Building Safety Act 2022: What was the Court of Appeal's decision in URS v BDW?

The Court of Appeal has handed down judgment in URS Corporation Limited v BDW Trading Limited [2023] EWCA Civ 772. This is the first Court of Appeal decision relating to claims under the Defective Premises Act 1972 (DPA) since enactment of the Building Safety Act 2022 (BSA) in April 2022.

As noted in our previous insights, the extension of the limitation period under the DPA from six to 30 years (as well as the widening of its scope) is one of the most well-documented and controversial changes brought about by the BSA.

The Court of Appeal decision confirms inter alia that:

• The scope of the duty of care owed in tort by a designer to a developer is entirely conventional and covers the risk of economic loss caused by structural deficiencies or defects;
• The date of the accrual of a cause of action in tort against designers of a defective building, in circumstances where the defect caused no immediate physical damage, will be the date of practical completion at the latest;
• Developers are owed a duty under the DPA, as well as themselves owing a duty to subsequent purchasers;
• Section 135 of the BSA, which extends the limitation period for DPA claims to 30 years, has retrospective effect such that it "…is to be treated as always having been in force";
• Claims which have been "finally determined by a court" cannot be re-opened, but there is no exception relating to the rights of parties in ongoing litigation prior to final determination;
• Claims in contribution need not have been established in fact (e.g. a claim does not need to have been made) before a right to claim contribution arises; and
• BDW were therefore permitted to amend their claims to include previously time-barred DPA claims, as well as claims under the Civil Liability (Contribution Act) 1978.

We summarise below the background to the case, and the key points arising out of the decision.

Background facts

• BDW are developers which include brand names such as Barratt Homes and David Wilson homes. URS had provided structural designs in respect of developments procured by BDW including Capital East in London, and Freemens Meadow in Leicester.
• Practical completion occurred between 2005 and 2012, and BDW entered into contracts to sell the individual flats.
• In the wake of the Grenfell tragedy, BDW, like many other developers, instigated widespread investigations of their developments. In 2019, BDW discovered serious structural design defects in the developments, and residents in one block were evacuated on safety grounds.
• Following this discovery, BDW issued a claim in tort for professional negligence against URS, with their claims in contract and under the DPA being time-barred. Two unusual features of the case are that:
  1. Although the buildings were shown to be defective, they had not suffered any physical damage; 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.
• The parties appeared before the Technology and Construction Court a number of times, including in a preliminary issues hearing in October 2021.
• In 2022, BDW sought and was granted leave to amend their pleadings to include a claim under section 1 of the DPA after the BSA retrospectively extended the limitation periods for such claims from six to 30 years. (In 2019 when BDW first issued their claim, the six year limitation period then applicable to claims under the DPA would have already expired). BDW also added claims under the Contribution Act 1978.
• In February 2023, Lord Justice Coulson directed that various appeals arising out of those hearings should be heard together, since the appeals "concern potential issues that arise out of s.135 (and possibly other parts) of the Building Safety Act 2022. The section is novel, and the issues to which it gives rise have never been considered before."

The Court of Appeal decision

The key points decided by the Court of Appeal were as follows.

1. The losses claimed by BDW were within the scope of URS' duty of care

The Court of Appeal upheld the "entirely conventional and correct" decision of Fraser J at first instance that the losses claimed by BDW were within the scope of URS' duty of care.

URS had argued on appeal that the risk of harm URS were obliged to guard against was the harm to BDW's proprietary interests and/or the risk of BDW being exposed to claims by individual purchasers. Neither risk came to fruition, according to URS, because by the time BDW discovered the defects, they no longer had any proprietary interest in the developments and claims by purchasers were statute-barred.

The Court of Appeal rejected this argument. It held that the relevant risk of harm was that, in breach of the professional's duty, "the design of the buildings would contain structural defects which would have to be subsequently remedied." It was impossible to conclude that the "losses were somehow outside the scope of URS' duty."

2. The cause of action arose when the defective design had been "irrevocably incorporated"

The parties had also disagreed as to the date on which the cause of action accrued:

1. BDW submitted that their causes of action accrued on practical completion of the developments;
2. URS argued that if there was a cause of action in tort, it would not have accrued until 2019 when the defects were discovered.

On this basis, URS submitted that at the time when they did owe BDW a full professional duty of care, BDW had suffered no loss – and conversely, when BDW did incur the loss in 2019, they no longer owned the developments and therefore had no entitlement to recover their expenditure.

The Court of Appeal upheld the decision of Fraser J at first instance that BDW's cause of action against URS arose, at the latest, on the date of practical completion of the individual buildings.

Lord Justice Coulson confirmed that, where the design deficiencies did not cause immediate physical damage, the cause of action was "complete" at the point when the "defective and dangerous structural design had been irrevocably incorporated into the buildings as built". The date of the claimant's knowledge was irrelevant.

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

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.

URS argued that developers such as BDW were not a "person to whom a duty was owed under the DPA", on the basis that:

1. The DPA was intended to protect "lay purchasers" and not commercial developers; and
2. Since BDW as a developer owes duties to subsequent purchasers under the DPA, they could not themselves simultaneously be owed a duty by URS.

The Court rejected these arguments. It held that, as a matter of "simple statutory interpretation", it was clear that BDW were owed a duty by URS, since URS was a "person taking on work for or in connection with the provision of a dwelling".

A duty is owed either:

1. "if the dwelling is provided to the order of any person, to that person" [section 1(1)(a)]; and
2. "to every person who acquires an interest (whether legal or equitable) in the dwelling" [section 1(1)(b)].

The buildings in question were provided "to the order of" BDW, who had a contract with URS for the structural engineering design. Therefore, URS owed a duty to BDW under section 1(1)(a).

Further, there was nothing in the DPA which would somehow limit the recipient of the duty to individual purchasers rather than commercial developers. Individual purchasers plainly fell within section 1(1)(b). Section 1(1)(a) would therefore serve no practical purpose if commercial developers were excluded.

4. BDW was permitted to amend their pleadings to add a claim under the DPA and the Contribution Act 1978

Prior to the BSA, the limitation period for claims under section 1 of the DPA was six years from the date of completion. Section 135 of the BSA extends the limitation period retrospectively from six to 30 years for rights accruing before 28 June 2022.

URS argued that section 135 did not apply to parties involved in ongoing court proceedings.

The Court disagreed with this argument. It confirmed that:

1. Section 135 of the BSA is retrospective in effect; and
2. Whilst there is an exception in section 135(6) addressing claims which have been "finally determined by a court" by the date it came into force, there is no exception relating to the rights of parties in ongoing litigation.

With respect to the Contribution Act, the Court confirmed that BDW was entitled to claim a contribution from URS in respect of their liability to the purchasers of the flats, even though no claim by the purchasers had yet been made.

Key takeaways

The Court of Appeal judgment in URS v BDW has been highly anticipated, particularly by parties already involved in, or who may be facing or considering bringing building safety / defects claims relating to residential properties.

Of particular interest will be the Court's decision to allow BDW to amend their pleadings to add a claim under section 1 of the DPA, following the enactment of the BSA. Three key takeaways from this decision are that:

1. The date of the accrual of a cause of action in tort against designers of a defective building, in circumstances where the defect caused no immediate physical damage, will be the date of practical completion at the latest;
2. Developers are owed (as well as themselves owing to subsequent purchasers) a duty under section 1 of the DPA; and
3. It is open to parties in ongoing litigation to seek similar amendments and potentially to revive previously time-barred defects claims under the DPA.

In light of the 30 year retrospective extension of the relevant limitation period, such claims may go back as far as 1992. This will of course pose evidentiary issues since in many cases, records from the early 1990s will be non-existent or at the very least difficult to obtain. Whilst URS' associated rights under the Human Rights Act 1998 would remain available, those issues were stated to be a matter for trial.

If you have any questions about the issues raised in this article, please get in touch with Sue Ryan or Daniel Wood.

We are grateful to Simon Hargreaves KC and David Sheard for providing us with their summary of this judgment.