In a landmark decision providing guidance on limitation issues and application of the Building Safety Act 2022 (\u201cBSA\u201d), the Court of Appeal has held that:<\/p>\n
Background<\/strong><\/p>\n BDW Trading Ltd (\u201cBDW\u201d) as developers engaged URS Corporation Ltd (\u201cURS\u201d) as consulting engineers in relation to various blocks of flats across the UK. \u00a0Cracking reported in 2019 in the structural slab of a building designed by URS led to BDW undertaking a review of all related projects, and discovering that Capital East, on the Isle of Dogs, and Freemens Meadow, in Leicester, had been negligently designed.\u00a0 Whilst no cracking or other physical damage was identified at these developments, the existing structures were found to be dangerously inadequate and residents in part of Capital East were evacuated.<\/p>\n Freemens Meadow had achieved practical completion in 2012 and Capital East in 2008. \u00a0By the time that defects came to light, BDW no longer had any proprietary interest in the buildings but decided, as responsible developers, they could not ignore the problem and incurred millions of pounds in costs to carry out investigations, temporary works, evacuation of residents and permanent remedial works.<\/p>\n Proceedings<\/strong><\/p>\n BDW commenced proceedings against URS in 2020 based on claims in negligence.\u00a0 Contract claims were outside the standard 6 years limitation period at that time, whilst section 14A Limitation Act 1980 (\u201cLA\u201d) allows the time period for claims in tort to be extended if the claimant only had the necessary knowledge to bring the claim within the last three years (subject to a longstop of 15 years from the date of breach).<\/p>\n URS applied unsuccessfully to strike out BDW\u2019s claims.\u00a0 This was followed by two related appeals on behalf of URS, against: (1) an Order answering various Preliminary Issues in favour of BDW; and (2) permission granted to BDW in 2022 to amend its pleadings, to rely upon longer limitation periods for DPA claims introduced by s.135 of the BSA.<\/p>\n Substantive Appeal<\/strong><\/p>\n URS maintained that BDW suffered no actionable damage having sold at full value, and were not liable to carry out remedial works given the limitation defence available to potential claims by purchasers, so the loss fell outside the scope of URS\u2019s duty of care.<\/p>\n Lord Justice Coulson observed that this was a kind of legal \u2018black hole\u2019 submission similar to the defendant\u2019s argument in St Martin\u2019s v McAlpine <\/em>[1994], where the original employer sold its interest even before any breach of contract.\u00a0 The consequential \u201cformidable, if unmeritorious<\/em>\u201d argument that the original employer had suffered no loss was ultimately rejected by the House of Lords,<\/em> confirming that a defects claim does not always require an ownership interest in order for the cost of remedial works to be recoverable.<\/p>\n The Court of Appeal concluded that URS were under a clear duty to protect BDW from the risk of economic loss caused by structural deficiencies, and BDW\u2019s liability to purchasers at the point of sale was not extinguished by any limitation defence – which operates as a procedural bar only (Kajima v Children\u2019s Ark <\/em>[2023]).\u00a0 URS\u2019 argument that its duties to BDW were limited by the agreement to provide collateral warranties to individual purchasers was also misconceived, given the advantages of a consolidated claim:<\/p>\n \u201c\u2026there are many practical reasons why the existence of a claim on behalf of the individual purchasers by a major corporate entity like BDW which would cover the whole building and not just individual parts is an important benefit to those purchasers, regardless of the terms of any individual warranties in their favour.\u00a0 The difficulties that defendants can place in the way of individual claimants in large residential blocks can be seen in<\/em> Manchikalapati v Zurich [2019]<\/em>\u201d (paragraph 61).<\/p>\n BDW\u2019s motivation in carrying out the work was irrelevant and URS\u2019 attempt to portray the losses as \u2018reputational\u2019 was rejected: \u201cto adopt such a characterisation in relation to damages of this type would be dangerous in the extreme.\u00a0 It would be contrary to public policy because it might dissuade a builder from rectifying defective work\u201d <\/em>(paragraph 223).<\/p>\n On the question of when damage was suffered by BDW, in the sense of being worse off as a result of URS\u2019 breach of duty,\u00a0 the Court of Appeal held that in cases of economic loss arising from inherent design defects that do not cause physical damage, the cause of action accrues at the latest when a building is practically completed (Tozer Kemsley v Jarvis <\/em>(1983); New Islington v Pollard Thomas & Edwards <\/em>[2001]), consistent with the House of Lords decision in Murphy v Brentwood <\/em>[1991] and the limitation period for statutory claims under s.1(5) of the DPA. \u00a0URS\u2019 argument that BDW\u2019s claim in negligence did not arise until the defects were discovered was dismissed.<\/p>\n Lord Justice Coulson\u2019s judgment also summarises relevant authorities in relation to defects giving rise to physical damage, in which case the cause of action in tort arises when damage occurs, regardless of the claimant\u2019s knowledge of it (Pirelli v Oscar Faber <\/em>[1983]).\u00a0 The Courts of New Zealand and Australia have adopted a different approach, based on accrual of the cause of action when defects become discoverable (Sutherland v Heyman<\/em> (1985), Invercargill v Hamlin<\/em> [1996]); whereas English law developed an alternative solution to potential injustice arising from strict application of the primary limitation period, pursuant to section 14A LA (implemented by the Latent Damage Act 1986).<\/p>\n Amendments Appeal<\/strong><\/p>\n URS claimed that the wrong test had been applied by the Judge at first instance in allowing BDW to amend its pleadings, to include claims under the DPA and Civil Liability (Contribution) Act 1978 (\u201cCLCA\u201d), without determining the disputed points of law as to when BDW\u2019s cause of action accrued.\u00a0 This was rejected by the Court of Appeal: the arguments raised could not be described as short points of law of the type identified in Easyair v Opal <\/em>[2009] and there was no question of a relevant limitation period having expired. \u00a0The test had correctly been described as one of reasonable arguability, as to whether the amendments had some prospect of success, and the Judge was permitted to exercise discretion in leaving the substantive issues to be decided at trial.<\/p>\n For completeness given the wider implications, Lord Justice Coulson went on to consider the arguments raised in relation to the DPA and CLCA claims.\u00a0 In particular, URS argued that: (i) the longer limitation periods permitted by the BSA do not apply to parties to ongoing litigation; (ii) developers are not owed duties under the DPA; and (iii) BDW had no legal right to make a claim for contribution when no claim had been made or intimated by any third parties against BDW. \u00a0All of these arguments were unsuccessful.<\/p>\n The Court of Appeal confirmed that the BSA, including retrospective limitation periods under section 135, applies equally to parties involved in ongoing litigation, subject to the carve out for any claims settled by agreement or finally determined prior to the new legislation coming into force. \u00a0There is no reason why a party who started an action promptly, before the BSA came into force, should be disadvantaged, and \u2018Convention rights\u2019 are preserved: \u201cSo if, for example, URS could show that, in 2016, they had destroyed some critical documents which might have provided a defence to the claim under the DPA, because they assumed that under the existing law any relevant claims were statute-barred, then they may be able to deploy that fact at trial<\/em>\u201d (paragraph 170).<\/p>\n As to the scope of duties under the DPA, the relevant provisions are set out in section 1:<\/p>\n \u201c1. Duty to build dwellings properly<\/em><\/strong><\/p>\n (1) A person taking on work for or in connection with the provision of a dwelling (whether the dwelling is provided by the erection or by the conversion or enlargement of a building) owes a duty \u2013<\/em><\/p>\n (a) if the dwelling is provided to the order of any person, to that person; and<\/em><\/p>\n (b) without prejudice to paragraph (a) above, to every person who acquires an interest (whether legal or equitable) in the dwelling;<\/em><\/p>\n to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.\u201d<\/em><\/p>\n The Court of Appeal held that URS did owe a duty to BDW under s.1(1)(a) of the DPA, based on the ordinary meaning of the language used.\u00a0 The category of persons to whom a duty is owed under this section must be different to s.1(1)(b), otherwise the sub-section would be otiose, and the Law Commission Report which gave rise to the DPA did not limit those requiring protection to individual purchasers (as opposed to commercial organisations, including developers).\u00a0 Application of the DPA is not binary: as with a contractual chain, where the main contractor owes duties to his employer, whilst being owed duties by sub-contractors; so a developer owing duties to purchasers can at the same time be owed duties by professional consultants.<\/p>\n A further submission that no duty was owed to BDW under the DPA because URS were providing an entire development was also rejected.\u00a0 Rendlesham v Barr <\/em>[2014] establishes that work \u201cin connection with the provision of a dwelling<\/em>\u201d includes the structure and common parts; and the absence of previous claims by developers under the DPA did not mean that such claims were inherently unlikely (as with statutory inspectors in Herons Court v Heronslea <\/em>[2019]), given that the DPA \u201chas been significantly under-used in its lifetime so far<\/em>\u201d and has a higher threshold than claims in contract or tort.\u00a0 Recoverability of damages under the DPA is not limited by property ownership and BDW\u2019s sale of the buildings was irrelevant.<\/p>\n In relation to the CLCA claim amendment, the Court of Appeal held it was irrelevant that individual property owners had not commenced any formal claims against BDW.\u00a0 A\u00a0 crystallised claim from a third party \u2018A\u2019 is not required before a party \u2018B\u2019 has the right to claim a contribution from another party \u2018C\u2019 in respect of the same damage.\u00a0 B\u2019s right to claim can anticipate the making of a claim by A against B and in circumstances where B\u2019s liability has already been discharged, a notional liability is all that is required.\u00a0 For purposes of the LA, which provides a 2 year period for CLCA claims to be brought from when the right to claim accrued, the reference to \u2018payment\u2019 in section 10(4) could encompass the situation where remedial works were carried out instead.<\/p>\n Conclusion<\/strong><\/p>\n The outcome is policy driven, encouraging builders and developers to act responsibly in remediating residential property defects.<\/p>\n Parties to existing disputes will be reviewing their pleadings and applying to amend in many cases, to incorporate retrospective DPA claims against parties responsible for sub-standard work. \u00a0The trend for greater reliance on the DPA looks set to continue, where claimants can demonstrate substantial inconvenience, discomfort or risks to health & safety of occupants, which could include defective shower trays in some instances given the impact on ability to wash (an example given by the Court of Appeal).<\/p>\n Latent defects policies for new build homes often exclude losses recoverable from third parties and policyholders should consider potential claims against all relevant members of the construction project team.\u00a0 Similarly, landlords are required under section 133 BSA to take all reasonable steps to obtain monies available through insurance, third party claims or other means, such as Building Safety Fund grants, prior to seeking recovery of remedial costs through service charges.<\/p>\n It remains to be seen if permission will be requested for a further appeal on preliminary issues and whether the case will proceed to final determination on the substantive claims.<\/p>\n URS Corporation Ltd v BDW Trading Ltd<\/em> [2023] EWCA Civ\u00a0<\/a><\/p>\n