Picture the scene.

A commercial developer voluntarily undertakes remedial work to rectify defects in a property it developed many years ago and has since disposed of. It does so on the basis that, if left unremedied, the defects would present a danger to occupants. Can it then seek recovery of those costs against the design professionals who were responsible for those defects? If so, on what basis? A claim in tort? Under the Civil Liability (Contribution) Act 1978 (Contribution Act)? How about the Defective Premises Act 1972 (DPA)?

The above situation is not hypothetical. Indeed, given the scale of the building safety issues faced in the wake of the Grenfell tragedy, it is not atypical and the answers to the above questions are of acute importance to the Construction and Real Estate industries.

The Supreme Court has today handed down its long awaited judgment in the case of URS Corporation Ltd (Appellant) v BDW Trading Ltd (Respondent), which provides much needed and welcome clarity on the above issues. The judgment confirms:

  • Even given the "voluntary" nature of the losses incurred by BDW, those losses were still recoverable from URS in the tort of negligence;
  • The retrospective 30 year limitation period established by section 135 of the Building Safety Act 2022 (BSA) extends not only to DPA claims but also to "onward" claims in the tort of negligence or for contribution;
  • Developers such as BDW can both be owed and owe a duty under the DPA – the statutory duty applies to any person, including a developer, to whose "order" a dwelling is being built (which will ordinarily be its first owner);
  • Notwithstanding that BDW had not entered into any settlement with individual homeowners (or indeed faced any such claims), the damages claimed by BDW are recoverable as a point of principle under the Contribution Act.

We examine the background to the decision and the Supreme Court's reasoning in detail below, as well as exploring the practical impacts of the judgment for developers, contractors and other construction professionals, and insurers.

Background facts

  • BDW, the developer, had engaged URS to provide structural designs in respect of a number of developments in England.
  • Practical completion occurred between 2005 and 2012, and BDW entered into contracts to sell the individual flats.
  • Following the Grenfell tragedy, BDW, like many other developers, instigated widespread investigations of their developments. In 2019, BDW discovered serious structural design defects, and residents in one block were evacuated on safety grounds.
  • Shortly thereafter BDW carried out remedial works to the developments, although no claim against BDW had been asserted or intimated by the third party owners / occupiers of the flats.
  • In 2020, BDW brought a claim in negligence against URS in respect of the defects. At that stage, their claims both in contract and under the DPA were time-barred – since the six year limitation period then applicable to claims under the DPA had already expired.
  • However, in 2022, the Building Safety Act 2022 BSA retrospectively extended the limitation periods for claims under section 1 of the DPA from 6 to 30 years (as well as widening its scope – we provide further detail on these changes in our insight Defective Premises Act 1972).
  • BDW sought and was granted leave to amend their pleadings to include a claim under section 1 of the DPA. BDW also added claims under the Contribution Act. Those applications to amend succeeded before the High Court.
  • Two unusual features of the case are that:
    1. Although the buildings were shown to be defective, they had not suffered any physical damage. The losses suffered by BDW were "economic loss"; and
    2. By the time the structural defects came to light in 2019, BDW no longer owned or had any proprietary interest in the buildings.
  • In 2023, the case came before the Court of Appeal after Lord Justice Coulson directed that various appeals arising out of these applications should be heard together due to the novel nature of the issues and the policy importance for building safety claims.
  • The Court of Appeal dismissed URS' appeals – and URS then appealed to the Supreme Court on four grounds (which we discuss further below).

The Supreme Court decision

The Supreme Court has unanimously dismissed URS' appeal on all four grounds, holding that:

1. There is no principle of law which would prevent the recovery of voluntarily incurred losses

For the purposes of these proceedings, the following was accepted by the Parties:

  • There was an assumption of responsibility by URS to BDW, that URS would take reasonable care in providing structural designs to BDW, such that buildings constructed on the basis of those designs would not be defective thereby causing BDW pure economic loss.
  • URS was in breach of that duty of care owed to BDW in respect of those structural designs, which were produced negligently by URS.
  • Had BDW carried out the repairs before selling the developments, the cost of those repairs would have been pure economic loss that would have been recoverable by BDW in the tort of negligence.

However, the first Ground of Appeal advanced by URS was that, because BDW had incurred the costs of remediating the buildings at a time when BDW had no proprietary interest in the buildings, were under no statutory obligation to remedy the defects and, in any event, the buildings had not actually suffered from or caused physical damage, the loss suffered was outside the scope of the duty assumed by URS and / or was too remote.

URS sought to argue that there is a "voluntariness principle" which means that pure economic loss incurred on a voluntary basis would render that loss irrecoverable as being either outside of the scope of the duty assumed by URS or as being too remote from that duty to be recoverable.

The Supreme Court dismissed this Ground of Appeal, holding that:

  • There is no such "voluntariness principle" within the law, as contended for by URS, that would render the cost of the repairs incurred by BDW too remote or outside the scope of the duty assumed by URS.
  • In any event, BDW were not acting "voluntarily" in a true sense in paying for the repairs to be carried out. There were three features which indicated that BDW had "no realistic alternative":
    1. There was a risk that if BDW did nothing, the defects would cause personal injury or death to the homeowners for which BDW might be legally liable;
    2. BDW had a legal liability to the homeowners under the DPA or in contract to incur the cost of repairs (even if such claims would have been unenforceable because time-barred); and
    3. There would be potential reputational damage to BDW if BDW did nothing once it knew of the danger to residents, and a general public interest which included moral pressure on BDW to effect the repairs.

The nature of BDW's losses would still be subject to questions of causation and mitigation – the latter of which the Supreme Court confirmed is now "well recognised" not as a "duty" owed to the wrongdoer but as an aspect of causation –; however, those were questions that would be fact specific and remained to be determined by the High Court at trial.

2. The retrospective 30 year limitation period established by section 135 of the BSA extends not only to DPA claims but also to "onward" claims in the tort of negligence or for contribution

Section 135 of the BSA – which the Supreme Court described as both "forward and backward-looking" – provides for a new 30-year limitation period for accrued claims under section 1 of the DPA.

The Supreme Court observed that section 135(3) confirms that this amendment to the Limitation Act " "is to be treated as always having been in force", and is subject to only two exceptions such that it is not to be applied:

  1. if to do so would involve a breach of a defendant's rights under the Convention;
  2. in relation to a claim which was settled or determined before 28 June 2022.

The Court also confirmed that it is obviously the case, and is not in dispute, that the retrospective limitation period applied to claims brought under section 1 of the DPA.

The question considered by the Supreme Court was: Does the retrospectivity of section 135 apply to claims which are dependent on the time limit under the DPA but are not actually claims brought under the DPA?

URS had argued that section 135 did not apply to BDW's claims in the tort of negligence and contribution.

The Supreme Court held that:

  • When the words of section 135(3) are considered in their context, there is "no reason as a matter of language for restricting the application of section 135(3) to actions under section 1 of the DPA."
  • If it were restricted to actions under section 1 of the DPA, then its purpose – to ensure that those directly responsible for building safety defects are held to account – would be undermined.
  • The 30 year retrospective limitation period applies both to claims brought under section 1 of the DPA as well as "what one may call "onward" claims for contribution or for the tort of negligence" that may be brought by, e.g. a developer against the contractor directly responsible for the building safety defect.

It explained that "all these issues, whether direct claims under the DPA or claims in negligence or for contribution that depend on the DPA, turn on the application of the new DPA retrospective 30-year limitation period. The operation of the DPA limitation period is equally important to all those issues."

3. Developers can both be owed and owe a duty under the DPA

The Supreme Court observed that:

  • Section 1(1) of the DPA imposes a duty on those "taking on work for or in connection with the provision of a dwelling" to see that the work is done in a workmanlike or professional manner, with proper materials, and so that the dwelling will be fit for habitation when completed.
  • This duty is owed either:
    • "if the dwelling is provided to the order of any person, to that person" [section 1(1)(a)]; and
    • "to every person who acquires an interest (whether legal or equitable) in the dwelling" [section 1(1)(b)].
  • Section 1(4) of the DPA extends that statutory duty to developers, who are to be treated as included within the category of persons "taking on work" and therefore owing a duty to onward purchasers.

It was common ground that both URS and BDW owed the statutory duty to homeowners of individual flats in the developments.

But was BDW also owed the statutory duty by those taking on the work (such as URS) because the dwelling was provided "to the order" of BDW?

The Supreme Court rejected URS' argument that it would be anomalous and illogical for the DPA duty to be both owed by and to the same person.

It held that – applying the words of section 1 in their context – there is no good reason why a developer cannot be both a provider of the duty, and a person to whom the duty is owed. This will most obviously be the case where the developer who orders relevant work is the first owner.

Section 1(1) of the DPA should therefore be interpreted as applying to any person, including a developer, to whose "order" a dwelling is being built. That person will ordinarily be its first owner – which in this case, was BDW.

4. Contribution claims are not contingent on third-party proceedings

The Supreme Court held that BDW was not prevented from bringing a claim for contribution against BDW by the fact that there had been no:

  • judgment against BDW; or
  • settlement between BDW and any third party;
  • assertion of a claim against BDW by any third party, such as the homeowners in the developments,

as URS had argued.

Instead, it held that it was sufficient that BDW had made a payment in kind (by performing remedial works) in compensation for the damage suffered by the homeowners.

Lord Leggatt's judgment, with which the other members of the Supreme Court agreed, confirmed that the correct legal interpretation of the Contribution Act is that the right of one party (D1) to recover contribution from another party (D2) arises when

  1. damage has been suffered by a person (C) for which D1 and D2 are each liable and
  2. D1 has paid or been ordered or agreed to pay compensation in respect of the damage to C.

It is only at that point, and not before, that D1 is entitled to recover contribution from D2.

Thus, BDW's claim for contribution was not impacted by the fact that no homeowner had ever asserted any claim against BDW.

Impacts on developers, contractors and construction professionals

The Supreme Court decision must be considered against the backdrop of the central purpose and policy intent of the BSA, which is to "hold those responsible for building safety defects accountable". The judgment cites a number of the Secretary of State's written submissions, notably that "[r]etrospectivity is central to achieving the aims and objectives of the BSA… A retrospective approach provides for effective routes to redress against those responsible for historical building safety defects that have only recently come to light, whatever level of the supply chain they operated at."

In light of this judgment, and particularly the clarification that the statutory duty is owed both by and to developers, our key takeaways are:

  • it seems inevitable that the DPA will form the basis of an increasing number of claims in the building safety sector.
  • potential claimants – including developers who voluntarily undertake remedial works to ensure the safety of residents, even in blocks they no longer own – can now have greater confidence about reopening and pursuing claims under the DPA, as well as in tort or for contribution, that would have been previously time-barred prior to 28 June 2022, when the amendments to the DPA came into force.
  • notwithstanding the availability of recourse under an extended DPA claim, developers in situations such as this may also seek recovery in tort and under the Contribution Act.

Despite the welcome guidance this remains an evolving area of law; the Gowling WLG contentious construction team are acting at the forefront of building safety litigation cases and are well-placed to advise you on implications as the law in this area continues to develop.

If you have any questions about the issues raised in this article, please get in touch with Jessica Tresham, Daniel Wood, Sarah Dyer or Sean Garbutt.