Crest Nicholson v Ardmore: Breaking the Boundaries of Group Liability
The recent TCC decision in Crest Nicholson Regeneration Limited (Crest) v Ardmore Construction Limited (ACL) marked a significant development in the application of the Building Safety Act 2022 (BSA). For those not familiar with the background, we suggest reading our colleague Isabella Cleary-Moyland’s article here. In brief:
- Crest engaged ACL to build a residential development in Portsmouth;
- Fire safety defects were discovered in the external wall system following post-Grenfell investigations;
- Crest successfully referred the dispute to adjudication and were awarded £14.9m;
- ACL entered administration the day before the decision was made and did not pay the £14.9m;
- Crest applied to the Court for, and were subsequently granted, Building Liability Orders (BLOs) against associated companies within the contractor’s group, making them jointly and severally liable for both the adjudication award and any liabilities later established against ACL.
The judgment significantly reshapes the risk profile for construction projects by confirming that liability for building safety defects can extend beyond the contracting entity to other companies within the same corporate group. This is likely to have a number of practical implications as parties shift towards more cautious, group-wide risk management and greater emphasis on financial robustness and accountability across the supply chain, rather than reliance on corporate separation alone.
Group Structures & Risk
BLOs can be made against entities associated with the original contracting entity. Given the broad circumstances under which an entity can be considered an associate of the original contracting entity, contractors and developers will rethink the use of special purpose vehicles (SPVs) or group restructuring to ringfence liabilities for construction projects.
Contractual Rights for Group Companies
The decision emphasises the need for developers to include provisions in building contracts to ensure that their wider group has rights of action against contractors, to provide some potential recourse in the event an entity in the wider group becomes liable under a BLO. Contractors may seek to do the same in their sub-contracts.
Stronger Emphasis on Group Financial Standing
Potential claimants (developers in particular) may increase their focus on the financial standing of their counterparty’s wider group of entities, as the certainty regarding what entities they may be able to claim against in the event of a building safety defect increases.
Proactive Dispute Management and Compliance With Adjudication Decisions
With the ruling that decisions reached via adjudication can be a “relevant liability” under the BSA to which a BLO may apply, parties may take a more proactive approach to resolving issues early to avoid exposure to their group. Further, there is likely to be more willingness for parties found liable for building safety defects in adjudication decisions to comply with the adjudicator’s decision, given that winding up the original contracting entity may not be of any benefit to the wider group, making delay and resist strategies against robust claims less attractive.
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