Building Safety in the Courts: URS Corporation Ltd v BDW Trading Ltd

Whether developers are owed duties under the Defective Premises Act 1972 has been uncertain for a number of years.  The Court of Appeal has provided clarity around this point, and a number of other issues in a recent decision.

Background

BDW, a developer, appointed URS, an engineering firm, to provide structural design services in relation to two residential developments (the Developments). Practical Completion occurred between March 2007 and February 2008, and BDW then sold the individual apartments.

In 2019 BDW discovered structural defects in the Developments. At this point in time, BDW no longer owned or had a proprietary interest in the Developments.  Nevertheless, it considered it had liability to the occupiers under the Defective Premises Act 1972 (“DPA”) pursuant to the individual contracts of sale. BDW therefore incurred the costs of investigating the structural defects and carrying out remedial works.

In March 2020 BDW commenced proceedings against URS for the alleged negligent structural design, seeking to recover its losses. URS argued that BDW should have raised a limitation defence or argued that the losses were too remote because BDW no longer owned the Developments at the time the defects were identified.

The claim against URS ultimately gave rise to a number of issues, which were first considered by the High Court and then the Court of Appeal.

First Appeal

At a preliminary issue hearing the High Court determined that, with some exceptions, the scope of URS’ duty of care extended to the alleged losses suffered by BDW, and that those losses were in principle recoverable. In respect of limitation, the High Court considered BDWs’ cause of action accrued no later than the date of Practical Completion, and not some later date (meaning that its claim against URS was not time-barred).

URS was granted permission to appeal on three grounds:

1. The losses claimed by BDW (i.e. costs of repair) were not within the scope of URS’ duty of care. URS argued its duty of care protected BDW against a risk of harm to its proprietary interests, and the risk of loss incurred to third parties.  URS’ position was that BDW did not have a proprietary interest in the Developments at the time the defects were discovered and claims by third parties would have been statute-barred.
2. The damages claimed by BDW were not recoverable. Again URS argued that, at the time of discovery, BDW had no proprietary interests in the Developments and claims by third parties would have been statute-barred.  In making this argument, URS’s position was that the cause of action accrued when BDW learned of the defects in 2019.
3. The High Court was wrong not to have struck out the claim in negligence.

In dismissing the first appeal, the Court of Appeal found that:

1. The losses claimed were within the scope of URS’ duty of care. That duty of care protected BDW against the risk of economic loss caused by construction of a structure using a negligent design which would need to be remedied.  In addition, a builder who no longer had a proprietary interest in a development could claim his costs of going back to carry out repairs.
2. BDW’s claim in negligence was for economic loss. There was no requirement for there to be physical damage.  Where there is no physical damage, its cause of action accrued at the latest at Practical Completion.  In any event, there were damaging consequences of the defects – namely that the Developments were unsafe.  By contrast, where there is physical damage, a cause of action accrues at the date of damage.

Given the Court of Appeal’s findings, there was no need for it to consider URS’s third ground of appeal.

Second and Third Appeals

URS’s second and third appeals arose from a separate (and later) High Court decision in which that Court granted BDW permission to amend its claim in three categories.  Broadly speaking, URS’s grounds of appeal here were that:

1. While BDW owed duties under section 1(1) of the DPA, it was not owed any such duty by other parties (such as URS).
2. Section 135 of the Building Safety Act 2022 (which imposes a retrospective longer limitation period of 30 years for claims under the DPA) could not apply to proceedings that were ongoing when that legislation came into force.
3. BDW could not claim contribution because no claim had first been made, or intimated, by owners against BDW. Put another way, in the absence of BDW receiving a claim, it had no legal right to pursue third parties under the Civil Liability (Contribution) Act 1978.

Again, the Court of Appeal dismissed URS’s appeal, stating that:

1. It was clear on the plain words of section 1(1)(a) of the DPA that URS was “a person taking on work for or in connection with the provision of a dwelling”, and the dwelling(s) in this case were “provided to the order of” BDW (in its capacity as the developer).  URS had argued that duties were owed only to “lay purchasers”, rather than companies or commercial organisations.  The Court dismissed this submission, saying it was not what section 1(1) said and was impossible to police in practice in any event.  URS had also argued that what was “provided” to BDW were not dwellings, but an entire development.  The Court found this argument was untenable (and had been rejected in earlier case law).  As such, BDW was owed the duty under section 1(1) of the DPA.
2. The relevant wording of the Building Safety Act 2022 was intended to have retrospective effect, and there was no carve out for ongoing proceedings. As such, section 135 applied, and there was no barrier here to BDW’s claim.
3. There was nothing in the wording of section 1(1) of the Civil Liability (Contribution) Act 1978 to suggest the making (or intimation) of a claim was a condition precedent to pursuing contribution from a third party. Instead, the right of BDW to seek contribution from URS arose when the three elements in section 1(1) were established, irrespective of whether or not another entity (in this case the occupiers of the Developments) intimated a claim against BDW.

Comment

This appeal started off as a case dealing with issues of duties of care and limitation, as well as whether there is a requirement for physical damage.  While those issues are important, the most interesting point arising from the Court of Appeal’s judgment concerns the DPA.

The comments indicating developers are owed the duty under section 1(1) of the DPA is significant.  There had been a line of authority stretching back over 30 years indicating developers could not claim against subcontractors/consultants under the DPA.  That position appears to have now changed – at least in respect of residential dwellings/properties (which is the gateway into the DPA duty).  Whether restrictions continue to apply in respect of non-residential properties is an open question.

Given the large number of ongoing building safety claims, this decision will be one closely scrutinised by construction professionals and lawyers.  It is likely to result in new claims being made or existing claims being amended to plead in relation to the DPA.