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Willmott Dixon v Prater and others – Claim No. HT-2022-000409

March 2024

Case Report

Building Liability Orders – Important new guidance from the Court

Overview:

On 21 March 2024, Mrs Justice Jefford delivered an ex tempore Judgment in the Technology and Construction Court on an application brought by various Lindner Group companies regarding Part 20 claims brought by AECOM Infrastructure & Environment UK Ltd (“AECOM”) for Building Liability Orders under the Building Safety Act 2022. Sheena Sood and Nicholas Smith of Beale & Company Solicitors LLP, and Sean Brannigan KC and Thomas Crangle of 4 Pump Court, represented AECOM.

In this novel case, the Judge dismissed the Lindner Group companies’ application seeking to separate out and stay the BLO claims until after judgment on the main claim. In rejecting the application, the Judge raised several points of interest around BLOs, described as a “relatively new creation” with little, if any, guidance. The Judge concluded that it would generally be sensible and efficient for matters in the main claim and additional claim to progress together for several reasons. This Judgment provides welcome clarity on how the courts may treat future BLO claims, including by reference to live underlying proceedings.

What is a Building Liability Order (“BLO”)?

The Building Safety Act 2022 introduced an ability for a party to apply to the High Court for a BLO. The policy behind BLOs aims to protect claimants seeking recompense and to address the risk of companies potentially seeking to avoid liability for safety-related defects discovered on projects using subsidiaries, special purpose vehicles or shell companies with limited financial strength (and which may subsequently be dissolved post-completion of the project). If granted, a BLO extends specific relevant liabilities attributed to the company to associated corporate bodies, such as qualifying parent or sister entities.

For more information on BLOs, please refer to this article: Building Liability Orders – Where are we now? | Beale & Co (beale-law.com)

Background:

The main claim concerns a project for the design and construction of a mixed-use commercial and residential property development in London. The Claimant (Willmott Dixon Construction Limited) seeks recovery of damages alleged to arise from the use of unsafe or defective materials in the external wall of the development. The Defendants to the main claim include the specialist envelope sub-contractor and its guarantor, Prater Limited (“Prater”) and Lindner Exteriors Holding Limited (“Lindner”), the architects, Sheppard Robson Limited, the building services engineers, AECOM Infrastructure & Environment UK Ltd (“AECOM”) and the approved inspectors, AIS Surveyors Limited. They each deny liability to the Claimant. Contribution claims exist between the Defendants, including by AECOM against Prater and Lindner.

Following intimation of the main claim, Prater and the Linder Group underwent corporate restructuring and completed several financial transactions. AECOM issued a Part 20 additional claim for BLOs against four Lindner Group companies under Section 130 of the Building Safety Act 2022 (“the Act”). One of those companies is an English registered company and three are German companies. Publicly available information had highlighted that the financial positions of Prater and Lindner appeared to have deteriorated such that neither were likely to be able to satisfy any future judgment in the main claim. The Lindner Group companies were not directly involved in the design or construction of the development, but it was accepted that they formed part of the same corporate group.

If ordered, the BLOs will make the additional Lindner Group companies responsible for liability attributed to Prater or Lindner in the main claim.

Key Issues:

Ahead of filing any Defence, the German Lindner Group companies issued an expedited application requesting:

• AECOM’s Part 20 additional claim for the BLOs be heard separately from the main claim;
• AECOM’s Part 20 additional claim be stayed until future judgment in the main claim; and
• consequential orders, including directions for the additional claim proceedings.

The Judge considered the issue of how and when the BLO claims should be heard, together with associated directions. The Judge also considered the parties’ submissions around the use and intent of BLOs.

The Applicants’ Position:

Separate proceedings

The Applicants asserted that the additional claim did not concern all the parties to or the issues in the main claim. If heard alongside the main claim (to which the Applicants were not party), extra/disproportionate costs and wasted time would unnecessarily be incurred. The Applicants indicated that they were unfamiliar with the content or issues in the main claim and would incur significant cost considering this, particularly since they were based in a different jurisdiction. During the hearing the Applicants pointed to the potential prejudice they might suffer and requested that the main and additional claims be tried separately.

Stay of proceedings in the additional claim

Another core argument raised by the Applicants was that the additional claim is contingent on certain findings being made in the main claim and, as such, should be stayed until that judgment was handed down. In support of this, the Applicants asserted that the BLO claims involve an assessment of whether it is ‘just and equitable’ for them to be made liable for the liabilities of Prater and Lindner: thereby requiring consideration of the parties’ respective culpability. Other relevant factors to this test could also include AECOM’s liability and whether Prater and Lindner were able to satisfy any liability to AECOM (points which could only be determined after judgment on liability and quantum in the main claim).

The Applicants therefore deemed it unjust and ineffective to defend the additional claim now and in circumstances where AECOM might:

• be found not liable and therefore abandon their contribution claim and additional claim; or
• discontinue proceedings, for example if Prater or Lindner satisfy any judgment against them.

Lindner Prater Limited (“LPL”):

The Lindner Group company based in the UK filed its Defence the day before the hearing but supported the Applicants’ submissions. LPL specifically argued that the BLO claims had no basis unless and until Prater and Lindner were held liable to the Claimant, and liable to AECOM in contribution, and were unable to discharge any such liability. It referenced the liability defences raised by Prater to the main claim, as well as AECOM’s potential culpability or contribution.

LPL posited at the hearing that there was a risk that the Court would need to rely upon a “crystal ball” to try to consider all the relevant issues if both proceedings were heard together. The additional parties would then have to effectively address the Court on a speculative or hypothetical basis or try to anticipate the items which the Court might potentially determine and circumstances that may arise.  In its view, such an approach would be inefficient, unhelpful, and contrary to the overriding objective of justly determining claims at proportionate cost.

AECOM’s Position:

AECOM firmly opposed the application. AECOM had previously acceded to the additional Lindner Group parties’ request for additional time to serve their Defence. It had also proposed directions enabling the additional claim to become synchronised with the main claim, including providing for time to deal with the issues in the additional claim at trial.

Separate proceedings

AECOM submitted that the main claim and additional claim should be considered in parallel given the inextricable overlap. By its nature a BLO arises and connects to another company’s liability – it is not a separate or detached liability.

AECOM accepted that to establish the liability of the additional parties for the BLO it must also establish the liabilities of Prater and Lindner in the main claim (and demonstrate that these are ‘relevant liabilities’ under the Act). As the pleadings stood, it was unclear how the additional parties intended to respond to the BLO claims or explain the corporate changes undertaken by the Lindner Group companies. The Court would need to consider the evidence in the main claim when deciding whether to make the BLO, including the overall culpability of Prater and Lindner and whether this should have been obvious to the Lindner Group before taking action to restructure or complete substantial financial transactions. Since the Applicants also recognised that the BLO claims would involve an assessment of findings on the Defendants’ culpability in the main claim, this further supported the overlapping nature of the main and additional claims and undermined the Applicants’ suggested approach.

AECOM submitted it would therefore be dangerous to separate out the additional claim. To ensure that any future Court determination on Prater’s and/or Lindner’s liability to the Claimant or AECOM in the main claim was binding on the additional parties, and to avoid litigating the same points twice (with the related risk of inconsistent findings), it was appropriate and necessary for the additional claim to be heard in the same proceedings as the main claim.

AECOM also argued that the fact that a claim is contingent on another claim being successful did not warrant a stay being granted or the claims being heard separately. Contingently pleaded claims, such as guarantor claims, are commonly tried together as was indeed the case here. The same applied to additional claims for a contribution from a party who is not an existing defendant.

In AECOM’s view, the Applicants’ suggested approach of waiting for judgment in the main claim before completing the next procedural steps in the additional claim would create unnecessary delay, cause considerable prejudice and uncertainty to the other parties, and undermine the overriding objective. For example, there was a risk that during this period the parties would not know which (if any) parties would be liable for the judgment debts of Prater and/or Lindner. The Claimant could potentially be kept out of funds if the two Defendants were held liable but had insufficient funds to meet the judgment sum awarded in the main proceedings. Alternatively, liable Defendants with adequate funds would fund the judgment in the main claim for a significant period before resolution of the additional claim.

In addition, AECOM asserted that the greater the overall delay in resolving the additional claim, the greater the risk of further changes to the Lindner Group’s corporate structure; making it more challenging to understand the position and/or ultimately enforce any judgment.

The issues covered by the additional claim were sufficiently narrow and self-contained that the associated costs of addressing these, and the following procedural stages of disclosure and witness evidence, were anticipated to be limited.

The Application Hearing:

The Judge recognised the balancing act between not incurring costs now (and the risk that these may increase if incurred in the future), and never having to incur such costs if the multiple contingencies behind the BLO claim don’t reach fruition.

The intention behind the creation of BLOs is to ensure that the person to whom a liability is owed (a successful claimant) can recover monies regarding that liability. The Judge observed that it was incorrect to state that a BLO claim may only arise or be made if the company facing the main claim failed to satisfy the judgment: a failure to pay is not a pre-condition under the Act (although might further support a BLO being made). Evidence concerning the financial positions of Prater and Lindner would be reviewed at the appropriate point in the proceedings. However, the Judge also noted that it may not be necessary to show any element of bad faith concerning the two Defendants’ financial position as part of the ‘just and equitable’ test under the Act. A BLO may be imposed on associated companies where the original company had disposed of assets even if such disposal was entirely innocent.

LPL had expressly referenced and relied upon Prater and Lindner holding valid professional indemnity insurance in their pleaded Defence, which they contend would go towards meeting the main claim.  It is unusual to see waivers regarding the confidentiality of insurance policies, which is notable and could further indicate the new and unusual nature of BLOs.

The Decision:

The Judge observed that as a matter of principle the Act does not require a party from whom a BLO is sought to be a party to the main claim or party to those proceedings. Such a party may not have existed at the time of the project or the time of the proceedings. However, if that company did exist at the time, and the BLO was claimed before resolution of the main claim, then it would generally be sensible and efficient for matters in the main claim and additional claim to progress together. This approach does not bind a judge to determine the BLO claim within the main proceedings; a judge could still require a separate hearing.

The Act assumes that the associated company will not be able to challenge a liability finding against the original company.  However, this does not prevent the associated company from seeking to argue that it is not just and equitable to make a BLO pursuant to the Act and in the circumstances. Such arguments are avoided if the associated company is party to the proceedings.

BLO claims could raise issues which do not automatically or necessarily arise in the main claim, however resolving such issues would typically involve consideration of much of the same evidence. It would therefore be patently unsatisfactory to have the Court consider those issues after the main claim as doing so might involve either considering evidence already on record more than once and/or require further evidence on much the same issues.

The Judge also disagreed with the Applicants’ submissions on the level of potential costs to be incurred. Any undue burden or difficulties with ensuring that the Lindner Group companies are afforded a proper and cost-effective opportunity to respond to the BLO claim could be handled by appropriate case management and/or costs orders. Further, any evidence that the Applicants did wish to adduce would be limited to the issues relating to the BLO claim and so there would be no need for the Applicants’ counsel to sit through the full proceedings.

In light of these points, the Judge declined to agree to a stay of proceedings and rejected the application. The Applicants were ordered to pay AECOM its awarded costs.

The Judge set directions for the additional claim (including deadlines for remaining Defences and an initial case management conference).

Key Takeaways:

This decision provides important new guidance for parties considering or responding to BLOs. The use of BLOs and Information Orders under the Act effectively pierce the ‘corporate veil’ historically relied upon by group companies. BLOs broaden potential liability exposure for past and future projects – associated companies, who were not involved in the project, may not have even existed at the time and may not be in the same jurisdiction, could be held jointly and severally liable.

This is thought to be the first judgment of its kind and considers the procedural approach to BLOs (including how and when these should be considered by reference to the underlying main proceedings). In rejecting the application, the Judge described BLOs as a “relatively new creation” under new legislation with little, if any, guidance.

Section 130 of the Act states that a BLO may be imposed if certain criteria are met, including that this is “just and equitable” in the circumstances. Despite earlier discussions within parliament, the Act does not prescribe the specific factors that a court must consider when deciding whether to make a BLO, so they are likely to be fact-specific to each case. In this application the parties had adopted different lines of argument on the just and equitable test in support of their respective approaches, and the Judgment touched upon some of the circumstances which may be reviewed when making a BLO. It is apparent that the courts will look to the policy behind the Act, in addition to the evidence before it, when making future determinations.

Many legal commentators had also presumed that BLOs were remedies available to Claimants; however, we understand this to be the first reported case in which a Defendant seeks a BLO against group companies by way of contribution.

The decision is likely to be of interest. Please contact us should you wish to discuss this article, or require support on issues following this Judgment.

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