The Court of Appeal has upheld the decision of the First-tier Tribunal (FtT), on appeal from the Upper Tribunal (Lands Chamber), in Triathlon Homes LLP V Stratford Village Development Partnership & Others.
The Court of Appeal dismissed both grounds of appeal advanced by the Appellants, Stratford Village Development Partnership (SVDP) and Get Living PLC.
The Court also confirmed that the FtT had been correct in holding that:
- It was just and equitable to grant Remediation Contribution Orders (RCOs) against the Appellants; and
- Section 124 of the Building Safety Act 2022 (BSA) has retrospective effect.
Partner Sarah Dyer and Principal Associate Sean Garbutt acted for the successful Respondent, Triathlon Homes LLP (Triathlon).
How did the dispute begin?
- Triathlon is a limited liability partnership which provides affordable housing at East Village, which is the former Athletes Village for the London 2012 Olympic Games. East Village is now a large permanent residential estate providing nearly 3,000 new homes, most contained in 66 blocks of between 8 and 12 storeys.
- The appeal concerns 5 buildings (the Blocks) in an area of the village known as N26. Triathlon is the long leaseholder of all or part of each of the Blocks.
- The Athletes Village was owned and developed by a special purpose vehicle called Stratford Village Development Partnership (SVDP). At the time of development, SVDP was wholly owned by the Olympic Delivery Authority (ODA). Following completion of London 2012, SVDP was sold into the private sector and, at the time of the application, was part of a corporate group which included SVPH1. SVPH2 and QDDAV, all of which were ultimately owned by Get Living PLC (Get Living).
- The properties at N26 were subsequently leased to individuals by both Triathlon and Get Living, with approximately 60% of the units leased by Triathlon, and the balance leased by Get Living.
- Following the Grenfell Tragedy, inspections were undertaken across the village by the management company East Village Management Limited (EVML) which identified a number of building safety defects. Thereafter a waking watch was put in place and a remedial scheme for N26 designed and tendered.
- The majority of the costs of the tender process and remedial works were funded by the Government's Building Safety Fund (BSF).
- Triathlon's share of the remedial works and professional fees were estimated at some £16 million (referred to in the judgement as the "Major Works").
- In addition, future costs of fire evacuation officers and fire alarm decommissioning to the conclusion of the works were estimated in the region of £760k as well as Triathlon's costs incurred in respect of the waking watch, fire evacuation officer and tender of the remedial works at just over £1 million (referred to in the judgement as the "Triathlon Additional Costs").
- Triathlon applied for RCOs to be made against SVDP (in its role as developer) and Get Living (in its role as the parent company of SVDP as well as the freehold landlord entities SVPH-1 Limited and SVPH-2 Limited). Triathlon sought its share of the Major Works costs and future costs to be paid by SVDP / Get Living (together the Respondents) to EVML (as the entity that will be incurring the Major Work and future costs), with the historic Triathlon Additional Costs being sought to be paid to Triathlon.
- The FtT – heard by the Upper Tribunal
President and Deputy President acting in their capacity as
FtT judges – had agreed with Triathlon and
made five RCOs against the Appellants (one in respect of each of
the Blocks), ordering them to pay in total:
- over £16 million to EVML in respect of the Major Works;
- a further £767,438 to EVML in respect of the costs of other remedial measures including the forecast cost of servicing and decommissioning temporary fire alarms; and
- over £1 million to Triathlon in respect of the Triathlon Additional Costs.
- The Appellants appealed against the FtT's
decision on two grounds, arguing that the FtT had
erred:
- in 10 separate respects, in concluding that it was just and equitable to make the RCOs; and
- in concluding that an RCO can be made in respect of costs incurred before the relevant part of the BSA came into force on 28 June 2022.
Court of Appeal upholds FtT decision
The Court of Appeal dismissed both grounds of appeal.
Ground 1: Application of the "just and equitable" test
The Appellants contended that the FtT had erred (in 10 separate respects) in concluding that it was just and equitable to make RCOs against SVDP and Get Living for the costs of the Major Works (for which EVML has funding from the BSF).
The Court of Appeal dismissed all 10 sub-grounds.
Some key points made in the judgment include:
- The "unexpressed presumption" argument: the Appellants argued that the FtT wrongly created a 'presumption' that it is just and equitable to make an RCO against a party falling within the definition in section 124(3) of the BSA who has the means to fund the remediation works. The Court of Appeal did not accept this. They commented that in the extracts the Appellants relied upon as purportedly creating this assumption, the FtT were making two different points. The first point was that the policy or "central purpose" of the BSA was to place primary responsibility on the developer. This was not disputed – and indeed was endorsed by the Supreme Court in its recent judgment in URS v BDW. The second point that the FtT had been making was the 'public purse' point (also discussed further below). The Court of Appeal noted that while it is true that Government has made public funding available "in the shape of the Fund", there is nothing to suggest that this was "intended to displace the provisions of the Act which regulate which parties with a connection to the building should, if able to, contribute to the cost". In these circumstances, the FtT were therefore entirely justified in concluding that as between SVDP and Get Living on the one hand and the public purse on the other, it was "difficult to see" why the public should fund the works "rather than the developer and its associates who continue to own the buildings and who can (in the case of Get Living) well afford to fund the works."
- Corporate identity: The Appellant's first point related to the changing identity of the ultimate beneficial owners of SVDP and Get Living, i.e. the fact that the investors who are now the beneficial owners of Get Living (and hence of QDDAV and SVDP) are not the same as those who initially bought SVDP from the ODA.The Court of Appeal agreed with the FtT that this was not relevant: "if you invest in a company, you take the risk of unforeseen liabilities attaching to that company." The Court of Appeal also held that the fact SVDP was formerly in public ownership by the ODA, a public body, did not affect the current position. The Appellant further argued that Get Living itself had no involvement with the development of the blocks – in reality, the developer in the case was the ODA, who had developed the Blocks through its then subsidiary SVDP. It argued that Get Living was not therefore the type of associate that is the "paradigm case" for an RCO, i.e. a development company which uses a thinly capitalised special purpose vehicle (SPV) to carry out developments, which it then winds up when it disposes of the development, thus avoiding long-term liability. However, the Court of Appeal noted that the purchasers had the choice between acquiring the land, or acquiring SVDP. Having chosen to acquire SVDP, they took the risk of liabilities attaching to it. These included the risk (which the Court of Appeal accepted was quite unforeseeable) of a serious building safety crisis which Parliament addressed by "far-reaching legislation under which the well-resourced parent of a poorly-resourced developer could also be made to contribute without being at fault in any way."
'Public purse' issue: the FtT was right to say that the Building Safety Fund is to be characterised as a last resort.
The BSA provides a "complex set of answers" to the "who pays" question, with a number of facets, making provision as to how the costs of remediation which would otherwise have fallen on the leaseholders (but from which the BSA protects them) should be borne. One "discernible principle" identified by the FtT and reiterated by the Court of Appeal is that a "developer responsible for the defect who retains an interest in the building should stand at the top of the hierarchy or cascade of those who will pick up the costs".
The BSF, on the other hand, "does not take its place in the hierarchy of those whom the Act contemplates as potential funders of the costs which the leaseholders are relieved from meeting", but rather "stands outside the Act (and in fact, pre-dates it)".
Ground 2: Retrospectivity
The Appellants had also argued that the FtT were wrong to conclude that an RCO could be made in respect of costs incurred before section 124 of the BSA came into force. This issue related to the approx. £1.1 million of costs that were incurred by Triathlon before 28 June 2022.
This ground of appeal was also dismissed.
The Court of Appeal cited the recent Supreme Court judgment in URS v BDW (which we summarised in our article: Tort Contribution and Defective Premises Act 1972 Supreme Court), noting that the judgment says "in terms" that section 124 is one of the provisions of the BSA that has retrospective effect.
It also noted that there is "no good policy reason why Parliament would have decided to "penalise" leaseholders whose landlords (perhaps at the leaseholders' own instigation) had acted responsibly and got on with repairs" by carrying these out before 28 June 2022, when section 124 came into force.
Key takeaways
This is a milestone decision from the Court of Appeal, considering a number of important issues for the whole industry including building owners, developers and leaseholders, as well as for construction professionals involved in legacy building safety disputes. The judgment provides an appellate level decision on the way the "just and equitable" test will be applied by the FtT / Courts as well as the retrospectivity of section 124 of the BSA.
Following swiftly on the heels of the Supreme Court's recent judgment in URS v BDW, it reaffirms that the central purpose of the BSA is to place primary responsibility for building safety defects on the developer.
In particular, it confirms that defences seeking to rely on the change of ownership of corporate structures (even if long after the event of development) are unlikely to find favour with the Courts, who will apply the cascade or hierarchy of liability in which the developer and its associates sit at the top.
It may also prompt recipients of funding from the BSF to expedite RCO proceedings to recover those funds from those ultimately responsible (in light of the requirement in the grant funding agreement from the BSF that the recipient of funds must use "all reasonable endeavours" to recover the outlay and hand this back to the Government).
Read the original article on GowlingWLG.com
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