URS v BDW: a milestone decision from the Supreme Court – but does it break new ground?

The Supreme Court has handed down its long-awaited judgment in URS v BDW. The judgment considers a number of important issues for construction professionals including limitation, liability in tort, and the interplay between the Defective Premises Act 1972 (“the DPA”) and the Building Safety Act 2022 (“the BSA”).

Background

BDW, a well-known developer (whose brand names include Barratt Homes and David Wilson Homes) engaged URS, a designer, to carry out design work on two apartment blocks called Capital East and Freemans Meadow (“the Blocks”). Practical completion of the Blocks took place in 2012, and the apartments were then sold to individual purchasers.

Following the tragic Grenfell Tower fire in 2017, BDW undertook a wholesale review of its developments and discovered that the Blocks’ design was seriously defective, and that they were at risk of structural failure.

It is relevant to note that, at the time the defects were discovered:

a) There was no damage or cracking at the Blocks, even though it was accepted that that they were dangerous.

b) BDW had sold all the flats in the Blocks (thus retaining no interest in them).

c) BDW’s contractual limitation period for defective design had expired, and the ­then applicable six-year limitation period to bring a claim under the DPA had also expired.

Despite not owing the Blocks, nor facing claims from their owners or occupiers, BDW felt that it could not ignore the problems once they came to light, and incurred costs running to “many millions” to carry out investigations, temporary works, evacuation and a permanent remedial solution. Accordingly, in 2020, BDW issued proceedings against URS to recover the cost of the remedial works, which at the time was confined to a claim in negligence.

At a preliminary issues hearing, Fraser J held that BDW’s alleged losses were recoverable in principle, and agreed with BDW that its cause of action accrued on practical completion, not, as URS contended, when the defects were discovered.

In 2022, following the advent of the BSA, s135 of which extended the limitation period to claim under section 1 of the DPA from 6 to 30 years, BDW was permitted to add new claims under (1) Section 1 of the DPA; and (2) the Civil Liability (Contribution) Act 1978 (the “CL(C)A”).

URS appealed both decisions unsuccessfully, and was then granted permission to appeal to the Supreme Court on the basis of certain “assumed facts”.

The Grounds of Appeal

URS’ grounds of appeal were as follows:

(1) As to BDW’s claim in negligence, had BDW suffered actionable damage, or was the damage too remote because it was voluntarily incurred? If the damage was too remote, did BDW already have an accrued cause of action in tort at the time it sold the Developments? (“Ground 1”)

(2) Did s135 of the BSA apply here, and if so, what was its effect? (“Ground 2”)

(3) Did URS owe a duty to BDW under s1 of the DPA, and if so, are BDW’s alleged losses of a type which are recoverable? (“Ground 3”)

(4) Was BDW entitled to bring a claim against URS under s1 of the CL(C)A, notwithstanding that there had been no judgment or settlement between BDW and any third party? (“Ground 4”).

The appeal was heard by seven Justices, who unanimously dismissed it.

Ground 1

As a preliminary point, the Supreme Court explained that BDW’s claim against URS was for pure economic loss ie., compensation for financial loss (because the Blocks has a lower value and required repair), not physical damage. Nevertheless, it was accepted that there was an “assumption of responsibility” by URS to BDW, such that, if URS was in breach of its duty by its negligent design, BDW’s losses would be recoverable.

The issue to be decided here, however, was whether BDW’s losses could be recovered in circumstances where BDW had “voluntarily” repaired the Blocks, it being noted that any claims by the Blocks’ owners would, by that time, have been time-barred.

The Court rejected a principle of voluntariness which established a “bright line” rule of law which would render BDW’s losses too remote. In any event, there were powerful features of the case to suggest that BDW’s actions were not ‘voluntary’ in the true sense of the word. Those included that: (1) if BDW had not repaired the Blocks, there was a risk that they would cause personal injury (or at worst death) to the owners; (2) even though any claims by the owners would have been time barred, that would only provide BDW with a limitation defence, which it was not obliged to take – it did not extinguish the owners’ rights altogether; and (3) BDW would be exposed to reputational damage if it ignored the problems, including the danger to homeowners, once they had been discovered.

On the basis that there was no automatic “voluntariness principle”, the Court declined to consider when the tortious cause of action accrued. As such, the much-maligned decision in Pirelli – in which it was held that limitation in negligence against a designer runs from the date of the damage, not when it was discovered – remains, for now at least, good law.

Ground 2

The question here was whether s135 of the BSA could apply to claims which, although not claims under the DPA, were dependent on the time limits under the DPA e.g., claims by homeowners against a developer, designer or contractor.

In grappling with that question, the Court firstly set out that a key objective of the BSA was “to identify and remediate historic building safety defects as quickly as possible, to protect leaseholders from physical and financial risk and to ensure that those responsible are held to account.” S135 of the BSA, which created a “backward-looking” 30-year limitation period for claims under s1 of the DPA, was written with that objective in mind.

Against that background, the Court found that s135 applied to cases such as the present one. A finding to the contrary would seriously undermine the scheme of s135 of the BSA, and effectively create two contradictory “parallel universes” – one for claims by homeowners against developers, and another for onward claims by developers against the designers or contractors responsible for the defects, each of which would bear different limitation periods. Plainly, the Supreme Court found, that would be an incoherent outcome.

Ground 3

S1 of the DPA imposes a duty on those who “take on work” for in connection with the provision of a dwelling to ensure that the work is done in a professional manner, and that the dwelling is fit for habitation when completed. The duty is owed to the person who commissioned the dwelling, ie., “to the order of any person”, and any person who acquires a legal or equitable interest in the dwelling.

It was common ground that BDW owed the s1 duty on the basis that it took on work. The question raised by Ground 3 was whether BDW could also be owed the s1 duty, because URS took on work to BDW’s order.

Unsurprisingly, the Court held that BDW was owed the s1 duty. As a matter of normal meaning, the words “to the order of any person” did not confine the recipients of the duty to lay purchasers, but were capable of embracing the “first owners” who order work ie., developers. Accordingly, the Court found, “there is no good reason why a person, for example, a developer, cannot be both a provider and person to whom the duty is owed …”. 

Ground 4

S1 of the CL(C)A 1978 establishes a right of a person who is liable for damage to seek a contribution from others who are also liable for the same damage. There is a two-year limitation period that applies to such claims, running from the date that the right accrues.

URS asserted that BDW was not entitled to bring a claim for a contribution. That was because, it said, there had been no judgment against BDW, a settlement, or an admission of liability on BDW’s part. BDW, by contrast, contended that the right to claim a contribution under the CL(C)A arose as soon as the damage was suffered.

The correct answer, the Court found, was somewhere in between: when (1) there is damage suffered for which two defendants are each liable; and (2) the first of the defendants “has paid or been ordered or agreed to pay compensation in respect of the damage”. It was at that point, and not before, that the first defendant would be entitled to recover a contribution.

Accordingly, BDW was not prevented from bringing a contribution simply because there was no judgment against it, nor a settlement with any third-party claimants.

Conclusion

Although the Supreme Court stopped short of breaking new ground in some respects (Pirelli, notably, being left for another day), the decision in BDW v URS brings welcome clarification on a number of important issues. Those include, in particular, that claims under s1 of the DPA are not confined to lay purchasers: developers and other construction professionals may be owed precisely the same duties by professionals responsible for design and construction. That the Supreme Court came to that conclusion is unsurprising, and is on all fours with the BSA’s central purpose of holding those responsible for building safety defects accountable.

The corollary is that liabilities under the DPA will be considerably broader in scope. That will inevitably open the floodgates for more claims against construction professionals.

How the insurance market will respond remains to be seen. Watch this space.

Alex Rosenfield is a Partner at Fenchurch Law.