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Court of Appeal clarifies implementation of the Building Safety Act & developers’ prospective rights

On 5 July 2023, a key judgment was handed down by the Court of Appeal in the case of URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772 – the first of its kind in respect of claims under the Defective Premises Act 1972 (the “DPA”) since the enactment of the Building Safety Act 2022 (the “BSA”) in April 2022. We provide a case review below as well as our comments on how this may impact the industry, particularly developers.

Background

BDW, a prominent developer, partnered with URS who provided structural designs for notable projects including residential tower blocks procured by BDW for the development of Capital East in London and Freemens Meadow in Leicester.

Following practical completion which occurred at different times between 2005 -2012, BDW sold the apartments in both developments, transferring its proprietary interests to various third parties.

In the wake of the Grenfell tragedy, and mirroring the actions of numerous other developers, BDW initiated a widespread investigation into their developments including the structural design provided by URS.

It became evident that certain developments featured hazardous structural conditions due to potentially negligent designs. Significant costs were incurred by BDW in investigating these defects, which included the evacuation of one of the London residential blocks as well as carrying out permanent remedial works.

As a result, BDW initiated legal proceedings, launching a professional negligence claim against URS in relation to the structural defects at Capital East and Freemans Meadow.

Permission to appeal

In an initial ruling on preliminary matters, Fraser J determined that URS’ tortious duties encompassed all the claimed losses, save for specific alleged reputational loss. After this judgment, the enactment of the BSA brought about a pivotal shift, specifically, section 135, which retroactively extended the limitation periods for claims under the DPA. This had real potential to impact the parties’ positions during the impending trial.

The extension had the potential to negate URS’ ability to argue that any actions brought forward by third parties against BDW, aimed at enforcing any obligation BDW might have to rectify the defect, would be time-barred. Consequently, BDW sought permission to amend its pleadings, namely the extended limitation periods introduced by the BSA and incorporating claims under the DPA and the Civil Liabilities Contribution Act 1978 (the “CL(C)A”).

In BDW Trading Ltd v URS Corporation Ltd [2022] 12 WLUK 248, Adrian Williamson KC, acting as a Deputy High Court Judge, granted approval for these amendments.

Subsequently, URS initiated appeals against both the preliminary issues and the judgment allowing the amendments.

The appeal against preliminary issues was on three grounds:

  1. Ground 1 – URS argued that BDW’s repair costs fell outside the scope of URS’s duty of care since BDW no longer held proprietary interests due to delayed defect discovery, and third-party claims were time-barred.

 

  1. Ground 2 – URS contended that the damages BDW sought were unrecoverable because BDW had sold its proprietary interests by the time of defect discovery, and third-party claims would have been statute-barred. The core issue was when BDW’s cause of action arose in 2019.

 

  1. Ground 3 – If grounds 1 and 2 above succeeded, the third ground would be a challenge to the Judge’s decision not to dismiss the negligence claim.

The appeal against the judgment allowing the amendments were broadly on the following grounds.

  1. Challenge to the applicability of section135 BSA to ongoing proceedings.

 

  1. Questioning whether a developer could owe duties under the DPA without being owed any duty in return.

 

  1. Dispute over BDW’s eligibility to claim under the DPA, given it no longer owned the properties when defects were found.

 

  1. Doubt regarding the possibility of making a claim under the CL(C)A, as no prior claim had been made or intimated by apartment owners, suggesting no legal right to bring such a claim.

Coulson LJ granted permission to proceed with these appeals on 23 February 2023 with both appeals scheduled for a concurrent hearing.

First appeal (preliminary issues judgment)

Ground 1 – The Court confirmed Fraser J’s decision, establishing that URS’ duty of care aimed to protect against economic losses arising from negligent structural design. The losses claimed were for conventional damages such as investigation and temporary work expenses, rather than reputational harm.

Ground 2 – It was acknowledged that this case didn’t involve physical damage and that design hadn’t caused physical harm to the developments, such as cracking. Instead, it resulted in economic losses. URS’ argument that BDW’s cause of action only accrued upon defect discovery was rejected. The Court held that BDW’s cause of action against URS emerged, at the latest, upon practical completion of the developments when BDW had a proprietary interest. The Court also affirmed that in cases lacking physical damage, actionable damage sufficed, and there was no requirement for a “damaging consequence of the defect” to establish a claim. Regardless, the buildings’ lack of safety itself constituted a “damaging consequence” of the deficient design.

Ground 3 – Given the Court’s dismissal of URS’ appeals on the first two grounds, the third ground was left unaddressed.

Second and third appeals – (approving amendments)

Ground 1 – The Court dismissed the challenge to section 135 BSA’s applicability. It held that Parliament clearly intended for section 135 to be retrospective in effect as supported by the wording of the Act – “is to be treated as always having been in force”.

Ground 2 – URS’s objection to BDW being owed a duty under DPA was rejected. In response to whether a developer could be owed a duty under the DPA, the Court referred to section 1(1)(a) of the Act as URS was a “person taking on work for or in connection with a provision of a dwelling”. URS, therefore, owed a duty to any person where the dwellings/development were being “provided to the order”. In this instance, BDW as the developer under the contract were being “provided to the order”. Additional submissions by URS suggesting duties were only to “lay purchasers” or that what was “provided” was not dwellings, but a development was deemed inconsistent.

Ground 3 – The Court affirmed that recoverability of damages under the DPA wasn’t tied to property ownership, dismissing the claim that the BDW did not suffer any loss as the developments were sold after completion was rejected.

Ground 4 – Counsel representing URS argued that BDW’s responsibility to the relevant buyers under the DPA would have been assessed in 2020, coinciding with the payments made when BDW conducted the necessary remedial works. During that period, no claims had been initiated by individual purchasers, and it was suggested that if such claims had been made, they might have been subject to statutory limitations. However, the Court determined this to be inaccurate because liability under section 1(1) of the CL(C)A is assessed when the contribution is sought. At this juncture, the purchasers’ claims would not be time-barred due to section 135 of the BSA and its retrospective applicability.

Comment

Amending claims: Section 135 of the BSA allows for 30-year retrospective extension of the relevant limitation, potentially reviving time barred DPA claims to go back as far as 1992. This may prove difficult for evidential reasons as records from the early 1990s may be scarce or difficult to obtain, posing challenges in proving claims.

Developers owe duties and are also owed duties under DPA: The most intriguing aspect of the Court of Appeal’s decision revolves around the DPA. The decision by the Court of Appeal suggesting that developers are now entitled to protection under section 1(1) of the DPA is a significant variation to what was previously accepted. The consistent legal standpoint going back 30 years has been that developers couldn’t make claims against subcontractors or consultants under the DPA. However, it seems that this stance has shifted, at least when it comes to residential properties. Whether similar changes will apply to non-residential properties remains uncertain.

Our Construction team will continue to monitor the situation and if you need help understanding this area of law or to receive more information on any Building Safety and/or Construction related issues, please get in touch. Earlier this week we shared an important update about key Building Safety changes from 1 October 2023 which you can read here.

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