Developers are owed duties under the Defective Premises Act 1972 (DPA)

The Court of Appeal decision in URS Corporation Ltd v BDW Trading Ltd confirms that developers may be owed duties under S.1.1 of the Defective Premises Act 1972 and provides a useful review of the accrual of causes of action in negligence against construction professionals.

Background

The developer, BDW Trading Ltd (BDW), appointed URS Corporation Ltd (URS) to provide structural designs for a residential development that was being developed by BDW (the Development).
 
The last phase of the Development achieved practical completion in or around February 2008. All of the individual leasehold units were then sold subject to 200-year leases. BDW retained the freehold until its interest in the head lease was transferred at the end of 2008.

Despite BDW no longer owning a legal interest in the Development, in the wake of the Grenfell Tower disaster in 2017, BDW elected to take steps to ensure the Development was 'safe'. A number of structural defects were identified which were considered to pose a risk to the residents and, as a result, BDW incurred, or would incur, considerable costs remediating those defects. BDW subsequently sought to recover those costs from URS and issued a claim in negligence in the Technology and Construction Court (the TCC) in 2019.

As a part of its defence, URS claimed that BDW did not have a proprietary interest in the Development and therefore had suffered no loss. The TCC however rejected this argument and decided that BDW’s cause of action accrued no later than the date of practical completion (at the latest February 2008) and the losses were recoverable because BDW did hold a proprietary interest at that point in time.

URS appealed and permission was granted (the First Appeal).

The Building Safety Act 2022 (the BSA)

Shortly after permission for URS to appeal was granted, the BSA came into force and Section 135 extended the limitation period for claims under the DPA.

BDW made an application to the TCC seeking permission to amend its pleadings to include a claim under section 1.1 of the DPA and a claim under section 1(1) of the Civil Liability (Contribution) Act 1978 (CLCA). The Court gave permission to BDW to amend its claim accordingly and URS subsequently appealed (the Second Appeal).

First Appeal

The Grounds

The basis of URS's appeal was three fold:

1. By the time the defects became known, BDW no longer had any proprietary interest in Development. Therefore, URS maintained that BDW did not suffer any damage (and had in fact opted to incur the cost of remediating the defects) and that the losses were outside the scope of URS' duty of care (which was limited to risk of harm to BDW's proprietary interests which ceased in 2008). 


2. The losses claimed by BDW were not recoverable because third party claims were statute barred (which is a position predicated on the cause of action accruing in 2019 and not as per the first instance judge's decision, at PC at the very latest). 


3. On the proviso that URS's claim succeeds on the first two grounds, the previous trial judge was wrong to not have struck out the claim for negligence.

Appeal Dismissed

The Court of Appeal dismissed URS's appeal on the following grounds:

1. The risk of harm to BDW (which was the scope of URS's duty) was the risk of economic loss that would be caused by URS's defective design of the Development (i.e. where there are resulting structural deficiencies those deficiencies would need to be remedied). This was considered a standard duty imposed on a design professional, co-existent with that professional’s contractual obligations.

Under a contract, it was well established that a builder despite being under no obligation to do so, might nonetheless successfully claim his costs of going back to carry out repairs. There was no reason why the outcome should be any different in a negligence action for economic loss.

2. Where design deficiencies did not cause physical damage, and where such claims were properly to be regarded as claims for economic loss, it was clear that the cause of action in negligence accrued at the latest at practical completion. There was no need for there to be any “damaging consequences of the defect”. In any event, the Court held that there were damaging consequences of the defect: the Development was unsafe.

Second Appeal

The Grounds

The basis of URS's Second Appeal was fivefold:

1. The first appeal judge should have determined the points of law as opposed to deciding that they were arguable.

 

2. The retrospectivity of S.135 of the BSA could not apply to proceedings ongoing at the point of enactment/coming into force.

 

3. A developer owed duties under the DPA, it was not itself owed any duty.

 

4. BDW had suffered no loss under the DPA because it no longer owned the properties when the defects were discovered.

 

5. No claim could be made under the CLCA because no claim had first been made, or intimated, by the owners of the properties forming part of the Development so that there was no legal right to bring a claim under the CLCA.

Appeal Dismissed

The Court of Appeal dismissed URS's appeal and could find no fault with the judges' approach from the first appeal. On the other grounds:

1. It was clear that the relevant wording of the BSA was intended to have retrospective effect; “is to be treated as always having been in force” could not be clearer. There was no carve-out for ongoing proceedings, whereas there were other carve-outs. If that had been intended, other subsections of S.135 BSA would need to be redrafted.

 

2. It was clear on the plain words of S.1(1)(a) of the DPA that it applied to "Dwellings provided to the order of” BDW and so BDW was owed a duty pursuant to S.1(1) of the DPA by URS. The submission that duties were owed only to “lay purchasers”, rather than companies or commercial organisations, was unsound and was contrary to the express wording. 

 

3. Damages were indeed recoverable. Recoverability of damages under the DPA is not linked to or limited by property ownership and following the decision in Bayoumi BDW was entitled to recover “such damage as he may prove he suffered by reason of the wording of section 1”.

 

4. There was nothing in the wording of S.1(1) of the CLCA to suggest that the making or intimation of a claim was a condition precedent to the bringing of a claim in contribution.

Summary

This case focused on the duties owed by professionals but also highlighted the fact that both contractors and sub-contractors also owe a similar duty. Following the adoption of Murphy, developers have typically been unable to claim against sub-contractors. However, and despite being obiter, Coulson LJ suggested that a developer may be a person to whom a duty is owed under S.1(1)(a) of the DPA. The repercussions of this could be significant, and there is a question as to how far this extends – for example, do sub-contractors owe contractors a DPA duty?
 
This case also confirms that S.6(3) of the DPA may not be excluded and will therefore override any contractual limitation or exclusion provisions. Coulson LJ noted that S.6(3) does not have a draconian effect. If and to the extent Coulson LJ refers to the availability of rights of contribution, this will depend on the solvency of other parties.

Where there is no physical damage, the cause of action in negligence accrues by the date of practical completion and where there is physical damage, it accrues at the date of damage. However, this does not address the question as to what happens where physical damage occurs after practical completion and whether the cause of action accrues at the date of practical completion or when the damage occurs.