URS v BDW: The Building Safety Act in the Court of Appeal

Here, the Court of Appeal considered two appeals from URS. The first appeal related to the first instance judgment on the underlying issues and the second related to BDW’s permission to amend its pleadings. The judgment provides some useful guidance that will be of core relevance to the increasing volume of building safety claims.

Background

The claimant, BDW, is a developer that has constructed numerous blocks of residential apartments across the UK. Following practical completion, BDW sold the apartments to various third parties.

Prompted by Grenfell, in 2019 BDW undertook a general review of some of its previous developments, which led it to believe that the structural design of two of its developments (the Developments) were deficient. URS had provided engineering services for the construction of the Developments.

Remedial work to the Developments was undertaken by BDW at significant cost. BDW looked to URS to recover its losses and was successful at first instance. URS appealed the decision.

The appeal

There were two key issues from the preliminary decision for the Court of Appeal to consider:

1. Whether the judge was wrong to say that the losses claimed by BDW were within the scope of URS’ duty of care.

URS argued that the costs incurred by BDW in investigating and remediating the developments were properly characterised as reputational damages not recoverable in tort. Further, that the scope of its duty did not include such losses claimed.

2. Whether the judge was wrong to conclude that the damages claimed by BDW were recoverable, because by the time BDW discovered the design defects, it had sold its proprietary interests in the Developments.

URS argued that, in the absence of physical damage, the cause of action could only accrue upon discovery of the defects and that by the time the defects were discovered in 2019, BDW had sold its proprietary interest to third parties.

The court rejected URS’ argument, upholding a line of caselaw that, in contract, a builder that goes back to defective work can recover the relevant costs even if they were not under an obligation to carry out those works.

The court considered there to be no reason why the outcome should be any different in a negligence action for economic loss to that in contract. As such, BDW’s current lack of proprietary interest in the Developments was immaterial.

In reaching its decision, the court analysed the accepted principle following Murphy v Brentwood [1991] that there are two kinds of loss, recognised as actionable damages for the tort of negligence. Those are:

(1) Physical damage - where the cause of action accrues when that physical damage occurs.

(2) Pure economic loss - where there is a defective design, but no physical damage has manifested, the cause of action arises, at the latest, at practical completion.

Since this case was a case of economic loss, the cause of action therefore arose at practical completion. Accordingly, BDW had a proprietary interest in the Developments at the time the actionable damage was suffered.

The amendments appeal – The Building Safety Act 2022 (BSA), The Defective Premises Act 1972 (DPA) and the Civil Liability (Contribution) Act 1978 (CL(C)A)

URS also appealed the court’s decision to grant permission to BDW for it to amend its claim:

1. To include a claim that URS had breached section 1(1) of the Defective Premises Act 1972 (DPA).

URS accepted that the BSA took retrospective effect, but its point was a narrow one - could section 135(3) of the BSA be relied upon for parties who were involved in ongoing litigation ie are parties who commenced claims prior to the 28 June 2022 (when section 135 came into force) exempt from the otherwise widely worded retrospective provision?

This argument was rejected by the court and it was held that the wording of the BSA meant that the amendments to the DPA, and therefore the longer 30 year limitation period, was to be treated as always having been in force. The claim under the DPA therefore remained open to BDW.

2. To rely on the new section 135 of the Building Safety Act 2022 (BSA), and the extended limitation period.

URS argued that a developer such as BDW was not a person to whom a duty was owed under the DPA. Further, it asserted that since BDW, as a developer, plainly owed duties themselves to the subsequent purchasers under section 1(4) of the DPA, they could not also be owed a similar duty.

The court disagreed with this interpretation, finding that DPA duties could be owed equally to developers as well as individual purchasers. There was nothing in the words of the DPA which limited the recipient of the duty to individual purchasers.

In considering whether DPA rights of action extended to commercial entities, the court heard arguments on the interaction between section 6(3) of the DPA (which provides that contractual terms seeking to limit liability under the DPA shall be void) and the contractual caps on parties’ liabilities which are routinely negotiated and incorporated into their contracts and appointments.

URS argued that if the DPA were to apply to commercial entities, it would render any terms in the contract seeking to limit or qualify the professionals liability excluded. This strongly suggested that the developer was not therefore owed the relevant duty under the DPA.

The court stopped short of providing comments on this and simply adopted the position that this was irrelevant to the existence of URS’s duty under the DPA. It did however state on this point:

Finally, URS argued that any claim BDW may have had under the DPA was lost upon its sale of the apartments and its proprietary interest in the Developments. The court concluded that the rights provided for by the DPA were not conditioned on ownership and remained actionable after ownership had passed.

3. To include a claim under section 1 of the CL(C)A, alleging that both BDW and URS were liable to transferees of BDW’s proprietary interests in the Developments.

The CL(C)A allows two persons who are both liable to a third person for the same damage, to recover contribution between themselves, if one of them has made a payment to the third party in respect of their liability.

BDW alleged that both itself and URS were liable to the owners of the apartments. Further, that it was entitled to claim contribution from URS in respect of the costs it had incurred in carrying out repairs to the Developments.

URS argued that the right to contribution required a claim to be made by the third party, in this case, the owners of the apartments. It argued that BDW had incurred the repair costs voluntarily and so BDW could not seek contribution under the CL(C)A.

The court agreed with BDW’s interpretation, finding that a formal claim was not required before the right to claim contribution arose. Further, that there was no rational reason for a party to wait for a formal claim from a third party before commencing remedial works.

Comment

This decision provides clarification over tortious claims in the construction industry. It demonstrates the court’s motivation to avoid penalising developers for acting responsibly. We may therefore see an increased drive in developers taking proactive steps to review previous developments and carry out remedial works sooner than they might have otherwise.

The court was hesitant to deal with the question of whether construction professionals will be able to rely on liability caps as a defence to claims. However, it will be concerning to those in the industry that the court indicated a willingness to accept that such contractual limitations will be rendered void by way of the DPA.

Read other items in Construction Brief – March 2024