Court of Appeal rules on Building Safety Act issues

A Court of Appeal decision handed down recently has considered a number of issues regarding who should pay for the remediation of historic defects, including issues arising under the Building Safety Act and the Defective Premises Act. The Court’s judgement is likely to be of broad interest to those construction participants affected by the Building Safety Act and required reading for those involved in historic defects claims.

URS Corporation Ltd v BDW Trading Ltd

BDW is a developer responsible for the construction of numerous blocks of flats across the UK. BDW engaged URS to provide engineering services in relation to two separate developments comprising more than 500 apartments across a number of separate blocks (the “Two Developments”). The various parts of the Two Developments reached practical completion between 2005 and 2012 and individual apartments were sold to members of the public.

Prompted by the Grenfell Tower disaster in June 2017, BDW undertook a general review of certain of its previous developments. This review led BDW to believe that the structural design for the Two Developments was deficient and remediation was required, although no physical damage to the structures had yet occurred.

Despite having sold the apartments and having retained no other proprietary interest in the Two Developments, BDW incurred significant costs in carrying out investigations, temporary works, evacuation of residents and permanent remedial works. BDW commenced TCC proceedings against URS seeking to recover these costs, claiming that URS’s structural design had been negligently performed.

BDW’s proceedings raised a number of difficult legal issues, which were considered as a preliminary issue first by the TCC. Following the enactment of the Building Safety Act 2022 (the “BSA”) further issues arose, all of which were considered by the Court of Appeal. We summarise the Court of Appeal’s findings below.

Liability in Tort

BDW’s claim included reliance on tortious duties in order to avoid limitation issues under the Limitation Act. Two issues arose for determination in this regard:

• URS argued that the costs incurred by BDW were properly characterised as reputational damages as BDW had not received any claims from the owners of the apartments and no longer itself had any proprietary interest in the Two Developments. Its motivation for incurring such costs, URS argued, was to preserve its reputation and such costs were not within the scope of URS’s tortious duty of care and not, therefore, in the range of damages recoverable in tort. The Court of Appeal rejected this argument, save for one aspect of BDW’s claim specifically described as reputational damage. Neither the fact that BDW no longer had any proprietary interest in the Two Developments nor the fact that it had not received claims from owners in relation to the structural issues was sufficient to characterise a claim for investigation and repair costs as reputational in nature.
   
• URS also argued that in the absence of physical damage the alleged cause of action in tort could only accrue upon discovery of the alleged defects. As by this time BDW had no remaining proprietary interest in the Two Developments, it was argued that no cause of action could arise in tort. After a thorough review of the complex and diverse caselaw in this area, URS’s argument was ultimately rejected by the Court of Appeal. The Court found that, whilst in cases involving physical damage the cause of action will arise upon the damage occurring, claims in relation to defects not involving physical damage (i.e. pure economic loss) will generally accrue, at the latest, upon practical completion when the works in question are handed over to the employer.

The Defective Premises Act 1972

A number of issues arose for determination under the Defective Premises Act 1972 (the “DPA”) which was recently amended by the BSA:

• The BSA introduced a 30 year retrospective limitation period for claims under the original form of the Defective Premises Act 1972 (the “DPA”) prior to its amendment by the BSA. As BDW’s proceedings were commenced prior to the BSA, it sought to amend its claim to include DPA claims in reliance on the extended limitation period. URS argued that the retrospective extension of the limitation period did not apply to proceedings that were ongoing at the date on which the BSA came into effect. This argument was rejected.
   
• URS also argued that the intention behind the DPA (among other things) was to provide consumer protection to individuals and therefore on a proper construction, the rights of action it provided were only available to individual purchasers of a dwelling and not to commercial entities such as BDW who were involved in developing large numbers of dwellings for onward sale to individual purchasers at a profit. The Court of Appeal disagreed with this interpretation, finding that DPA duties could be owed equally to developers as well as individual purchasers.
   
• In considering whether DPA rights of action extended to commercial entities, the Court heard arguments on the interaction between s. 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 liability parties to construction contracts routinely negotiate and incorporate into their contracts and appointments. Ultimately, the Court of Appeal did not need to give judgment on the application of this provision and made only limited obiter comments.
   
• URS also argued that any claim BDW may have had under the DPA was lost upon its sale of the apartments and its residual proprietary interest in the Two Developments. However, the Court of Appeal concluded that the rights provided for by the DPA were not conditioned on ownership and remained actionable after ownership had passed.

The Civil Liability (Contribution) Act 1978

The Civil Liability (Contribution) Act 1978 (the “Contribution Act”) 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. In the present case, BDW alleged that both itself and URS were liable to the owners of the apartments and that it was entitled to claim contribution from URS in respect of the costs it had incurred in effecting repairs to the Two Developments.

URS argued that the right to contribution required a claim to be made by the third party, in this case the owners. It argued that BDW had incurred the repair costs voluntarily in the absence of a claim by the owners and could not, therefore, seek contribution under the Contribution Act.

The Court of Appeal disagreed with this interpretation, finding that a formal claim was not required before the right to claim contribution arose. The Court also noted that the need for a payment to be made to the third party could be satisfied by a “payment in kind” such as the carrying out of remedial works where the liability in question related to defective work.

Conclusions and implications

This is a highly significant appeal decision which will affect not just developers and contractors (but also professional service providers (and their insurers) who provide advice and services to the construction industry in connection with both residential and non-residential buildings.   The decision confirms developers’ rights to bring claims under the DPA and gives guidance on the operation of the 30-year retrospective time period.  But it stops short of dealing with the commercially important question of whether contractors and professionals in the supply chain will be able to rely on negotiated caps on liability in defending such claims or whether these will be rendered void by s. 6(3) of the DPA.  This will be of great concern to both the construction and insurance industry.    Moreover, the decision raises fundamental issues regarding the extent that statute should be allowed to retrospectively interfere with privately agreed rights.  Further guidance from the Court of Appeal is likely be necessary in the near future and, given the complexity and importance of the issues involved, the Supreme Court’s involvement may also be required. 

* CMS acted for URS in these proceedings.

References:

URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772