Building Liability Orders: Courts Extend Reach Under Building Safety Act

What happened

Building liability orders (BLOs), introduced under the Building Safety Act 2022, have given courts new powers to hold companies liable for building defects. These orders allow courts to extend responsibility from directly involved construction companies to associated firms. According to recent Technology and Construction Court (TCC) decisions, the reach of these orders is wider than initially expected.

The TCC granted the first BLO in the Click Group case. Here, the court made Click Group liable for its special purpose vehicle’s (SPV) building defects. The judgment noted the SPV was thinly capitalised, focused solely on the development, and depended financially on its parent group. The court found it 'just and equitable' to pierce the corporate veil in this scenario.

Another major decision, Crest v Ardmore, has set a new precedent. The court confirmed that BLOs could apply not only to developer SPVs but also to associated companies connected to an insolvent contractor responsible for safety defects. Factors in the Ardmore case included the contractor’s insolvency and restructuring, which the court saw as attempts to ringfence liabilities away from the company. The decision’s focus was on ensuring those ultimately responsible for remediation costs pay for them. This decision is being appealed.

In other recent cases, such as HB v Sto and Willmott Dixon v Prater, courts considered the possibility that BLOs could apply to parent companies and other associates. In HB v Sto, the claim for a BLO against a German parent company was found to have 'a real prospect of success' at trial, although this is not a final judgment.

BLOs have featured in further claims, with the limits of their reach yet to be fully defined. For example, Avant v Lloyds involves a bid to apply a BLO against bankers who allegedly influenced the predecessor company during the relevant development. Courts have shown willingness to interpret the BSA’s intent widely, but the scope remains unclear.

The background

The Building Safety Act 2022 was described by industry observers as a major change to construction sector liabilities. BLOs were conceived as a tool to address concerns over SPVs with limited assets, commonly used by major developers to shield parent firms from liability. The legislative guidance originally suggested BLOs would target such structures, intervening when it was 'just and equitable.'

However, the BSA does not restrict who can apply for a BLO, nor does it draw hard lines around what qualifies as an 'associated' company. Judges therefore retain wide discretion over when and how to apply BLOs. In the Click Group and Ardmore rulings, the courts confirmed they are not bound by a precise definition and can extend responsibility to associated companies where the circumstances warrant.

The courts in these cases sought to uphold the aim of the Building Safety Act: ensuring those responsible for safety defects contribute to remediation. The path set by initial cases suggests this principle may override narrowly-defined corporate structures, especially where insolvency or restructuring is involved.

What people are saying

Industry commentary highlighted the increased risk for companies with business links to affected developments. Some legal observers pointed out that BLOs could expose entities previously shielded from direct liability. Affected firms may struggle to obtain insurance, as policies might not cover BLO-related risks. This could in turn impact company balance sheets, business continuity, and corporate structures.

Legal experts noted that while BLOs were first envisaged for thinly capitalised SPVs, the legislation’s language leaves room for broad interpretation. The courts have so far chosen an incremental approach: examining each case on its facts and emphasising the intention to hold responsible parties to account. There is debate over whether parliament intended for BLOs to extend so widely, but judgments indicate a purposeful interpretation of the law.

What happens next

The Crest v Ardmore decision is currently under appeal, and several ongoing cases are set to clarify the scope of BLOs. Cases such as Avant v Lloyds could test the limits further, particularly regarding the liability of financial backers or companies with indirect involvement.

Courts are expected to continue refining their approach to BLOs. Judgments indicate a reluctance to set exhaustive rules, suggesting that further legal developments are likely. The process will be observed closely by companies with links to developments affected by building safety defects.

For now, legal and construction commentators recommend that all companies with any connection to an affected building review their exposure. As courts interpret BLO powers, the range of businesses potentially at risk may grow, increasing uncertainty for the wider construction industry.