381 Southwark Park Road RTM Company Ltd & Ors (RTM) v Click St Andrews Ltd & Anr (Click) is the first case to consider whether certain defects amount to a "relevant liability" for the purpose of section 130(3) of the Building Safety Act 2022 (the BSA). The subsequent related decision to make a Building Liability Order against an associated company also provides judicial guidance as to how a court may use its discretion to make such an order and the meaning of "just and equitable".
Sections 130(1) – 130(3) BSA read as follows:
130 Building liability orders
(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 section 38 of the Building Act 1984, or
(b) as a result of a building safety risk.
Jefford J first addressed matters dealing with "relevant liability" before going on to consider whether to make a Building Liability Order because, amongst other matters this gave Click "a proper opportunity, in any event, to address the issue of whether it would be just and equitable to make such an order against the background of the judgment."
"Relevant Liability"
The first judgment accordingly provides guidance on what might amount to a "relevant liability", with the subsequent decision providing Court guidance on when the Court may consider that it is "just and equitable" for a BLO to be made.
Fire safety issues were identified in the building, including in respect of missing fire-stopping, unsealed penetrations, builders' waste in voids, timber which hadn't been protected with intumescent paint, gaps through which smoke could pass, compartmentation defects and missing cavity barriers as detailed at paragraphs 185 – 198 of the judgment. Jefford J went on to conclude that "…these give rise to a relevant liability for the purposes of section 130(3)(b) of the Building Safety Act 2022." This indicates that the Court will interpret the definition of a building safety risk (being "in relation to a building, means a risk to the safety of people in or about the building arising from the spread of fire or structural failure") broadly.
Structural issues were also identified in the building, including in particular in respect of "the adequacy of the existing structure to support the steel grillage, that is the steel substructure intended to support the modular units and transfer the load to the existing loadbearing walls of the Property…the steel grillage bears onto the existing structure through steel spreader beams onto the internal walls and timber ladder frames onto the perimeter walls" [para 214]. At para 217 it was further explained that "the shortening of the spreader beams increased the concentration of the load on the masonry walls which were more brittle and which was likely to cause at least local issues."
Whilst it was noted that "There was no immediate concern at this stage but any risk would increase as the building aged" [para 217]. The response to "what would happen if the remedial work was not done" [para 218] was that "Over time the masonry would tend to fracture which would reduce their ability to bear the load leading to a local failure in the masonry." [para 218]
Jefford J concluded that "…these beams and any beams that were not adequately packed…give rise to a relevant liability for the purpose of the Building Safety Act 2022" at [para 219].
As such, guidance has been provided that a "building safety risk" does not need to be an issue which requires immediate rectification, but rather it is sufficient that an issue, if ignored, will create a future "risk to the safety of people in or about the building arising from the spread of fire or structural failure".
Association and "Just and equitable"
The parties against whom a Building Liability Order can be made are those body corporates associated with the person against whom a "relevant liability" is established. There is a wide definition of association, for example where one body corporate controls another with the definition of control including where "A body corporate (X) controls another body corporate (Y) if X has the power, directly or indirectly, to secure that the affairs of Y are conducted in accordance with X's wishes".
Jefford J went on to make a Building Liability Order confirming that the "relevant liability" of Click St Andrews, the freeholder of the building, was also the liability of its associated company, Click Group Holdings. The corporate structure meant that Click Holdings did indirectly control Click St Andrews because Click Group Holdings held all the shares of Click Above Limited, and Click St Andrews were a wholly-owned subsidiary of Click Above Limited; and also because the directing mind of both Click St Andrews and Click Group Holdings was common (a Mr Emmett).
In this case, the court noted that Click St Andrews was clearly an SPV set up to acquire the freehold, develop it and then divest itself of the freehold, and was inevitably thinly capitalised. Although Click Group Holdings was not a wealthy parent, the court agreed with the approach in Triathlon that the source or extent of assets or liabilities did not carry much weight in determining whether it would be just and equitable to make a BLO, that the purpose of the BSA and all relevant factors should be taken into account, and that:
"The obvious purpose behind the association provisions is to ensure that where a development has been carried out by a thinly capitalized or insolvent development company, a wealthy parent company or other wealthy entity which is caught by the association provisions cannot evade responsibility for meeting the cost of remedying the relevant defects by hiding behind the separate personality of the development company …."
Click Group Holdings attempted to argue that it would not be just and equitable for a BLO to be made against an entity who had not had the opportunity to have a fair trial in respect of the making of the BLO. Jefford J dismissed these concerns as Click Group Holdings had participated in the underlying trial.
Click Group Holdings also argued that it would not be just and equitable to make a BLO where it was not specified on the face of a pleading against whom a BLO was being sought. Jefford J considered that on the facts of this case "It was very clear from submissions, and is again recorded in my judgment, that, despite the absence of the naming of any party in the pleadings, a claim would be made against Click Group Holdings." Jefford J confirmed that in any event the BSA doesn't require a party to be identified in the pleadings or joined to proceedings but that "It is fair to say that I have observed in another context that where it is known that an application will be made against a particular party, it is sensible to join them into the ongoing proceedings to ensure that all issues are dealt with, but that does not preclude the seeking of a Building Liability Order against a party not joined."
Click Group Holdings also argued that making a BLO would correct the claimants' own failure as the claimants had a contractual arrangement with the defendants. Jefford J did not accept this argument and concluded the contractual arrangement "…militates in favour of Click Group Holdings Limited being liable to the leaseholders for the losses that flowed from the breaches of the Freehold Purchase Agreement which give rise to the relevant liability."
The claimants attempted to suggest that the making of a BLO in respect of a "relevant liability" should open the door to the making of the BLO in respect of wider liabilities. Jefford J did not accept these arguments, underlining that the legislation permits a BLO to be ordered only in respect of a "relevant liability".
It is also worth noting that in the first judgment Jefford J noted at paragraph 31 that "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." As such, it is suggested that the concept of "just and equitable" may not be fixed at any point in time, and that the Court's decision in any particular case could be subject to time changing facts.
The Triathlon decision is heading to the Court of Appeal and that decision may give provide more guidance on the meaning of "just and equitable".
