Case Report: BDW Trading Ltd v URS Corporation Ltd and another [2021] EWHC 2796 (TCC)

In the recent preliminary issues hearing, BDW Trading Ltd v URS Corporation Ltd and another [2021] EWHC 2796 (TCC), the Court applied the test established by the Supreme Court in Khan v Meadows [2021] UKSC 21/Manchester Building Society v Grant Thornton [2021] UKSC 20 to conclude that the scope of a structural engineer’s duties extended to most of the developer’s alleged losses, but this did not include losses for reputational damage.

Facts

The claimant, BDW Trading Ltd (“BDW”), a developer, instructed the defendants, URS Corporation Ltd (“URS”) and Cameron Taylor One Ltd (“Cameron Taylor”) to provide structural design services in connection with the Capital East and Freemens Meadow Developments (“the Developments”) located in London and Leicester respectively.

In late 2019, BDW discovered serious structural defects at the Developments. Although BDW no longer owned the buildings at the time of discovery, it maintained that it was subject to liability by the occupiers of the Development pursuant to contractual agreements for the sale of individual flats at the Development and under the Defective Premises Act 1972. It therefore incurred the costs of investigating the structural defects and carrying out remedial works.

BDW then brought professional negligence claims against URS and Cameron Taylor for the alleged negligent structural design. 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. BDW sought recovery of the remediation costs from URS, as well damages for reputational damage.

A preliminary issues hearing was sought for the TCC to determine mainly whether the scope of URS’ duties extended to BDW’s alleged losses, whether those losses were recoverable in the law of tort and if any defence was available to URS regarding the remoteness of the alleged losses. The Court of Appeal has also granted Cameron Taylor permission to appeal an earlier High Court decision that concerns the substitution of parties and issues of limitation. This appeal will be heard in December 2021.

The central issue for the TCC at this hearing concerned the losses claimed by BDW, which URS characterised as reputational losses and argued that they were not recoverable within this claim. The Court dismissed this argument as the loss suffered by BDW included remediation costs and hence, throughout the hearing, Justice Fraser J made the distinction between conventional heads of losses and reputational damages losses. It was held that all of the incurred remediation costs were recoverable.

SAAMCo Principle
In the case of South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 (SAAMCo), the House of Lords established the principles that the court must consider when assessing a negligent adviser’s responsibility for claimant’s losses. It was held that the maximum loss recoverable would depend on whether the advisor provided ‘advice’ or ‘information’. In information cases it was established that losses would be capped at the difference between the information provided and the value of the information which should have been provided, known as the “SAAMCo cap”.

Khan v Meadows [2021] UKSC 21 & Manchester Building Society v Grant Thornton [2021] UKSC 20
On 18 June 2021, the Supreme Court handed down judgment in two appeals – Khan v Meadows and Manchester Building Society v Grant Thornton.  Both appeals concerned the provision of allegedly negligent advice and prompted the Court to consider the scope of a defendant’s duty. The Supreme Court dispensed with the distinctions between “information” and “advice” established in SAAMCo, as it was held that this test was too prescriptive. The Supreme Court instead focused on identifying the necessary facts that determine the scope of the adviser’s duty to the advisee and established a 6-part test to ascertain the scope of the defendant’s duty of care. Application of this test seeks to uphold the principle that the objective of awarding damages it to place the claimant in the position they would have been had the defendant not bene negligent.

The Scope of a Structural Engineer’s Duty

Whilst Fraser J considered the SAAMCo principle during the preliminary issues hearing, he concluded that the “ratio is applicable to negligence more generally and not limited to professional advice cases”. Before applying the Khan test, the Court emphasised that this was not a voluntary assumption of responsibility case, as the duty of care arose from BDW engaging URS as the structural designer, “and professional designers owe their clients duties to perform their designs exercising the reasonable care and skill to be expected of one in their profession”.  The Court applied the Khan test on the basis that it was more appropriate to ascertain the scope of duty in professional advice cases.

1. The actionability question: Was the harm which was the subject matter of the claim actionable in negligence? Fraser J held that it would be an unwarranted extension of the scope of duty of care to hold any structural designer liable for the developer’s potential loss of reputation, given the difficulty in quantifying this amount in advance. Such an extension of the scope of duty would adversely impact a professional adviser’s ability to obtain suitable professional negligence insurance and might signify that the extent of the loss is potentially dramatically expanded, depending on the commercial fortunes of that developer on other projects. O the other hand, the Judge stated that the defendant’s characterisation of all the claimant’s losses as reputational losses was incorrect, given the attempt to insert the claimant’s subjective motivation into consideration of the type of loss arising.

2. The scope of duty question: What were the risks of harm to the claimant against which the law imposed on the defendant a duty to take care? The law imposes on structural engineers a duty to take care against the risk of economic loss for the developer that would arise by constructing a building that contained structural defects caused by the design. However, Fraser J did clarify that the duty to take reasonable care in carrying out activities does not extend to every harm suffered as a result of a breach of that duty, as established in Caparo Industries Plc v Dickman [1990] 2 AC 605.

3. The breach question: Did the defendant breach their duty by their act or omission? The parties accepted that breach of duty was to be assumed for the purpose of applying this test.

4. The factual causation question: Was the loss caused by the defendant’s act or omission? Given the limited scope of the assumed facts and the lack of agreement between the parties, the Court accepted that factual causation would not be determined until trial and therefore made no ruling.

5. The duty nexus question: Was there a sufficient nexus between a particular element of the harm for which the claimant sought damages and the subject matter of the defendant’s duty of care as analysed at stage 2 above? The Court expressed that the duty nexus question still required consideration in a design case and was not limited to professional advice cases. Regarding the conventional losses, the Court viewed that there existed a sufficient nexus between the harm for which the claimant sought damages and the defendant’s duty of care as the structural designer. Nevertheless, reputational damage losses could not be characterised as a relevant loss.

6. The legal responsibility question: Was a particular element of the harm for which the claimant sought damages irrecoverable because it was too remote, or because there was a different effective cause (including novus actus interveniens) in relation to it, or because the claimant had mitigated their loss or had failed to avoid loss which they could reasonably have been expected to avoid? Despite URS’ insistence that no formal legal claims had been initiated against BDW, the Court stressed that there is no requirement for the claimant to have been served with a third-party claim for a cause of action to arise against the defendant, as no contingency had to crystalise for a cause of action to be completed. Fraser J expressed that “one has to apply the submission to the actual real world” and it would therefore be unreasonable to expect the claimant not to act upon discovering that the structural integrity of a building is in danger of imminent structural collapse, on the basis that a time-bar defence is available to them. The Court agreed that the costs of remedying a structurally inadequate building were within the contemplation of the parties and could not be perceived as a loss that the claimant should have reasonably been expected to avoid.

Recoverability of Losses
Although URS tried to maintain that the cause of action arose in late 2019, the Court held that in the case of a negligently designed building, the measurable loss is the cost of making it structurally safe. Therefore, the Court held that the loss to the developer occurred when the structure was built in accordance with the negligent design, meaning the cause of action accrued no later than the date of practical completion of the Development. This conclusion follows the English law approach that knowledge is not required to complete a cause of action and is consistent with the concept of BDW having acted to its detriment.

Comment

This judgment was the first case to apply the Khan test in the context of a structural engineering claim, raising some interesting points relevant to the construction industry.

Firstly, the duty of care in this instance arose from the contractual engagement between the parties, however it was held that the duty owed by structural designers was not extended to avoid or prevent damage to the developer’s reputation, as such losses are too remote to be considered “relevant”.

Secondly, it should be noted that the Court also had to consider whether latent damages existed regarding the defective structural slab. This judgment provides a useful reminder that the purpose of the Latent Damage Act 1986 is to assist a claimant who may be unaware that they have a cause of action, despite it having accrued. Nevertheless, claimants should be mindful that the 1986 Act inserts provisions into the Limitation Act 1980 and does not postpone the commencement of time from when the cause of action accrues.

Thirdly, as this claim was not a contingency case, the claimant was not required to have been served with legal proceedings from a third party, for the claimant to have a cause of action against the defendant. Structural designers should note that if they provide a negligent structural design and the building is then constructed in accordance with that negligent design, a developer is able to bring a claim regardless of whether the developer itself is subject to a claim.