Is Pirelli potentially doomed? The Appeal of URS Corporation Ltd v BDW Trading Ltd

Overview

In December 2023, the Supreme Court granted URS Corporation Ltd permission to appeal the earlier Court of Appeal decision in URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772.   The Appeal is listed for early December 2024 before 7 justices.

A core question arising is whether the earlier decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners remains good law, or should be departed from, in the context of a building safety case brought by a developer.   The Supreme Court’s judgment is anticipated to cover several important issues of interest to those in construction and engineering or involved with property or insurance matters.

Background facts

BDW Trading Ltd (“BDW”, a developer) engaged URS Corporation Ltd (“URS”) to undertake structural engineering services on two different residential tower block developments.   Post-completion of the developments, and following sale of the flats, it was discovered that the structural design was defective.  This created health and safety risk to the residents but no obvious physical damage to the buildings.

URS’s liability for defective design had expired under its contract with BDW and the applicable six-year limitation period under the Defective Premises Act 1972 (“DPA 1972”) had also elapsed at that time.

BDW completed investigations and extensive permanent remedial works to the developments. It sought recovery of compensation from URS via a claim in negligence.

Earlier procedural decisions

Fraser J held that URS owed BDW a duty of care at a preliminary issues hearing in October 2021.   BDW’s alleged losses were largely recoverable in principle, save for certain alleged reputational losses, and it was held that the relevant cause of action arose at practical completion of the buildings (and not a later date).  Our earlier case report provides more information on this decision.  One of the Assumed Facts against which the preliminary issues were decided was that, by the time that the defects were discovered, any action brought by third parties against BDW for the defects would be time-barred.

The Building Safety Act (“BSA 2022”) came into force following that decision, in June 2022, and potentially impacted the parties’ respective positions at trial. Following subsequent decisions by the Deputy High Court Judge, Mr Adrian Williamson KC, in late 2022, BDW was permitted to amend its pleadings to benefit from changes to limitation periods introduced by Section 135 of the BSA 2022, including the 30-year retrospective limitation period established under amendments to the DPA 1972.   BDW also sought to add claims under the DPA 1972 and for contribution under the Civil Liability (Contribution) Act 1978 (“CL(C)A 1978”).

URS appealed against these procedural decisions.

Relevance of Pirelli?

The URS case has attracted attention when viewed against the earlier decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 A.C. 1.

Pirelli had confirmed that a claimant’s cause of action did not accrue until damage had occurred.  The result of this had meant that certain claimants could face an adverse position when seeking to claim for loss.  The Latent Damages Act 1986, inserting Section 14A into the Limitation Act 1980, did not reverse the potential adverse consequences arising from the Pirelli decision, but provided a special time limit for a claimant to bring a claim for damages up to 3 years from the earliest date on which it had both the necessary knowledge concerning the relevant damage and the right to bring such an action. This change to limitation did not alter the law around the timing of the accrual of a cause of action in tort.

Court of Appeal decision in URS

The Court of Appeal (the “Court”) heard and unanimously dismissed URS’s appeals against the procedural decisions. Beale & Co’s case report covered the decision and we’ve explored how some of these principles have been applied.

In summary, the Court’s Judgment was of general interest to the industry since it was held that:

• Duty: A tortious duty of care may arise and be co-existent with an express duty of care under contract. Here the risk of harm to BDW was that, in breach of URS’s professional duty, the design of the buildings contained structural defects which would require rectification. BDW’s liabilities to third parties had crystallised upon the sale of the flats. The economic losses claimed by BDW also fell within the scope of the tortious duty of care owed by URS as a consultant engineer/designer.
• Developers are owed a duty under the DPA 1972. Despite URS’s assertions, it was irrelevant that BDW owed no live obligations to the residents of the buildings and no longer retained the proprietary interest in the flats when completing the investigations and remedial works.
• Damage and loss: BDW’s underlying motivation for undertaking the remedial works was immaterial.   The relevant question is instead whether the type(s) of loss suffered and claimed by the claimant are recoverable in principle.
• A distinction must be made between cases involving defective buildings where there is physical damage (such as cracking), and those where damage has not yet manifested.
  1. In cases under English law where physical damage has manifested, such as in Pirelli, the cause of action accrues when physical damage occurs regardless of the claimant’s actual knowledge or its discoverability: see below.
  2. In claims where a design defect does not result in physical damage, the cause of action in tort accrues upon practical completion of the project (at the latest).
  3. The potential risk to the health and safety of the residents was also relevant here – actionable damage was sustained since the completed buildings had structural defects.
• Application of legislative amendments: There is no stated statutory exception regarding the application of Section 135 BSA 2022 to proceedings already in train.  The amended provisions in the DPA 1972 were intended to have retrospective effect and so were to be treated as having always been in force: BDW could therefore amend its pleadings in the live proceedings to include previously time-barred arguments pursuant to the DPA 1972.   Further, the Court clarified some core principles on the application of the DPA 1972 to this case.
• Contribution: BDW was entitled to commence a contribution claim against URS regarding liability to the residents even though no formal claim had been made by those entities or any liability established at that point. This was not a stated condition precedent to bringing a contribution claim – the prospect of potential liability between the relevant parties was sufficient when read in the context of Section 1(1) of the CL(C)A 1978. The Court provided additional rationale on the necessary ingredients and practicalities of such a contribution claim.

The Court’s Judgment on the scope of liability for negligence was therefore viewed by the legal industry as beneficial, not least since this was an early case to interpret core provisions of the BSA 2022 in the context of issues relating to claims under the DPA 1972, limitation, and contribution.

Is Pirelli potentially doomed?

A key issue concerned the date of the accrual of a cause of action in tort (negligence). The date the cause of action accrues is relevant to calculating the limitation period and liability.  URS submitted that BDW’s cause of action accrued when it first became aware of the defect.   By the time BDW had discovered the design defects it no longer had a proprietary interest in the flats, and so there was no actionable claim in URS’s view.   The Court dismissed such argument, concluding that BDW’s cause of action against URS arose when the two developments achieved practical completion: it was at that point that the defective and dangerous structural design was incorporated into the completed buildings.

As above, the Court acknowledged that in a case where there is physical damage, the cause of action accrues when that physical damage occurs, regardless of the claimant’s knowledge or its discoverability.  It was apparent that the Court considered the earlier line of authority. Pirelli and other judgments were decided when the general English common law understanding was that physical damage was required to establish a valid tortious cause of action against a professional, rather than a pure economic loss claim.   The legal position was subsequently reviewed in Murphy v Brentwood District Council [1991] 1 AC 398, which clarified the limits of professional advice and positions regarding duties of care and economic loss in negligence. In Murphy it was determined that if the claimants in Pirelli had discovered the defect prior to any physical damage, then they should not have to delay or wait for any physical damage to emerge before the relevant cause of action enabling them to claim accrued. The Court also recognised that other decisions had made it clear that where an inherent design defect existed in a building which did not result in physical damage, the cause of action accrued upon practical completion: a position mirrored in the wording used in Section 1(5) DPA 1972.

The Court concluded that Pirelli was not applicable to this case.   Pirelli appeared to have been decided on the presumption that defective design will inevitably lead to some form of physical damage (i.e. it is doomed to fail from the start). However, certain breaches of contract and non-compliances with Building Regulations do not automatically follow such an approach (as recent cladding and building/fire disputes have highlighted).   In such a situation, for example, a legitimate cause of action may still exist or accrue to the building owner(s) before any fire actually breaks out or other physical damage occurs.

The Court’s decision appeared to suggest that whilst Pirelli is still good law (at least for now), it will require careful consideration and application in the future based on the facts of each substantive case.

Obtaining further guidance from the Supreme Court on the status of the law of negligence, scope of duty, economic loss, and other core issues following the Appeal decision will inevitably be of wider interest. Please contact the authors should you require support on the points raised above in the meantime.