Any court decision involving building safety defects and remediation costs is avidly consumed by those in the construction sector grappling with the post-Grenfell fallout. The Supreme Court decision in URS Corporation Limited v BDW Trading Limited constitutes a veritable feast. Not only does it provide guidance on the duties owed, it also provides clarification on the extended limitation periods introduced by the Building Safety Act 2022 (BSA), the application of the Defective Premises Act 1972 (DPA) and the circumstances in which a claim for contribution can be made under the Civil Liability (Contribution) Act 1978 (“the Contribution Act”). All issues which regularly arise in building safety litigation. Anyone hoping for some radical departures or dissent from the reasoning in the courts below will, however, be disappointed. As will anyone expecting any conclusive decision on the veracity of the Pirelli decision and the date that a cause of action accrues.
Given the complexity of the decision, we start with the rationale behind it and the practical consequences which follow. We then examine the detail of the decision.
Policy considerations
Public policy appears to have been a significant factor in the Supreme Court's decision making. There is reference in the judgment to Dame Judith Hackitt's emphasis on the principle of risk being owned and managed by those who create it and the Government's view that, where building developers and other contractors are responsible for building safety defects, it is fair that they should cover the costs of remediation.
In the context of the extended limitation periods, the Supreme Court noted that a "central purpose and policy of the BSA in general, and section 135 in particular, was to hold those responsible for building safety defects accountable". The Court was concerned that it should not stifle the ability of a developer to pursue what it described as "onward claims". This was "not just a matter of justice as between the developers and those ultimately responsible", for a developer might need to be able to bring onward claims in order to be able to fund the meeting of its own obligations to homeowners to carry out remedial works.
Policy considerations were also at play in considering the arguments on scope of duty and remoteness. It was noted that a fair and reasonable allocation of the risk of the loss needed to be achieved between the parties. The Supreme Court considered that, on the assumed facts in this case, it was entirely appropriate for the negligent defendant (URS) to be held liable to BDW for the repair costs as they were an obvious consequence of URS failing to perform its services with the professional skill and care required. Policy considerations favoured incentivising a claimant in BDW's position to carry out the repairs to remove any danger to homeowners.
Practical consequences
Overall, claimants will be pleased with the outcome of the case. The intent behind the BSA has been given voice. It can be widely used by claimants throughout the contractual chain (and in contribution proceedings) in seeking recompense for building safety defects. It is likely to encourage claims, including recovery actions, to be pursued via the various routes enabled and ratified by the Supreme Court. Conversely, discouragement is given to defendants seeking to take technical points that run counter to the overall intent of the BSA. Having said that, there remains room for further debate on certain discrete issues.
Whilst certainty has been provided by the definitive dismissal of URS's contention of the "voluntariness principle" as a bright-line rule of law rendering loss too remote or outside the scope of the duty of care in tort, this is not the end of the story. The Supreme Court judges were equally clear that "voluntariness" could play a role in deciding legal causation or mitigation. The judge had made it clear at first instance that matters of legal causation and mitigation would require a fact specific enquiry and would need to go to trial. The reasonableness of BDW's decision to carry out the repairs is therefore still to be decided, though one can perhaps see which way the wind is blowing.
Significantly, no real guidance has been provided on the date that a cause of action will accrue in the tort of negligence. As the appeal on this ground failed, the issue did not fall to be decided. Therefore, the decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] was not overturned. It was in light of that possibility that a seven-person panel was convened to hear the appeal. However, as anything said on this point was obiter and limited argument had been heard, no detailed consideration was given. Therefore, the question as to whether the common law should be developed, in the context of building defects, so that the cause of action accrues at the date of discoverability will need to be resolved in a future case.
Background facts
The origin of the dispute dates back to the Grenfell Tower fire in 2017. In the aftermath of that tragedy, the claimant, BDW (a well-known developer), discovered serious structural defects in a high-rise residential development designed by URS, a consulting engineering company. As a consequence, BDW undertook a wholesale review of the structural design of all their URS designed developments. This led to the commencement of proceedings by BDW on 6 March 2020 in respect of two developments to recover the significant costs incurred in carrying out remedial works. The claims were made in negligence only; any contractual claims being time-barred.
By the time the defects were discovered in 2019, BDW had sold the properties and no longer had a proprietary interest. Further, any action brought by third parties to enforce obligations owed to them by BDW (whether under the DPA or in contract for breach of collateral warranties) in relation to defects would have been time barred. BDW nevertheless performed remedial works to rectify the defects. As a consequence, URS argued that BDW had never suffered any actionable damage, either because they sold the buildings for full value before the problems came to light and/or BDW were not liable to carry out any remedial works and had a complete limitation defence to any claim made by the purchasers, so their losses were outside the scope of URS’s duty of care.
At a trial of preliminary issues and a strike out application, the judge held that the scope of URS’s duty extended, in the most part, to the claimed losses which were conventional heads of loss (costs of investigation, remedial works etc) and that the losses were not too remote. The judge also held that BDW’s cause of action in tort accrued no later than the date of practical completion (which was before BDW had sold the developments) and not the later date contended for by URS of 2019 when the defects were discovered.
Following the introduction of the BSA, BDW successfully sought leave to add claims under the Contribution Act and the DPA, taking advantage of the longer limitation periods which had been introduced. URS appealed both this decision and the decision on the preliminary issues but both appeals were dismissed by the Court of Appeal.
URS appealed to the Supreme Court with the appeal raising four separate issues.
Supreme Court decision
The Supreme Court unanimously dismissed URS's appeal on all four grounds.
Ground 1 - In relation to BDW’s claim in the tort of negligence against URS, had BDW suffered actionable and recoverable damage or was the damage outside the scope of the duty of care and/or too remote because it was voluntarily incurred?
On the assumed facts, it was not disputed that URS had assumed responsibility to BDW under its contracts for professional services and had breached the resulting duty of care by providing defective designs causing BDW pure economic loss. However, URS submitted that, because the repairs were carried out by BDW on property that no longer belonged to it and without any enforceable legal obligation to do so, the loss suffered was outside the scope of the duty of care and/or was too remote. In particular, URS contended that the “voluntariness principle” provided a bright-line rule of law rendering the loss in this case outside the scope of the duty of care or too remote.
The Supreme Court held that it was clear that the purpose of URS’s duty of care was to guard BDW against the very type of loss that BDW had incurred (the repair costs). Therefore, the loss was within the scope of URS’s duty of care. Further, it must have been reasonably contemplated by URS as a serious possibility at the time of the assumption of responsibility that BDW would suffer the type of loss that BDW had incurred and therefore the losses were not too remote.
The Court also dismissed the concept of a "voluntariness principle" – the authorities cited did not establish that the voluntariness of the payments meant that, as a rule of law, the loss was outside the scope of the duty of care or too remote. In any event, the Supreme Court considered that it was strongly arguable that BDW was not acting voluntarily in carrying out the repairs.
Ground 2 - Did section 135 of the BSA apply in the present circumstances and, if so, what was its effect?
Section 135 provides for an extended limitation period of 30 years for causes of action accruing under s.1 of the DPA before 28 June 2022. This amendment was expressly stated to be retrospective in effect and "to be treated as always having been in force" (subject to two exceptions).
The Supreme Court rejected URS's contention that s.135 was restricted to actions under s.1 of the DPA and did not apply to collateral or incidental issues. The Court held that as a matter of language s.135 also applied to actions claiming damages in negligence or claims for contribution which were dependant on the time limit under the DPA but were not actually claims brought under the DPA.
This finding was supported by the purpose of the BSA which was to ensure that those responsible for historic building safety defects could be held to account. To limit any "onward" claims that a developer might make for contribution or in negligence against the contractor directly responsible for a building safety defect would undermine that purpose and result in two contradictory parallel regimes - one for direct claims by homeowners against a developer (or designer or contractor) for a building safety defect and another for onward claims by the developer against the designer or contractor responsible for the defect. In reaching this decision the Supreme Court had the benefit of receiving submissions from the Secretary of State for Housing, Communities and Local Government.
However, the Court, made it clear that s.135 did not retrospectively affect any issue at trial as to the reasonableness of BDW’s actions in carrying out the remedial works as a matter of legal causation or mitigation. Those works were carried out by BDW at a time when BDW could reasonably have understood that it had a liability to the homeowners, but that such liability was unenforceable if they chose to rely on the limitation defence.
Ground 3 - Did URS owe a duty to BDW under s.1(1)(a) of the DPA?
Under s.1 of the DPA, where a dwelling is provided "to the order" of a person, then a duty is owed to that person by the person taking on the work. Section 1(4) extends the statutory duty to developers.
The statutory duty under s.1 of the DPA was clearly owed by BDW and URS to the homeowners. However, the Supreme Court held that URS also owed a duty to BDW and rejected URS's argument that the purpose of the DPA was not to protect developers who do not inhabit dwellings. The relevant work was carried out "to the order" of BDW, the first owner. There was no good reason why someone who owed a duty could not also be a person to whom a duty was owed.
Ground 4 - Was BDW entitled to bring a claim against URS under s.1 of the Contribution Act when there had been no judgment or settlement between BDW and any third party and no third party had ever asserted any claim against BDW?
The short answer to this was – yes. It was sufficient that BDW had made a payment in kind (by performing remedial works) in compensation for the damage suffered by the homeowners.
The Contribution Act provides a statutory right for a defendant (D1) who is liable to a third party (C) to claim a contribution from another person (D2) who is also liable to C for the same damage. In this way, the loss can be redistributed among those liable to C to the extent of their relative responsibility for the damage, but with C still able to choose who to claim against and being able to recover in full from any of them.
The Supreme Court rejected URS's argument that BDW's claim for contribution was premature. The right to contribution arose when damage had been suffered by C for which both D1 and D2 were liable and D1 had paid (or been ordered or agreed to pay) compensation for the damage to C. There was no further requirement that, before an action could be brought, D1’s liability to pay compensation to C and the amount which D1 was liable to pay in compensation must have been established by a judgment, an admission by D1 or a settlement agreement between D1 and C.
