Last edited 26 Jul 2024

Information orders, building liability orders and special purpose vehicles

1 Introduction
2 Special purpose vehicles
3 Changes under the building safety act
4 Information Orders
5 Building Liability Orders
6 The first published case of a Building Liability Order
7 Related articles on Designing Buildings

[edit] Introduction

Building liability orders (BLOs) were introduced as a result of the Grenfell Tower fire as part of the Building Safety Act, 2022, Part 5, Section 130. They are a mechanism that allows certain recovery rights relating to a building to extend beyond those of a subsidiary company, such as a special-purpose vehicle (SPV), to broader associated companies. Information orders are the precursor to BLOs, in which specific information about a company is requested by a court order and used to assess whether a BLO is applicable; if it is, then a BLO application is made.

[edit] Special purpose vehicles

Many construction projects, particularly where larger, higher-risk developments are concerned, create special-purpose vehicles (SPVs) or independent companies as a way to isolate risks, commonly focussed on financial risk but also other associated risks. Parent companies can use SPVs to finance large projects without exposing an entire business, but they have also been used to effectively circumvent liability and, to some extent, responsibility, effectively cutting short limitation periods by dissolving or voluntarily liquidating the SVP.

As legal entities, SVPs are set up for the specific purpose of isolating risks on both sides, by allocating risks to the subsidiary company with assets, liabilities, and a legal status to ensure independence. This can make the obligations of the SPV more secure, in the event, for example, where a parent company itself becomes insolvent. SPVs can also be used for partnerships and joint ventures, with shareholding reflecting the participants contributions. The mechanism can also allow certain opportunities to investors that would not otherwise exist, creating potentially new sources of revenue generation for the sponsoring firm or investors.

The UK government backed 'Heat Networks Investment Project (HNIP) main scheme clarification document 'Using a Special Purpose Vehicle (SPV)' explained what is meant and understood by the term SVP:

'The term Special Purpose Vehicle (SPV) denotes a separate legal entity which is created by an organisation; a distinct company with its own assets and liabilities, as well as its own legal status. Oftentimes, SPVs are created for a specific objective (such as to isolate financial risk) and in certain instances they are a requirement for local authorities when operating trading businesses.'

'Generally, local authorities are required by law to establish an SPV to operate a trading business but this can depend on the powers they choose to use to go into that business. Local authority Applicants will be expected to have considered this when obtaining relevant internal approvals and followed an appropriate path that is within their powers.'

'There are a number of types of entity that the law recognises as having legal status separate from the person setting them up. However, most people are familiar with companies limited by shares and these are the most commonly used form of SPV for heat projects.'

[edit] Changes under the building safety act

Under the Building Safety Act, 2022, Part 5, Section 130, the approach of using SVPs to avoid certain risks and responsibilities can no longer be used when it comes to building safety. The Building Safety Act allows for the first step of the process, the Information Order, which requires a specific company to supply a certain set of information or documentation, to be used to assess if a claimant is able to proceed with a Building Liability Order (BLO). If the BLO is applied for and successful, then the liability for the project lies not only with the original independent SVP but also with any corporate body that has been associated with setting up the SPV along with any associated contractors.

[edit] Information Orders

The Building Safety Act, 2022, part 5, section 132 describes what is meant by an information order or order for information in connection with building liability order:

'A person of a prescribed description may apply to the High Court for an information order.'
'An “information order” is an order requiring a specified body corporate to give, by a specified time, specified information or documents relating to persons who are, or have at any time in a specified period been, associated with the body corporate.'
'An information order may be made only if it appears to the court that the body corporate is subject to a relevant liability (within the meaning of section 130), and that it is appropriate to require the information or documents to be provided for the purpose of enabling the applicant (or the applicant and others) to make, or consider whether to make, an application for a building liability order.'

[edit] Building Liability Orders

The Building Safety Act, 2022, part 5 section 130 describes what is meant by a building liability order:

'The High Court may make a building liability order if it considers it just and equitable to do so.'

'A “building liability order” is an order providing that any relevant liability (or any relevant liability of a specified description) of a body corporate (“the original body”) relating to a specified building is also a liability of a specified body corporate, or a joint and several liability of two or more specified bodies corporate.'

'In this section “relevant liability” means a liability (whether arising before or after commencement) that is incurred under the Defective Premises Act 1972 or section 38 of the Building Act 1984, or as a result of a building safety risk.'

'A body corporate may be specified only if it is, or has at any time in the relevant period been, associated with the original body. A building liability order may be made in respect of a liability of a body corporate that has been dissolved (including where dissolution occurred before commencement); continues to have effect even if the body corporate is dissolved after the making of the order.'

[edit] The first published case of a Building Liability Order

On March 21, 2024, the first judgement on a building liability order (BLO) was published in the case of Willmott Dixon v Prater. In this case one party brought a claim against a range of defendants, all of which denied liability. It was alleged that, after being notified of the claim, some of the other parties moved assets to related companies, meaning that if a judgement was brought against them, it could not be satisfied. The court rejected the request for a BLO but noted that the application would be determined within the main proceedings. ie because the main proceeding had not yet happened, there was no need for two separate but related proceedings. The court made a number of points regarding the use of BLOs in its summing up including that.

A BLO does not need to be brought at the same time as the primary claim against a related company.
However, if a BLO was claimed before the main claim was decided, the correct approach would usually be to hear and deal with the BLO at the same time as the main claim.
While BLOs could raise separate issues to those in the main claim, resolving them would consider much of the same evidence. It therefore would not be sensible for the Court to deal with those after the main claim as it may have to review the issues more than once or require further evidence on the same or similar issues.
Although BLOs are contingent on the underlying liability, such contingent claims are frequently seen in litigation, for example, claims for contributions or claims under guarantees.
A failure to pay the underlying claim was not a pre-condition to entitlement to a BLO under the BSA.