TCC pierces the corporate veil granting the first Building Liability Order

The Technology and Construction Court (“TCC”) have made the first ever Building Liability Order (“BLO”) in the case of 381 Southwark Park Road RTM Company Ltd and others v Click St Andrews Ltd and another [2024] EWHC 3569 (TCC).

The BLO and its impact on the well-established legal principles enshrined in the doctrine of privity of contract and separate legal personality, is one of the more avant-garde features of the Building Safety Act 2022. It permits the High Court to make an order that associated body corporates of a liable body corporate meet the costs of that liability. The aim is to prevent the original developers or contractors from evading liability for building safety defects by hiding behind complex corporate structures. This is a departure from the usual doctrine of separate corporate personality and is a statutory sword given by Parliament to pierce the corporate veil.

What is the test?

Section 130 of the BSA provides that the High Court may make a BLO against an associated body corporate:

1. where there is a “relevant liability”; and
2. it is just and equitable to do so.

Relevant liability

A relevant liability is defined as a liability that is incurred:

(a) under the Defective Premises Act 1972 or section 38 of the Building Act 1984 (which is not yet in force but relates to a breach of building regulations); or

(b) as a result of a building safety risk (meaning a risk to people in or about the building arising from spread of fire or structural failure).

It is worth noting firstly that “relevant liability” is not just limited to fire safety and cladding related defects. Furthermore, apart from the Defective Premises Act 1972 which relates to the provision and refurbishment of dwellings, there is no constraint on the types of building a relevant liability can be incurred in relation to and therefore no constraint on the types of building for which a BLO may be requested.

Just and equitable

The BSA does not define “just and equitable” within the context of its various provisions which means that its meaning is a question of judicial interpretation and was addressed in the 381 Southwark Park Road case.

The TCC, considering the 2024 case of Triathlon Homes LLP and Stratford Village Development Partnership, held that the purpose of the association provisions under section 130 is to ensure the original developer and its group cannot escape civil liability for building safety defects. If the original developer’s financial position is such that it cannot meet the liability, then it considered it just and equitable to make an order against an associated body corporate.

The focus in the test is on the financial strength of the original developer as opposed to the associated body. The TCC also made clear that the financial resources of a group company will carry little weight in persuading the court to make a BLO.

What is an associated body corporate?

The TCC appear to have interpreted the association provisions within section 131 relatively broadly.

Section 131 says a body corporate is associated with another body corporate if one of them controls the other, or a third body corporate controls both of them.

For a body corporate to control another it must have or be entitled to have at least half of either:

1. the shares;
2. the votes at a general meeting;
3. the distribution of income; or
4. the assets on winding up.

Section 131(4) also creates a further bond of association by providing that one body corporate controls another, if the first has the power, directly or indirectly, to secure that the affairs of the second are conducted in accordance with the wishes of the first.

The TCC have defined “control” widely by holding that Click Group Holdings Ltd is an associated company notwithstanding the fact that it owns Click St Andrews via another entity. Here the TCC focused on the directing mind and will of the companies being common. Here, the ultimate parent company indirectly controlled the affairs of Click St Andrews via the same natural person: Mr Emmett.

Identification of the associated company in the pleadings is irrelevant, but it is sensible to join any party against whom an order may be sought.

Association within the relevant period

The association provisions apply to any association within “the relevant period”. A company is associated in the relevant period at any time beginning with the commencement of the works in relation to which the relevant liability was incurred and ending with the making of the order.

The breadth of the association provisions will expose many companies to BLOs who would otherwise be shielded from relevant liabilities, some of which may flow from defects caused nearly 30 years ago.

The TCC’s approach in Click St Andrews indicates a willingness to use BLOs to their full potency and reach. We should expect many future BLO applications, some of which will test in particular the limits of the concept of “indirect control” under section 131(4).

The 381 Southwark Park Road illustrates that the scope of BLOs are wide ranging and if section 38 of the Building Act 1984 is brought into force at some point in the future could be even more so. The interpretation and application of the just and equitable test remains at the core, and we will watch with interest to see how the judicial interpretation and application of this test in the context of BLOs develops as more cases filter through the courts.

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