Vista Tower Remediation Contribution Order – Associate Liability

Please note that permission to appeal has been granted by the FTT to consider: (1) whether a Remediation Contribution Order can be made against multiple entities on a joint and several basis; (2) whether the costs of remediating defects which cause tolerable risks can be included in an RCO; and (3) whether the costs of replacing a wall type (agreed by the experts to be unnecessary and disproportionate) should have been included in the RCO.

In Vista Tower the First Tier Tribunal (FTT) made a ‘joint and several’ remediation contribution order (RCO) of ‘just over  £13,262,119’ against 76 respondents. It declined to include 15 other respondents within the order even though they were also ‘associated’ with the developer. The Applicant, Grey GR Limited Partnership, had bought the freehold from the first respondent, Edgewater (Stevenage) Limited (which was also a developer in relation to the building), in June 2018.  It was one of 200 or more residential buildings acquired by the Applicant as a portfolio of ground rent investments for the pension fund Railpen Group. Like many tall buildings, Vista Tower had serious fire safety defects, with combustible materials in the external walls and no cavity barriers/fire stopping.  The Applicant received the promise of more than £12 million from the government’s funding scheme, and under the terms of the grant agreement is required to use reasonable endeavours to pursue remedies from others, and repay the money received to the public purse.

This is not the first decision involving Vista Tower and the Building Safety Act 2022 (BSA). As progress on remediation was unacceptably slow the government’s Recovery Strategy Unit applied for, and obtained, a (much publicised) remediation order at the end of April 2024. Proceedings have also been issued in the Technology and Construction Court for a building liability order under section 130 of the BSA against three of the respondents.

When can an RCO be made?

Under Section 124 of the BSA a RCO can require a party to meet costs incurred or to be incurred in ‘remedying, or otherwise in connection with, relevant defects’. This can include the costs of ‘relevant steps in relation to a relevant defect’, of expert reports, and of temporary accommodation. The FTT can make such an order when it considers it ‘just and equitable to do so’. The parties that can be required to pay are the current landlord, the landlord at 14 February 2022, the developer, and a company or partnership associated with any of them.  

By section 120(2) a relevant defect is a defect that causes a building safety risk.  It was argued for the respondents in Vista Tower that whether there was a defect depended on whether there had been compliance with the building regulations relevant at the time of the development. The FTT said this would be ‘surprising’ and considered ‘that non-compliance with those building regulations is merely one way, not the only way, in which something can be a “defect” for these purposes’: [67]-[70]. Similarly it had been argued that a medium fire risk that was tolerable would not be a building safety risk; again the FTT disagreed preferring the view that anything above ‘low’ risk (‘understood as the ordinary unavoidable fire risks in residential buildings and/or in relation to PAS9980 as an assessment that fire spread would be within normal expectations’) may be a building safety risk: [71]-[76]. There was also discussion of the scope of works covered by a RCO: was it only, as argued for the respondents, work that is ‘unavoidable? The FTT said that when deciding whether it is just and equitable to include certain costs ‘it is helpful to ask whether the relevant remedial works/costs were within a reasonable range of responses/costs’ and in Vista Tower ‘that range is relatively wide’: [83]. The FTT said, for example, that the figure for fire doors would be included in the RCO because of the serious relevant defects in relation to the building and with the fire doors, even though some of the fire door problems may relate to ‘wear and tear’ (and therefore these aspects would not be ‘relevant defects’) [175].

Exercising the ‘just and equitable’ discretion

The FTT in Vista Tower notes that this is not a fault based jurisdiction (as did the FTT in the Triathlon decision, discussed here)) but that one of its main purposes is to ensure that the ‘“pot is filled promptly” so that remedial work can be carried out and/or public money from grant funding can be recovered promptly … where it is just and equitable to do so’.

The respondents had argued that it was relevant to the tribunal’s discretion that the Applicant is ‘substantial and sophisticated’ and ultimately owned by Railpen (with some £34bn in assets) and must have assumed responsibility for risks as it purchased the freehold after the Grenfell Tower fire with a warranty only from the lead respondent which was a single-purpose vehicle (SPV) with no trading history (and it appears the warranty was untrue: [87]). The FTT did not consider the Applicant’s position had any ‘significant weight’ here: [85]. It noted the ‘hierarchy or cascade of liability’ referred to in Triathlon, and that the Applicant had incurred substantial costs which it was not seeking to include in the RCO. Nor was it relevant that the Applicant was not seeking to recover costs from non-qualifying leaseholders (they are lower in the hierarchy of liability) as the purpose of the Act is to protect leaseholders to the fullest extent possible: [89].

There is discussion in Vista Tower of Edgewater (Stevenage) Limited (R1)’s development of Vista Tower, of those associated with R1, and of the funding and proceeds.  The development of Vista Tower led to a profit figure of £1.5 million; the FTT did not consider this modest, but ‘even if no or modest profits had been made, it would have been just and equitable to include in a RCO the huge costs incurred in connection with the relevant defects left by R1’ [232].

Associate status

Section 121(5)(a) of the BSA provides that a ‘body corporate is associated with another body corporate if at any time in the relevant period a person was director of them both’. At Vista Tower, Jack Frankel and/or Jacob Dreyfuss were directors of R1 AND each of the other respondents (with one exception) ‘during the critical period of 15 February 2017 to 14 February 2022’ (the five year period referred to in section 121). Many of the respondents appear to have been SPVs for other Edgewater Group developments, although not always ‘carefully separated SPVs but as part of a fluid, disorganised and blurred network or structure controlled by Jack Frankel and/or Jacob Dreyfuss’: [369]. Section 121(5)(b) says there is association if one body corporate controls the other and so there was a further association link for one of the respondents which owned 80% of the shares in R1: [198].

Who should the order be against?

In the earlier Triathlon decision a RCO was made against two respondents (the developer, and a property company that now owned both the developer and the two dormant subsidiaries holding the freehold to the property but which had been incorporated some years after the development was completed). As David Sawtell notes in a chapter in Private Law and Building Safety (forthcoming) this ‘ignores the fact that no party could have known (let alone willingly assumed) the risk that Parliament would legislate to retrospectively impose liabilities on the developer’. Or, of course, introduce the concept of associate liability. The Court of Appeal is to hear an appeal in Triathlon at the end of March 2025. 

In Vista Tower the FTT had no hesitation in making an order against R1: as the developer it is ‘a key target, at the top of the hierarchy of liability (or waterfall)’: [350]. This is a sufficient reason for the RCO against it, although there were also ‘negative factors’, including the untrue warranty, failure to deal with fire defects and a failure to ensure that the sprinkler system was commissioned.

However, in this case the developer was incorporated as a SPV with few assets and ‘may soon be subject to administrative strike off for failure to file documents’. What is of particular interest in the decision therefore is the way in which associate liability is approached. The FTT noted that the power to make RCOs ‘against associated bodies corporate and partnerships is a radical departure from normal company law, but does not pierce the corporate veil because it does not expose the individual members to unlimited personal liability’: [351]. The FTT set out how the exercise of the jurisdiction should be approached:

• Each case is very fact-sensitive and a matter for the FTT’s discretion: [357].
• The extent of the respondent’s assets or liabilities is not a ‘significant reason’ for or against a RCO: [352].
• There is no ‘automatic presumption that any associate must be made liable unless they can show good reasons why they should not have to pay, particularly where they are associated only by common directorship’: [357, emphasis added]. There may be additional linking factors ‘short of linkage with the development or evidence of abuse’ that ‘call for an explanation and/or evidence of countervailing factors’. That was the case in Vista Tower for all respondents because there are links ‘in addition to association by common directorship’. This includes: many of the respondents are involved in property related business, presented to potential funders/investors as if part of a group, linked by the Frankel and/or Dreyfuss families, and linked by financial or other dealings.
• The jurisdiction does not call for something akin to a tracing exercise, at least in this instance (noting that the respondents have not always demonstrated candour or rigour in their financial evidence): [358].

Schedule 1 to the decision applies this approach and explains why each respondent is, or is not, subject to the RCO.  A careful reading of the schedule (and evidence in the decision) reveals the factors that influenced the FTT for/against inclusion. By way of illustration, Edgewater (Brighton) Ltd (R2) is not within the RCO because it has 70-80% of its shares ‘held by others who appear genuinely independent’: [381]. Balstraw Limited (R22) is said to be a ‘borderline’ case; although a registered charity (not a property company) incorporated more than 40 years before the Vista Tower development, all trustees/directors appeared to be members of the Frankel family and tax relief on donations was the main reason for setting up the charity. Nonetheless, it was excluded because its charitable status and activities were a weighty factor.

Joint and several liability

Counsel for the respondents argued the correct interpretation of the BSA is that the orders could be made only against each company for a specified share. The FTT disagreed; an RCO can be ‘joint and several’ if this is ‘just and equitable’ [379]. The reason for the RCO being made in ‘joint and several terms’ is due to the general and specific linking factors between the respondents [373], whilst the FTT hoped ‘they will be able to arrange for those more closely linked to pay so that independent investors do not suffer’ [374].

Commentary

David Sawtell explores the basis for associate liability under the BSA in his chapter. He argues that although there is no requirement that either culpability or causative potency is assessed, nor the degree of connection between the enterprise that the wrongdoer was involved in and the respondent, the discretion at the ‘just and equitable’ stage should be exercised to take account of these factors.  This was not done by the tribunal in Triathlon, which he notes applied the just and equitable test to transfer the cost of remediation from leaseholders and the public purse to an associate who happened to exercise control at the time of the order. In Schedule 1 to the Vista Tower decision, the FTT likewise notes (when discussing R22) that the ‘RCO in this case is intended largely to recover public money used to remediate Vista Tower’.

Vista Tower follows the approach adopted in Triathlon and although the FTT does specifically explore the degree of linkage between each respondent and the developer, there is again no assessment of culpability (beyond R1), or of ‘following the profits’ from the particular development. All eyes will be on the Court of Appeal decision in Triathlon to see how associate liability is approached there.