Recovery of legal costs in Building Safety Act remediation cases – a tribunal U-turn?  

The very recent case of Secretary of State for Housing, Communities and Local Government v EDR Builders Limited and Hollybrook (UK) Limited, concerning a property at Hallings Wharf Studios, represents a significant change in approach from the First-tier Tribunal (FTT) in its treatment of legal costs incurred by parties in proceedings concerning remediation orders and remediation contribution orders.   

Background  

The Building Safety Act 2022 (BSA) established the new remedies of:  

• Remediation Orders (RO) – an order that a relevant landlord of a high-rise building take action or carry out works to remedy specified defects (e.g. unsafe cladding) within a fixed timescale; and  
• Remediation Contribution Orders (RCO) – an order that a third party (e.g. a landlord or developer) contribute to the costs incurred or to be incurred in remedying the defects affecting those buildings.  

Applications for an RCO must be pursued via the FTT (Property Chamber). Unlike the County Court, where a successful party can usually expect to recover a proportion of its legal costs from the unsuccessful party, the standard position in the FTT is that each party pays its own legal costs regardless of the outcome. This means that each party embarks on FTT proceedings knowing they will almost certainly have to pay their own costs in connection with those proceedings but similarly carries very low risk of having to pay any of their opponents’ costs.   

The Empire Square decision  

Set against this context, the Empire Square decision represented a significant change from the usual position in FTT proceedings and set a precedent for applicants being able to recover their costs when applying for an RO/RCO.  

The FTT adopted a broad interpretation of an RCO and decided that the legal and professional costs incurred by the applicant leaseholders in pursuing an RO/RCO, formed part of the costs of remedying the defects.  

The effect of this decision was to significantly reduce the exposure for potential RO/RCO applicants. By confirming that legal costs could form part of an RCO, the FTT appeared to be saying that successful applicants would have their costs covered, without any corresponding risk of having to pay their opponents’ costs if the application was unsuccessful.   

The Hallings Wharf decision   

In the very recent RCO case brought by the Secretary of State for Housing, Communities and Local Government against the developer of Hallings Wharf and an associated company, the FTT appears to have rowed back on its previous position.  

In its judgment, the FTT panel expressed that it was “doubtful” as to whether litigation costs could be recovered as part of an RCO, and took particular account of the fact that Parliament chose to give jurisdiction to award RCOs to the FTT, which does not typically allow parties to recover costs. The FTT went on to decide that it would not in any event have been ‘just and equitable’ to award costs on the facts of this case, not least as the application to recover legal costs was a late addition to the Secretary of State’s case. This meant that both parties “had conducted the litigation on the basis that there was no adverse costs risk”, as would typically be the case in the FTT.   

Crucially, the reference to the principle and established limits of the FTT’s jurisdiction on costs suggest an intention that the FTT adopt the Hallings Wharf approach going forwards. Like Empire Square, however, this is a decision of the FTT, so is not binding precedent and means that we now have two cases which have adopted contrasting approaches to cost awards. It is likely the point will need to be decided by the Upper Tribunal – whether on appeal from this decision or a future application – in order to be fully resolved.  

The Birketts view  

If, however, Hallings Wharf is adopted as the approach in future, it will no doubt have an impact on the number and type of RO/RCO applications that are brought. Applicants will need to engage in a more careful cost/benefit analysis before embarking on an application – not least as the costs of pursuing an RO/RCO can be very high. This in turn means that we may see less applications where the remedial works in question are worth less, and/or where the applicants are leaseholders or resident management companies that are less able to fund the costs involved without being able to recover.  

Accordingly, while in one sense Hallings Wharf represents a return to the longstanding position regarding cost recovery in the FTT, it could have a chilling effect on the ability for leaseholders to seek protection from remedial costs, which was one of the key pillars of the BSA.