Out-Law News 4 min. read

Broad scope for building liability orders highlighted by ruling

A new ruling shows how construction contractors facing claims for defective building works in England or Wales might seek a ‘building liability order’ (BLO) against other defendants to reduce their financial exposure, an expert in building safety and construction dispute resolution has said.

Helen Waddell of Pinsent Masons was commenting after the High Court confirmed that BLOs can be sought not only by those bringing building safety-related claims but by those defending those claims too.

Under Section 130 of the 2022 Building Safety Act, the High Court has the power to issue a BLO if it considers it just and equitable to do so. In effect, the court may impose liability for defective building works on companies associated with the company that originally carried out the works. The policy intent of BLOs is in part to limit the scope for construction companies to avoid liability for defective work by carrying out projects through special purpose vehicles or joint ventures that may be dissolved after the works are complete.

A BLO might be issued by the High Court in respect of liabilities arising out of a claim made under the 1972 Defective Premises Act; a claim for compensation for physical damage caused by a breach of building regulations in accordance with s38 of the 1984 Building Act; or any other claim which arises as a result of a building safety risk. Any corporate body associated with a party liable under these types of claims may be at risk of having a BLO issued against them.

The case before the High Court relates to claims worth nearly £47 million raised against a range of companies over alleged deficiencies pertaining to fire safety in the way external walls at a development in London were designed and constructed. There is no public written decision of the High Court in the case, but the background to the case and details of what the court found have been summarised by 4 Pump Court barristers who acted in the case.

According to 4 Pump Court, one of the companies subject to the main claims sought a BLO against companies related to two other defendants in the case. Those two defendants are related companies. The BLO applicant alleged that the assets of the two defendants had largely been transferred to other companies within the same corporate group, some of which were registered in Germany.

The German companies challenged the application for a BLO against them. They argued that the court should put on hold determining whether to make the BLO against them until after it had been determined whether the two related defendants in the main case were liable in respect of the claims raised and, if so, were able to meet those liabilities themselves.

In considering the German companies’ arguments, the High Court found that applications for BLOs do not need to be made at the same time as a main claim is raised against a related company. However, it also found that it would normally be correct for a court to consider and deal with an application for a BLO at the same time as the main claim in the underlying case, if the BLO was applied for before the main claim had been resolved.

The court cited reasons relating to efficient case management for reaching this view and in doing so confirmed, among other things, that a BLO claim is not dependent on a company failing to pay where they are found liable for the main claim in a case.

Waddell said: “This ruling has wide practical implications for businesses involved in construction projects. Not only does it confirm that BLOs can be used by defendants against co-defendants to secure a contribution in cases where they might be found liable for a main claim, it also confirms that defendants do not need to raise BLO applications immediately in response to main claims being raised against them. Further, the ruling shows that it is possible to widen the pool of potential defendants to claims concerning defective building works – something that both claimants and other defendants might welcome.”

“Parties to some such disputes will also welcome the prospect of courts hearing evidence and deciding issues pertaining to BLO applications in tandem with the main claims raised in the case, as this could help save both time and costs. Although it could make the court process more complex and potentially makes settlement discussions more cumbersome, the overall impact of dealing with all of the issues together is likely to mean disputes are resolved more swiftly. An alternative approach, however, currently being taken by some parties is to have issues determined before the main hearing and the courts may be willing to take this approach in certain circumstances,” she said.

The 4 Pump Court report highlighted other noteworthy points made by the court in its ruling, according to construction disputes expert Julian Brooksbank of Pinsent Masons.

Brooksbank said: “The court has confirmed that the statutory requirement for a court to determine that issuing a BLO is ‘just and equitable’ can be met without there having to have been deliberate dissipation of assets by the intended subject of that BLO. In addition, the fact that the two defendants have insurance that might cover at least part of their alleged liability under the main claim does not seem to have impacted the court’s decision in this case, though it could be a relevant factor in other cases where BLOs are sought. Further, this ruling highlights that the BLO regime acts to pierce the corporate veil in respect of group liabilities rather than liability of individual companies. As a result, companies preparing their annual report and accounts will need to consider their reporting obligations in this respect.”

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