381 Southwark Park Road RTM Company Ltd & Ors v Click St Andrews Ltd & Anr

[2024] EWHC 3179 (TCC)

Developers often set up “special purpose vehicles” (“SPVs”) to carry out developments which are subsequently wound up following completion. This would enable their parent companies to avoid long-term liability for any defective works in the development. However, one of the changes brought in under the Building Safety Act 2022 (“BSA”) was the introduction under section 130 of building liability orders (“BLOs”) aimed at restricting the benefits of this common practice, by “piercing the corporate veil”. In other words, enabling findings of liability for building safety to potentially extend beyond the original “special purpose vehicle” to include associated companies within the same group of companies.

Currently, section 130 (Building Liability Orders) provides:

"(1) The High Court may make a building liability order if it considers it just and equitable to do so.

(2) A ‘building liability order’ is an order providing that any relevant liability (or any relevant liability of a specified description) of a body corporate (‘the original body’) relating to a specified building is also—

(a) a liability of a specified body corporate, or

(b) a joint and several liability of two or more specified bodies corporate.

(3) In this section ‘relevant liability’ means a liability (whether arising before or after commencement) that is incurred—

(a) under the Defective Premises Act 1972 […] or

(b) as a result of a building safety risk."

Section 62 of the BSA defines a “building safety risk” as “a risk to the safety of people in or about a building arising from” the spread of fire or structural failure.

The case which came before Mrs Justice Jefford concerned defects in and damage to a block of flats known as St Andrews House, 381 Southwark Park Road, London SE16. The claimants included a resident’s company and leasehold owners of the flats, and the first defendant was an SPV which, at the time of the relevant events and the trial, owned the freehold and head lease of the property but was itself a wholly owned subsidiary of the second defendant (“Click Group Holdings”). The SPV was in liquidation at the time of the hearing. The resident’s company entered into a Freehold Purchase Agreement (“FPA”) with the defendants in 2020 under which Click St Andrews would, within a period of not more than two years, develop the property by removing the existing pitched roof and erecting an additional storey of three prefabricated modular units which would be lifted into place. During the works, there was water ingress and damage to the flats below, which was said to be a consequence of the defendants' failure to provide adequate protection to keep the roof structure watertight. The claimants engaged experts to undertake their own investigations which led to the identification of other alleged defects in workmanship in the modular units, including structural and fire safety issues.

As well as claiming that there were a number of breaches of contract under the FPA, it was said that these alleged breaches amounted to a breach of the statutory duty under section 2A of the Defective Premises Act 1972 (“DPA”). The leaseholders also sought a BLO in respect of Click St Andrews' liability under the DPA.

An expert called by the claimants said that they were surprised that the building certificate had been issued given the instances where the fire protection was not there and where there were so many things wrong. The judge agreed, and held that the defendant had committed fire and structural safety breaches which were breaches of the FPA and which gave rise to a “building safety risk” under section 130(3)(b) of the BSA. There were further breaches of the FPA relating to certain beams which potentially affected the structural stability of the building. These too amounted to “building safety risks”.

In relation to the claims under section 2A of the DPA, the judge observed that the duty owed under section 2A was not a duty to see that the work is done in a workmanlike or professional manner and with proper materials. The section makes reference to the following statement: “[the] dwelling is fit for habitation when completed”. The judge noted that this is a well-established duty owed under section 1 of the DPA and there was no reason why the duty under section 2 should not be characterised in the same way, namely a single duty to see that the outcome of any building work is that the dwelling is fit for habitation. Here, ultimately, the DPA claim failed because section 2A is a very new part, only coming into force on 28 June 2022 and, on the facts, it was impossible to identify anything that was done that could give rise to a breach of that section.

The case is significant because the judge found, for the first time in the High Court, that there was a “relevant” liability for the purposes of a BLO. The judge did not make a BLO. That would be the subject for a further hearing, at least in part to give Click Group Holdings a proper opportunity to address the issue of whether it would be just and equitable to make such an order against the background of the judgment.

The judge also noted that the BSA says little about the procedure to be adopted by a party wishing to seek a BLO but commented that:

“it certainly does not require a party to make that claim within existing proceedings. It would be surprising if it did since the circumstances in which it might be just and equitable to make the order may not arise until after proceedings to establish a relevant liability are concluded and a BLO could be sought against a corporate body that did not even exist at the time of those proceedings.”

Where it was already in contemplation that an order would be sought against a particular associated company, it seemed to the judge to be “sensible and efficient” for that claim to form part of what might be called the main proceedings. But that did not preclude a subsequent claim for a BLO against some other associated company.