Building Safety Act 2022: Clarification on developer’s ability to recover remedial costs

The recent Court of Appeal decision in URS Corporation Limited v BDW Trading Limited [2023] will be of considerable interest and importance to any developer who has found themselves caught by the introduction of the Building Safety Act 2022 (BSA) and is seeking to recover the costs associated with fire safety remedial works from the original contractor or design team. 

Of particular importance, the Court of Appeal considered:

• whether a claim can be brought by a developer who no longer has a proprietary interest in the development where that claim is for economic loss, being the costs of remediating the defects; 
• when the cause of action accrues where there is no physical damage;
• whether the retrospective extension of the limitation period for claims under the Defective Premises Act 1972 (DPA) applies to proceedings which have already been commenced prior to the enactment of the BSA;
• whether it is necessary for a claim to have been intimated or received from a third party for a claim to be brought under the Civil Liabilities (Contribution) Act 1978 (CLCA); and
• whether the motivation for the developer carrying out investigations into defects and subsequent remedial works was relevant to their ability to claim such costs from third parties.

Background to the case

BDW Trading Ltd (BDW) is a residential developer which appointed URS Corporation Limited (URS) as the structural engineers on numerous developments, including Freemans Meadow and Capital East which form the basis of this dispute. The appointment was in standard form and contained a warranty that the developer would exercise its duties with “[…] reasonable skill care and diligence as is to be expected of a properly qualified and competent member of the relevant profession experienced in carrying out work such as its duties under this Agreement […]”. 

Following the Grenfell Tower tragedy in June 2017, BDW undertook a review of all the buildings it had developed and in the course of these inspections identified cracks in the structural slab of a building on which URS was the structural engineer. As a result of this, BDW extended its investigations to review the structural designs on all buildings on which URS had been appointed. In 2019, defects were found in the design of the following buildings (the developments):

• Freemans Meadow: A seven-block development which achieved practical completion in stages between February 2005 and October 2008. BDW sold its legal interest in the development in May 2015.
• Capital East: A five-block development which achieved practical completion in stages between March 2007 and February 2008. BDW sold its legal interest in the development in stages, with the last sale being completed in December 2008. 

While no cracking or physical damage was seen at the developments, the defects in the design were serious enough to deem them unsafe and resulted in BDW undertaking remedial works on the developments and, in one instance, decanting residents from a building. BDW took these steps despite the fact that it no longer had any proprietary interest in the buildings and that no claims had ever been brought or intimated by the current building owners or leaseholders against BDW. 

BDW sought to recover these costs from URS. When the claim was initially pleaded, any claims in contract or under the DPA would have been time-barred and therefore a claim was brought in negligence. 

The preliminary issues appeal 

Following a hearing on preliminary issues before Fraser J in October 2021, URS appealed on three grounds: 

1. Did the losses claimed by BDW fall within the scope of URS’ duty? Fraser J concluded that other than for a claim for reputational damage, they did. Their duty to BDW was to protect against harm to BDW’s proprietary interests and the risk of loss incurred to third parties.
2. Were the damages claimed by BDW recoverable? URS argued that at the time the defective design had been discovered in 2019 (when they say the cause of action accrued), BDW no longer had a proprietary interest in the developments and any third-party claims would have been statute barred. Fraser J held that this was a case of economic loss (rather than physical damage) and as such the cause of action arose, at the latest, on practical completion of the developments. At that time, BDW did have a proprietary interest. 
3. Did the Judge err in not striking out the claim? This was contingent on the success of grounds 1 and 2 but was important because if the claims had been struck out, BDW would not have had the opportunity to amend their claim to plead the DPA and CLCA following the introduction of the BSA (see below).

The Court of Appeal dismissed each of URS’ grounds of appeal and upheld Fraser J’s decision.

The amendment appeal

Following the enactment of the BSA in June 2022, by virtue of s.135 the limitation period for bringing claims under the DPA was extended retrospectively to 30 years. As a result, at a further hearing in 2022, Mr Adrian Williamson KC permitted BDW to amend their pleadings to include both a DPA and CLCA claim on the basis that both BDW and URS were liable under the DPA.

URS appealed this on the following grounds:

1. BDW owed a duty under the DPA to the flat purchasers but was not owed a similar duty by URS. They also argued that the DPA was intended to protect lay purchasers, rather than commercial developers and that it applied only to individual dwellings rather than an entire development.
2. As BDW owed a duty to individual purchasers under the DPA, it could not itself be owed a duty.
3. BDW had suffered no loss under the DPA as they had no proprietary interest in the developments when the defects were discovered.
4. No CLCA claim was available as BDW had not received a claim from any third party, nor had any claim been intimated.
5. The retrospective effect on limitation imposed by the BSA did not extend to ongoing litigation. 

The Court of Appeal rejected all arguments and applied a “common sense” approach to the interpretation of the DPA. They held that the wording is clear and unambiguous. Using their straightforward meaning, there was nothing to limit the duty being owed to individual purchasers or suggest those owing a duty under the DPA, e.g. property developers could not, in turn, be owed a duty from another party. 

In addition, limiting the scope to individual dwellings rather than an entire development was said to be “unsustainable as a matter of common sense.” 

In relation to the claim under CLCA, it was held that neither a formal settlement nor a third-party claim was a condition precedent to enable a claim under the CLCA to be brought. The only requirements, as set out in the CLCA, is that both parties could be found liable for the damage suffered by the same third party. Any other interpretation would in the Court’s view reward indolence. 

Finally, the BSA expressly confirms the exception to the retrospective provisions of s.135 for claims that had been finally determined or settled prior to the enactment of the BSA. The court considered that if Parliament had intended an exception in any other circumstance a provision would have been easy to include and in the absence of such other exception confirmed that the retrospective effect of the limitation period under s.135 would extend to ongoing litigation.

Conclusion

The Court of Appeal’s judgment provides some important clarifications on the scope of the DPA, requirements for claims under the CLCA and the retrospective application of the extended limitation period for claims via the DPA that was introduced by the BSA. 

It also provides confirmation for developers that they will still, in principle, be able to recover losses incurred in rectifying defective works following disposal of their proprietary interests. 

This is likely to be of particular importance for those developers who have been caught by the provisions of the Developer Remediation Contract and The Building Safety (Responsible Actors Scheme and Prohibitions) Regulations 2023 or have been the subject of claims by building owners or leaseholders and are seeking to pass on claims to the original contractor or design team. 

This decision is broadly helpful for residential property developers who are now liable to the Government and property owners for the substantial costs associated with building safety defects. However, it is unlikely to be the last reported case and this wider area is likely to be a fertile background for more disputes, as further aspects of the BSA will require interpretation by the Courts.