How the new building-safety test lifts the veil on remediation liability

Mark London is a partner at law firm Devonshires

In June 2022, the Building Safety Act (BSA) introduced several new remedies for those who wish to either recover the cost of remediating buildings or to compel a landlord to remediate the building. These new remedies ranged from extending the period of limitation under the Defective Premises Act 1972 (including retrospectively to 30 years) to the introduction of brand-new remedies available in the First Tier Tribunal (remediation orders and remediation contribution orders/RCO) and the High Court (building liability orders/BLO). 

“This opens a world of possibility, enabling a claimant to pursue companies with which it has no contractual relationship”

One of the more controversial or welcomed aspects of the new remedies, depending on your point of view, is that claims for both an RCO and a BLO may be brought against companies associated with the original alleged wrongdoer. Where such claims are pursued, the court will be able to make an order against that associated company if it is just and equitable to do so.

The definition of an associated company is wide. For a BLO, a company may be associated with another either through ownership or control. It is not limited to immediate parent companies only.

This opens a world of possibility for any potential claimant (and, conversely, a can of worms for developers and contractors), enabling it to pursue companies with which it has no contractual relationship or from which it is owed no tortious duty. Some describe this politely as a tearing of the corporate veil. Others have likened it more to ripping the veil to shreds. 

The logic behind the new remedies is, however, perfectly clear. The government will no longer allow liability to be extinguished where the original alleged wrongdoer has become insolvent, impecunious, or no longer trades. Where special purpose vehicles are created within a group structure to complete a project and then dissolved, liability will similarly not be extinguished. Where these situations arise, associated companies will naturally become targets.

Balancing exercise

Having been presented with this new body of law, how are courts going to decide whether it is just and equitable to make an order against an associated company? In my opinion, the test will come down to a balancing exercise. To weigh the scales and see how they fall, the courts will inevitably want to know whether the associated company:

1. benefited financially or otherwise from the activities of the original company;
2. supported the original company to trade, whether through inter-company loans or otherwise;
3. had any material part to play in making decisions regarding the defective building; and
4. operated in the same commercial space (such as the construction industry) as the original company.

Common directorships between the original contractor and its associated company may also be one, albeit not conclusive, factor as to whether the just and equitable test is satisfied.

Where an associated company received money from the original company, supported its trading activities or controlled it, it’s going to be pretty difficult to argue that it would not be just and equitable to make an order. On the other hand, if the associated company neither received a financial benefit nor provided financial support, had nothing to do with the activities of the original company and did not operate in the same commercial space, then it could be far more difficult to justify the making of an order.

Ultimately, this is all about fairness. It is, I would suggest, entirely fair for an associated company to be on the hook, whether for a contribution under an RCO or for something more substantial under a BLO, if it can be shown that it was intimately involved in the original company’s business.

Putting it another way, the just and equitable test could be answered by considering the proximity of the associated company to the original alleged wrongdoer. Over time, as cases are brought and heard by the courts, guidance will be set out by the courts as to what factors will be taken into account, thereby clarifying the position. Until then, we can expect the courts to explore and consider the extent to which the associated company was involved in the affairs of the original company. Where that can be demonstrated, the corporate veil will slip silently to the floor.