The Upper Tribunal (“UT”) has now issued its long awaited ruling in the Vista Tower case, dismissing in full the appeal brought by the original respondents who had been made subject to RCOs.
The judgment offers clearer appellate level guidance on how several of the statutory requirements for granting an RCO under Section 124 of the Building Safety Act 2022 (BSA) should be interpreted and applied.
In the decision, Mr Justice Edwin Johnson (President of the Upper Tribunal) considers a number of significant points, including:
(a) Whether an RCO can impose joint and several liability on multiple respondents for the same financial amount.
(b) How the “just and equitable” test should properly be approached.
(c) The threshold or test for a “building safety risk”.
(d) The assessment of “reasonableness” in the context of remedial works.
Background Facts
The RCO was made on the application of the Respondent to the appeal, Grey GR Limited Partnership (Grey). The RCO application related to a building known as Vista Tower (the Building). In 2018 Grey purchased the freehold interest in the Building from the developer, who was the first respondent to the RCO application, Edgewater (Stevenage) Limited (Edgewater). Following the Grenfell Tower Tragedy, investigations revealed significant fire safety defects in the Building’s external walls.
Grey sought to recover the cost of remedial works (estimated at over £13m) from Edgewater and various associated corporate entities. By the time Grey’s RCO application came to a hearing before the First-tier Tribunal (“FTT”) there were some 96 respondents to the RCO application but the FTT determined that the RCO should be made against 76 of them (the Specified Respondents).
By the RCO the Tribunal ordered the Specified Respondents to make payments to Grey in the total sum of £13,262,119 on the basis that they were “associates” of Edgewater’s and that it was “just and equitable” to do so. Under the terms of the RCO, the liability of the Specified Respondents to make these payments was declared to be joint and several; with the effect that each one of the Specified Respondents could potentially be liable for the full £13,262,119 if the others failed to pay.
On appeal, the Appellants (the Specified Respondents) argued that the FTT were wrong to make the RCO, either in whole or in part. It was asserted that the RCO should be set aside and, depending upon the outcome of the various grounds of appeal, remade in a reduced form either as an RCO against only one or alternatively two of the Specified Respondents.
Decision
The Appellants challenged the decision on four primary grounds, three of which were rejected by the Upper Tribunal and one of which was found to be academic but upon which the UT nevertheless gave guidance for the reasons explained below:
Ground 1
The first ground of appeal was that the FTT erred in making a single RCO pursuant to which a large number of Specified Respondents were made jointly and severally liable. The Appellants argued that s 124 did not give the FTT jurisdiction to make an order of this kind or, in the alternative, if such jurisdiction did exist it would only have been “just and equitable” to order each Specified Respondent to pay a fixed and separate share of the total sum due.
The UT rejected that interpretation, finding instead that the correct construction of s.124 of the BSA was that the FTT had the power to order payment by two or more respondents on a joint and several basis.
The UT approached the construction of s 124 by reference to the legislative purpose and scheme of the Act, which it considered was to protect leaseholders from the full extent of their contractual service charge liabilities.
The language of s 124(1) identified the jurisdiction to make an RCO in relation to “a relevant building”, and s 124(2) identified an RCO as “an order requiring a specified body corporate or partnership” to make payments to a specified person. The Appellants relied upon those singular terms to argue that it was not open to the FTT to make orders imposing joint liability on two or more respondents.
The UT, however, held that there was no reason why those singular references could not be read as plural (in accordance with s 6 of the Interpretation Act 1978). That interpretation would accord with the purpose Parliament intended for s 124 of the BSA.
Further, a construction precluding the imposition of joint and several liability would have constrained the FTT to apportion the sums payable under the RCO between Specified Respondents. That would have created an obvious problem with enforcement if one or more of them turned out to be impecunious. The UT concluded that this would frustrate the statutory purpose of s 124 which was to secure for leaseholders the necessary funds for remediation.
Ground 2
The Appellants argued that the FTT erred in its approach to determining whether it was “just and equitable” to make the RCO against the Specified Respondents and, in doing so, wrongly eroded the principle of separate corporate identity beyond both the purposes and limits authorised by the BSA. In particular, the Appellants said that the FTT:
(a) Failed to recognise that participation in the relevant development, or the receipt of remuneration from that development, was a minimum requirement or “touchstone” for it being “just and equitable” to make an RCO.
(b) Wrongly imposed an evidential burden on respondents to an RCO application to show why it would not be just and equitable to make such an order against them.
(c) Wrongly drew adverse inferences against the respondents on the basis of a supposed failure to discharge that evidential burden.
In rejecting this ground of appeal, the UT confirmed that in determining whether it was “just and equitable” to make an RCO for the purposes of s 124(1), it is not sufficient for the FTT to consider whether the gateway conditions for the making of an RCO under s 124 are satisfied; there has to be something more. However, the breadth of the “just and equitable” discretion is very wide. The factors that can be taken into account in any particular case are not limited by s 124(1) and cannot be exhaustively classified.
Whilst the initial burden of proof lies on an applicant to put forward a case as to why an RCO was just and equitable, it is then for the respondents to present their case in response. However, in this case, the Specified Respondents were not carefully delineated entities but part of an opaque network and structure which had not been explained in detail in the FTT proceedings.
The UT held that it is good practice for associated entities to explain clearly to the FTT the nature and extent of their relationship with the principal.
The obvious purpose of the “association provisions” in s 124(3)(d) was to ensure that a wealthy parent company or other wealthy associated entity could not evade responsibility for meeting the costs of remedying the relevant defects by hiding behind the separate personality of a development company. Contrary to the arguments made by the Appellants, there is no requirement for participation in the relevant development by the associated entity or for the direct or indirect receipts of profits from the development (although those are matters that can be taken into account when deciding what was “just and equitable”).
Ground 3
The FTT concluded that a “building safety risk” for the purposes of s 120 is any risk above a “low” risk under a PAS 9980 assessment, so as to include tolerable risks. The Appellants said that the FTT should instead have directed itself that only an “intolerable” risk under a PAS 9980 assessment could be a “building safety risk”.
However, both the FTT and the UT had refused permission to appeal against the decision of the FTT to include the costs of replacing the Type 2 Wall within the RCO. The question of what constituted a “building safety risk” would only have been relevant to an appeal about the Type 2 Wall. Nevertheless, the UT was asked by all the parties to address the issue raised by Ground 3, with a view to giving guidance to other tribunals on the question of what constitutes a “building safety risk”.
The UT held that the FTT had wrongly concluded that “a building safety risk” for the purposes of s 120(5) was any risk above a “low” risk in a PAS 9980 assessment. It was difficult to see a justification for imposing any kind of external gradation or limit on the level of risk which is capable of qualifying the reference to “a risk” in the definition of “building safety risk”. There is no such qualifying wording in s 120(5) and there is no justification for reading in such words. The reference to “a risk” in s 120(5) referred to any risk, including a low risk.
Ground 4
The Appellants challenged the reasonableness of the costs incurred in relation to some aspects of the remedial works. This was on the basis that the expert witnesses had agreed that the total removal of insulation from the external wall was not required from a technical perspective.
The UT found, however, that there were a number of factors in the evidence on which the FTT was entitled to rely and did rely in concluding that it was reasonable for Grey to replace the entirety of the insulation, including a FRAEW Report from 2023 which had supported that course of action. This was not a case where the FTT findings were either unexplained or unsupported by any evidence. On the contrary, the findings were both explained and grounded in the evidence which was before the Tribunal.
Conclusion
In what will likely be seen as another applicant friendly decision, the UT has confirmed that respondents to an RCO application should do all that they can to explain the nature and extent of their relationship to the principal entity (i.e. the developer). Respondents who fail to give full and detailed explanations of their corporate structures are likely to get short shrift from the FTT.
Whilst the joint and several basis of apportionment was considered appropriate in this case, there is some glimmer of hope for respondents as the UT suggested in its concluding remarks that “… joint and several liability is not the starting point in every case where the FTT is persuaded to make an order against multiple respondents.” A just outcome could also be apportioned liability, or no liability at all in the case of some respondents.
Applicants will also welcome the decision that “associates” do not necessarily have to have participated in the original development or have made a direct financial gain from it. However, it is suspected that respondents to future RCO applications where those features are absent may have better prospects on this point than did the Specified Respondents, if a detailed case is put forward on the corporate structure and any financial and corporate distance of the “associate” from the development.
The decision also confirms that there is no limit on the level of risk that is capable of amounting to a “building safety risk”. This interpretation removes any threshold or grading and means that each case is going to turn on its own facts. Thus PAS 9980 assessments are unlikely to provide any determinative answer.
The UT also confirmed the long-established principle that a reasonable remedial scheme does not necessarily mean the minimum that is technically necessary. Applicants will be allowed a certain degree of leeway in determining whether or not a remedial scheme is reasonable, particularly if they have relied on contemporaneous third-party advice given the competing tensions at play in these kinds of cases.
