A recent landmark case brought under the Building Safety Act 2022 (BSA) is threatening to have broader implications for the insurance industry – but what are those implications and can they be expected to change the landscape of construction liability going forward?
Digging into these questions in an interview with Insurance Business, Alex Rosenfield (pictured), partner at Fenchurch Law, noted that the case in question is Southpark Park Road RTM Co Ltd and others v Click St Andrews Ltd and another [2024] EWHC 3569 (TCC), in which the court made the first Building Liability Order (BLO) under the Building Safety Act.
The case involved a claim by the right to manage company, and a number of leaseholders of a building, in connection with inadequate fire protection and structural defects, he said. The party that undertook the work was a special purpose vehicle (SPV) called Click St Andrews Ltd (St Andrews).
As St Andrews was insolvent, the claimants applied for a BLO against its parent company, Click Group Holdings Ltd (“Holdings”) in respect of St Andrews’ “relevant liability”, and on the basis that the two companies were “associated”, as that term is defined in the BSA. “The order, if made, would make Holdings jointly and severally liable for the building safety issues.
“As well as finding the existence of a “relevant liability”, and that the subject of the BLO is “associated” with the party that has the relevant liability, the court must also find that it is “just and equitable” to make the order.” That isn’t a prescriptive test, Rosenfield said, and there have, so far, been limited authorities as to what it means.
The main authority, which the court considered in this case, is Triathlon Homes LLP and Stratford Village Development [2024]. That case, he said, brought before the First Tier Tribunal, considered the meaning of “just and equitable” in the context of a Remediation Contribution Order, a different order to a BLO, but which has a similar effect.
The court found that the Claimants had established the requirements for a BLO, as first, the defects at the property meant that St Andrews had a relevant liability (which is defined in the BSA as a liability under the Defective Premises Act 1972, under section 38 of the Building Act 1984, or a “building safety risk” – meaning a risk to the safety of people in or about the building arising from the spread of fire or structural failure).
“Second,” he said, “St Andrews and Holdings were “associated” because St Andrews was wholly owned by Holdings (albeit strictly speaking Holdings was St Andrews ‘grandparent’: St Andrews was wholly owned by a company called Click Above Ltd, which itself was wholly owned by Holdings), and so Holdings was able to ensure that the affairs of St Andrews were carried out in accordance with its wishes.
“It was then “just and equitable” to make the order. In that respect, the Court had particular regard to Triathlon Homes, and specifically the principle that a developer should not be able to evade its responsibilities where it carries out work via a thinly capitalised or insolvent SPV.”
Touching on the implications of the issuing of the BLO, he highlighted that the key question this poses is whether insurers will provide cover for BLOs. That question isn’t straightforward because liability insurance typically covers “you”, being the insured –i.e., the party specifically named in the policy – for liabilities which they alone incur. “However, the legal wrinkle here is that the liability hasn’t been incurred by that party, but by one of its associates.
“There are some parallels to be drawn, in my view, to the question of whether professional firms are insured for liabilities arising out of the use of AI i.e., is that a service rendered by the policyholder, or by someone (or ‘something’) else?”
Overall, Rosenfield said it’s clear that BLOs will reshape the landscape of construction liability – and of the claims around that going forward. “The advent of the BLO means that developers have “nowhere to hide” if they carry out defective work through an impecunious or insolvent SPV, which is on all fours with the BSA’s objective of increasing accountability for building safety, and for ensuring that leaseholders and residents aren’t put to funding the cost of putting defects right themselves.
“I think there are some bigger and potentially more vexed questions to be resolved by the courts in the fullness of time, however.”
A key one of these is regarding “Association”, he said. This was relatively straightforward in the Southwark Park Road case, because St Andrews was wholly owned by Holdings (albeit indirectly), but it will be less clear cut in the case of more complex corporate structures. Difficult questions will likely arise as to whether the target of a BLO controls the company which has the relevant liability, or if a third party controls both of them.
With respect of “Just and equitable” – the court in Southwark Park Road had little difficulty in concluding that it was just and equitable to make the order. However, he said, a court may take more persuasion in the case of historic liabilities that have ‘come to life’ as a result of the retrospective changes to the limitation period under DPA. “Will it be just and equitable to award a BLO in respect of a relevant liability that occurred almost 30 years ago, and where there is little (if any) evidence of what work was done? Time will tell.
“Ultimately, my sense is that Southwark Park Road is just the start. I’m expecting to see many more BLOs being made in the coming years, and for further clarity to be provided on some of the thornier aspects of the test under s130 of the BSA.”
