially, they are a mechanism by which the corporate veil can be pierced to hold associated companies liable for the relevant liability of another.

Michael

So, you mentioned piercing the corporate veil. Why is it that we need it in this particular context? What was the purpose behind BLOs being introduced?

Rachel

So, the BLOs fit within that wider contextual piece of the Building Safety Act with a real policy focus on the Polluter Pays Principle. So, this was essentially to provide greater protection to leaseholders and others in respect of defects. So, it was trying to essentially dispense with the protections that were otherwise provided by corporate structures, such as special purpose vehicles, enabling companies to avoid liability.

Michael

So, Rachel mentioned a few of the kinds of people that might have a BLO awarded against them. What does the statute set out specifically, Stephen, as to who can be awarded against a BLO?

Stephen

The act says a specified body corporate, or it can be, in fact, joint and several liability of two or more specified bodies corporate. But a BLO can only be made against a person who's associated with the original body.

Michael

And what's the significance of relevant liabilities in all of this as well?

Rachel

So, section 130 of the act provides a relevant liability must have accrued, and a relevant liability can essentially fall into one of three categories. So, a liability under the Defective Premises Act 1972, so a party will be liable where in carrying out the works in relation to dwellings, it fails in its duties under either section 1 or section 2A to do the works in a workman-like or professional manner or to use adequate materials such that on completion of the works, the dwelling is unfit for habitation.

The second category of relevant liability is one under section 38 of the Building Act 1984, which is where breach of a duty imposed by building regulations causes damage, which is actionable. Such damage includes the death of or injury to any person. But importantly, in respect of section 38, it's noteworthy that it is not yet in force.

And then the third category is liability for a building safety risk, defined in the Building Safety Act as a risk to the safety of people in or about the building arising from the spread of fire or structural failure. I think the big takeaway, in terms of relevant liability, is that it's wider than just fire safety defects. It also covers that structural piece and, indeed, the Defective Premises Act, for example, is focused on that fitness for habitation. So, it would be wrong to assume that non-fire related defects won't be caught.

Michael

So, let's assume we've got one of those relevant liabilities in place. When can a BLO actually be awarded?

Stephen

It can be awarded when it's just inequitable to do so. In this regard, it's very similar to section 124 of the Act, which of course deals with Remediation Contribution Orders. Now in the cases under section 124, it's been emphasised that the applicant only has to raise a prima facie case for just inequitable. And then it's a matter of seeing what factors are relevant in the individual case. Very helpfully, as the case law has developed organically, certain matters, for example, the pecuniosity of the respondent, whether-or-not there's a liability elsewhere for the applicant to pursue, have all been dismissed as essentially irrelevant as to whether-or-not the just and equitable test is satisfied.

Michael

And there was recent case on Crest Nicholson Regeneration Ltd v Ardmore Construction Ltd, particularly in the context of where an adjudicator's decision might play a role within the context of BLOs. So, what exactly was the fallout from that case?

Stephen

Well, in that particular case, Crest Nicholson had sought an adjudication against Ardmore and, literally the day before the adjudication was announced, Ardmore went into liquidation. So, the main issues in that case were these: could there be an anticipatory BLO made? And secondly, was the adjudication a relevant liability?

Now, Mr Justice Constable held that an anticipatory BLO can be made, in other words, before the main liability has been established against the original body and, also, that an adjudicator's decision was a relevant liability. But rather helpfully, there is also a checklist of, I say a checklist - it's non-exhaustive, factors to do with whether-or-not it's just and equitable to make an order. And those included, fundamentally, as is not surprising, one looks at the purpose of the BSA and as Rachel has said, one wants the polluter to pay. That should not be circumscribed or restricted in any way by cases of SPVs or shell companies. So, it doesn't have to be those, but, at the end of the day, it's always fact sensitive and it would be wrong, Mr Justice Constable said, to provide an exhaustive list of relevant factors for the making of BLO.

Michael

Stephen, you mentioned that a lot of this is fact sensitive and we've gone through quite a lot of the theory and the statutory framework behind BLOs. But I suppose, Rachel, how might potential claimants go about identifying associated bodies? What kind of processes can they go through to identify those shell companies, SPVs, et cetera?

Rachel

So, I think this is going back to the meaning of an associated body. So, as Stephen mentioned, it's a body corporate that's associated with the original body and, by associated with, if one of them controls the other or if both are controlled by a third company, for example, that would be the relevant association.

Stephen

It's interesting to note that the list of associated persons in section 131 is not the same as the list in section 121, which are the associated persons who are listed for Remediation Orders, Remediation Contribution Orders and schedule A claims. A notable difference between 121 and 131 is the absence of the target of directors in section 131. It's not immediately apparent why this might be so perhaps Parliament thought it would be going too far to go for the individual under a BLO or, perhaps, it is an oversight, but there is that clear distinction. What the case law has said under just and equitable Remediation Contribution Orders is that there's no need for the target to have had any direct involvement in the original pollution, nor to have been in receipt of any profits in relation to the venture that was undertaken. It is very much a case of tracing the funds, it seems to me, without any necessary culpability for the original disaster with the building.

Rachel

I think it's worth picking up, actually, on just that piece that you've just mentioned there, Stephen, because of course in order to be specified, and associated with the original body corporate, it's got to be during the relevant period, which is referenced in section 130 (4) of the Act. So, that relevant period is defined and effectively means at any time from when the building work started until the date the building liability order is made, that reference to, at any time is, therefore, means that to be associated wouldn't necessarily mean associated at the time the works were complete. So, it's just worth bearing in mind that definition of relevant period.

Michael

Yes, I suppose it's just a kind of a further complication in all of that process. And I suppose, do either of you have a view on to what extent could parties looking to benefit from BLOs? Is there a way in which they can kind of circumvent this process? I.e., is there, how might they go about reaching some sort of settlement with someone who might otherwise be subject of a BLO without having to go through that process?

Stephen

I think that's difficult because, what one sees from the case law is, very much those who are at the target end of a BLO are very much pushing for there to be a finding and establishment of liability during the main hearing before they will put their hands up and say, in cases obviously where we may be dealing with millions of pounds, that they are going to have to put their hands in their pockets. So, I don't see the target of a BLO being ready to engage with an approach, by an applicant, to short circuit the process.

Rachel

Yeah, and I think that in terms of from a strategy perspective, I think again, it would be very fact-specific about whether in fact you raise the prospect of a BLO with the original body depending on exactly what their status is at the time that you're seeking to pursue them originally. But I think the other thing that should be born in mind is that, it's extremely helpful from the Crest Nicholson case, as Stephen's already mentioned, that it's been established that adjudication decision created a relevant liability and for the purposes of employer clients, for example, that we regularly act for, that may be an incredibly useful tool.

Michael

Yes, thanks Rachel for the useful tool along with many others that were discussed in today's episode. That just leads me to thank both Stephen and Rachel for a quick rundown of Building Liability Orders. You'll be able to find out more information about some of our tips and tricks for dealing with them on our website. But that leaves me to say thank you very much for listening and goodbye.