In the case of Secretary of State for Housing, Communities & Local Government v EDR Builders Limited (1) and Hollybrook (UK) Limited (2) (LON/00BB/BSB/2024/0011), the First-tier Tribunal has made a remediation contribution order that addressed the thorny issues of whether legal costs can be included and whether the quantum of remediation costs can be challenged on the basis that the scheme went further than necessary.
The remediation contribution order application was made under section 124 of the Building Safety Act 2022 in respect of cladding remediation that was carried out by an RTM Company with funding provided by the Secretary of State for Housing, Communities & Local Government via the Building Safety Fund. The Secretary of State was seeking repayment of the £3.6 million it had paid for remediation from Hollybrook (UK) Limited as an 'associated company' of the developer (EDR Builders Limited), which was in liquidation. The Secretary of State also made a late application to include within the RCO the legal costs of the claim, which amounted to around £1million.
Hollybrook resisted the RCO, arguing that:
- legal costs were not recoverable in an RCO; and
- the costs of remediation were excessive, as the RTM Company took an overly cautious and 'overengineered' approach and should have taken into account the more recent move to remediation based on PAS9980.
The FTT found for Hollybrook on the legal costs, but against them on the remediation costs, for the reasons discussed below.
Recovery of legal costs
An RCO is an order of the FTT pursuant to section 124 of the BSA for payment of costs 'incurred or to be incurred in remedying or otherwise in connection with relevant defects (or specified relevant defects) relating to the relevant building'. The phrase 'otherwise in connection with' was inserted into the section by the Leasehold and Freehold Reform Act 2024 which also specified a number of examples of costs 'in connection with' relevant defects, confirming among other things that expert reports, decant costs, and the costs of 'relevant steps', that is, preventative steps to reduce harm (widely interpretated to include the costs of a waking watch, for example), could also be included.
What was not specified in these examples was the legal costs of any application for an RCO or RO. Given that the costs of expert reports are specifically mentioned as allowable, Hollybrook argued that parliament would have also specified legal costs if this had been intended.
Indeed, the fact that the FTT had been given jurisdiction for these orders, as a cost neutral jurisdiction, also implied that it was intended there should not be costs consequences for either side.
The FTT agreed; and further noted that the procedural difficulties of how to assess the costs, if it should make such an order, also suggested that this outcome had not been intended.
The FTT did note, however, that if it was wrong in holding that legal costs could not be included in an RCO, it nevertheless considered it was not 'just and equitable' to award them in this case, because they were claimed late in the day and the parties had both proceeded up to that point on the basis that each party would bear their own costs.
Should a PAS9980 approach have been taken to remediation?
The remediation works were instructed in May 2023 on the basis of the Consolidated Advice Note previously published by the government but withdrawn on 10 January 2022 because it was leading to an overly cautious approach to remediation. It was replaced by PAS9980 as the government's preferred methodology for assessing risk.
While acknowledging the importance of this change, the FTT noted that plans and preliminary specifications for the remediation works at Hallings Wharf were already well under way in early 2022, and that the BSF had not required the RTM Company to review or alter their planned works on the basis of the new advice.
The FTT held that 'provided the remediation carried out was within the band of reasonable responses, the fact that it could have been done more cheaply is not of itself a basis for reducing the amount of an RCO'. In doing so it followed a longstanding principle in case law that, where repairs are carried out, even if the repairs could have been carried out more cheaply, it is for the person carrying out the repairs to choose how to do so, so long as the method used is reasonable.
Having determined that the method used was 'within the range of reasonable responses', the FTT held that the full costs were payable.
In the absence to date of binding caselaw from the Upper Tribunal on whether the legal costs of an RCO application can be claimed as part of that RCO, this issue remains uncertain and will most likely need to be decided by the Upper Tribunal or Court of Appeal in due course.
However, the case indicates that the FTT will usually be prepared to award the full costs incurred in remediation provided that the works were 'within the range of reasonable responses'.
