Building Safety Act: Court Of Appeal Provides Guidance On Interpretation Of Provisions

The Court of Appeal has now given some guidance on the new provisions and remedies, that were brought into force by the Building Safety Act 2022.

The Building Safety Act 2022 ("the BSA") brought into force a number of new provisions and remedies in relation to fire safety which have received close attention in the industry. However, many have been waiting to see how the provisions will be interpreted and operated in practice. The Court of Appeal has now given some guidance in the case of URS Corp Ltd v BDW Trading Ltd [2023] EWCA Civ 772.

Background

BDW, a developer, engaged structural engineers (part of URS) to develop and construct residential blocks of flats. Like many developers following the Grenfell disaster, BDW undertook a review of the projects it had undertaken. In buildings on which URS had been engaged it identified significant structural cracking defects leading to a risk of structural failure. Having incurred cost in investigation and remedial works it looked for recovery of those costs from URS.

URS owed BDW a contractual duty of care, but BDW also claimed in tort. In the meantime, the BSA was brought into force which retrospectively extended to 30 years the limitation period for claims under the Defective Premises Act 1972 (as amended) ("the DPA").

Two key points were that (1) when the defects were discovered BDW no longer had any proprietary interest in the blocks and (2) whilst the risk of structural failure was identified there was no physical damage. This led to an unusual situation where URS, as the party defending the claim, tried to argue that BDW's cause of action accrued at the latest possible point, i.e. on discovery of the defects. This was so that it could argue that, with no proprietary interest, BDW could not have suffered actionable damage, or that any claims BDW might want to pass down would be statute barred. Conversely, BDW argued for the earliest date, i.e. when the works were certified as practically complete. This all led to a legal "black hole" argument because (1) when URS said it owed a duty of care there was no loss because the defects were unknown but (2) when the defects were discovered there was no liability because BDW no longer owned the buildings.

Earlier judgments

In the judgment of Fraser J it was held that BDW's cause of action in tort arose no later than the date of practical completion. The loss had occurred when the building was constructed in accordance with the alleged negligent design and the date of knowledge was not relevant. A second judgment had allowed BDW to amend its pleadings to bring in the DPA claim. URS argued the amendment should not have been allowed because (1) BDW, who itself owed duties under the DPA, could not then argue that URS owed duties to it; (2) although the BSA extended the limitation period for claims under the DPA, this could not change any rights which, in fact, had accrued and (3) BDW could not claim a contribution from it if BDW itself had not received any claim from a third party to pass on.

The Court of Appeal recognised that the "substantive appeal" and the "amendment appeal" would be of some wide importance in the industry.

Substantive appeal

The two main issues for the Court of Appeal were (1) whether BDW's losses were within the scope of URS' duty of care to BDW and (2) whether the damages claimed were recoverable. Coulson LJ gave the leading judgment.

URS argued that the scope of its duty in tort did not extend to the loss claimed by BDW. Amongst other arguments, it said that if BDW no longer had any proprietary interest then the loss suffered was effectively reputational only. BDW argued that the duty owed was very simple - to ensure that URS' design would not lead to the risk of structural defects. The Court of Appeal agreed, saying it was "impossible" to argue otherwise. When the negligent design was prepared URS owed a duty to BDW, and BDW's disposal of the property did not legally change that position. On a review of prior caselaw Coulson LJ said there was "the highest possible authority" to confirm that a claim for defects does not always require a proprietary interest to be held. Put simply, a defective building had been constructed and handed over and that was enough.

Coulson LJ carried out a lengthy review of existing caselaw authority to consider when a cause of action arises in tort. He concluded that (1) where there is physical damage, the cause of action accrues when that physical damage occurs, regardless of knowledge or discoverability and (2) where there is no physical loss the cause of action accrues on completion of the building. Here, there was no physical damage and URS' argument that BDW first had to discover the damage was unsuccessful. The cause of action arose on practical completion when the negligent design "had been irrevocably incorporated into the buildings as built".

Amendment appeal

The Court of Appeal swiftly addressed technical arguments on the test to be applied when considering whether to allow amendments. However, it then took the time to address the substantive issues raised which are of more wide importance in the industry.

First, the argument that the retrospective effects of the BSA/DPA cannot apply in ongoing litigation failed. The BSA was to be treated as always having been in force, which is what s.135 of the BSA itself says.

Second, BDW was owed a duty of care by URS under the DPA. The DPA was not simply to protect purchasers, nor was it limited to those who owned defective buildings. It could protect developers. URS' argument that BDW could not owe and be owed a duty failed. Individual purchasers have a claim under s.1(1)(b) of the DPA. What was relevant to BDW was s.1(1)(a) of the DPA. URS was "a person taking on work for or in connection with the provision of a dwelling" and it did so to the "order" of someone else, i.e. BDW. This straightforward interpretation of the DPA gave BDW a claim. In essence, the Court held that these separate provisions of the DPA mirrored the concept of claims under a contractual chain.

URS had also argued that the right to claim against a developer was unlikely given the DPA had not been used in this way before. Importantly, the Court of Appeal noted that it was only now, post the BSA amendments, that a full understanding of the rights and obligations available under the DPA were coming to the fore. The DPA had been under-used to date, but with more and more claims in contract becoming statute barred the exercise of rights under the DPA will become more prevalent.

Finally, URS argued BDW could not make a claim for contribution against URS when BDW itself did not face any actual claim against it. The Court of Appeal disagreed. The actual existence of a third-party claim was not a condition precedent to being able to claim under the Civil Liability (Contribution) Act 1978 ("the CLCA"). The CLCA did not provide that an actual claim had first to be made, and s.1(6) of the CLCA refers only to a liability which "could be established". Whilst the decision was based on the interpretation of the CLCA there is a wider point to be noted. The court said that a party who remediates defective work pro-actively, i.e. without waiting for a claim to be made against it, should not be penalised by then being unable to look to recover its loss from another party. If that were the case it might encourage "indolence" and parties sitting back and waiting for a claim to be made against them before any remedial works were undertaken. The decision therefore, in part, appears to be a policy decision seeking to support the intention behind the introduction of the BSA.

Summary

This was a lengthy and considered decision of the Court of Appeal which addressed the issues in detail, noting their wider importance in the industry. It has provided clarity on when a cause of action in tort will arise, with the decision already being relied on and followed in other cases. The findings in relation to the operation of the DPA will assist many in understanding the implications for its use in relation to residential building projects. The DPA is not just intended to protect property owners. It gives routes to recovery for those in the usual contractual chain, i.e. if work is undertaken by one party to the order of another. As the court noted, we will likely now see far greater use of the provisions under the DPA. Finally, claims for contribution it seems will be encouraged even when no third-party claim has been made. This will promote the concept of the industry looking to promptly remedy what are alleged to be defective buildings without first waiting for claims to be made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.