CoA paves the way for the responsible developer

Our team explore a recent judgment that touches on crucial factors for developers and construction professionals when dealing with remedying defects in buildings.

We have previously covered the introduction of the Building Safety Act 2020 (the BSA) and the changes it has brought to the construction industry (click here for further info) but this judgment touches on crucial factors for developers and construction professionals when dealing with remedying defects in buildings. Not only does the judgment deal with the retrospective nature of the BSA, but it also deals with the duties under the Defective Premises Act 1978 (the DPA) DPA and issues in bringing claims under the Civil Liability (Contribution) Act 1978 (the CL(C)A) 

Background

After the Grenfell disaster shook the industry in 2017, developers across the UK began undertaking investigations into the safety of their own buildings. BDW, acting like a responsible developer, undertook investigations into its own developments and discovered dangerous structural deficiencies in some of its buildings. BDW's case is that the structural design had been negligently performed by URS, leaving some of the structures dangerously inadequate. 

BDW carried out remedial/rectification works, and in at least one case, the building had to be evacuated for the works to take place. 

BDW then sought to recover the monies paid out from URS. 

The claim

URS essentially brought 3 appeals: the first in respect of a Judgment on preliminary issues in the claim of negligence by BDW against URS; and the second and third were appeals to the permissions given in two separate judgments in respect of amendments to BDW's claim. BDW had sought to add claims both under the DPA and for a contribution under the CL(C)A. 

The Issues

The judgment to the appeals touches upon a number of important issues, particularly in light of the uncertainties that have been surrounding the industry in respect of remedial works to buildings. 

We will go into the main issues here, however, for a full explanation please see the Judgment. 

Scope of Duty

This was the first ground of URS' appeal and is one of the primary issues argued when bringing a claim in negligence ie does the negligent act complained of fall within the professional's scope of duty?

In the preliminary issues judgment, the Judge found that, "the risks of harm to BDW, the employer, against which the law imposed upon URS, the structural designer, a duty to take care was the risk of economic loss that would be caused by a construction of a structure using a negligent design such that it was built containing structural deficiencies or defects.” [32] 

URS appealed, arguing the scope of its duty of care to BDW was to guard "BDW against the risk of harm to BDW's proprietary interests and the risk of loss incurred to third parties".[para 25] 

Not only did the Judge dismiss this ground of appeal and uphold the first instance decision on this issue but LJ Coulson stated "it is impossible to conclude that the losses were somehow outside of URS' duty" [para 33].  The risk of harm was actually the risk that the design of the buildings would contain structural defects that would have to be remedied.  

Helpfully, the judgment goes further still in explaining the reasoning for dismissing this ground of appeal. Whilst it was declared that although the Court had not been persuaded there was any direct application of the Manchester Building Society (MBS) case, the Judge, nevertheless, went through the MBS checklist point by point. [paras 35-43]

Reputational damage

Whilst not a main focus of the judgment, it is important to note that the judge rejected URS' assertion that BDW's claim was in fact for 'reputational damage'; ie BDW only remedied the defect to save its own reputation and, therefore, URS should not be held liable for that cost. 

The Judge found that the damages claimed comprised of usual elements such as investigation, evacuation of residents, remedial works etc. and were therefore deemed 'conventional damages'. BDW argued that, at the time the properties were sold, they were liable to the purchasers under the DPA – it was therefore a matter for BDW as to whether they acted on their lability to meet the obligations. 

Whilst the judgment confirms the common law approach is to seek to encourage builders/developers to act in accordance with their underlying obligations and "would if possible seek to avoid penalising them for acting responsibly" [para50], the judgment clarifies that, if the damage is recoverable in principle, then the motivation for carrying out the works is immaterial. 

Proprietary interest 

URS argued BDW's cause of action could only have accrued when it discovered the defects in 2019. By that date, BDW had disposed of its proprietary interests in the properties and, as such, all claims by third parties were statute barred. URS claimed, therefore, BDW did not suffer any actionable damage.  

The Court dismissed that ground of appeal and stated: "there is therefore the highest possible authority for the basic proposition that a claim for defects does not always require a proprietary interest in order for the cost of the remedial works to be recoverable" 

Furthermore, in the second and third appeals, URS claimed that BDW could not claim under the DPA because they sold the buildings after completion and had therefore suffered no loss. Again, this assertion was dismissed and the Court confirmed the recovery of damages under the DPA "is not linked to or limited by property ownership" [para 192].  The loss became actionable when practical completion occurred on buildings that were structurally deficient. 

Any decision otherwise would be deemed to be contrary to public policy because it might dissuade a builder from rectifying defective work.

No physical damage 

URS also raised arguments that BDW had suffered no actionable damage because there had been no physical damage to the property. They argued that the cause of action therefore accrued when BDW became aware of the defect to the building. 

The Court refuted this argument and confirmed there are a number of cases where there has been a defective design but no physical damage in consequence and stated, "if there was an inherent design defect which did not cause physical damage, the cause of action accrued on completion of the building." 

The judge drew on the existing construction and non-construction case law to demonstrate that it is consistent with the usual position in negligence. The Judge held practical completion was the relevant date and the date of knowledge was irrelevant for these purposes. 

Retrospective effect of s135 BSA  

The retrospective nature of the BSA came into question in the second and third appeals by URS, where it was argued that the Judge had erred in permitting BDW to amend its pleadings to include the DPA claims because s.135 BSA could not be applied retrospectively to ongoing proceedings. URS argued that Parliament did not intend for the BSA to change the existing rights of parties that were already engaged in proceedings. 

The Court disagreed. It held that s135 is retrospective and there is no exception which prescribes the rights of parties in ongoing proceedings. Had it been so intended, then the relevant provision would have been included. Furthermore, the longer limitation period in the DPA which is brought about by s135 BSA, "is to be treated as always having been in force" [para161] and therefore, BDW could rely on it.  

The duties owed under the DPA

As well as disputing the retrospectivity of s135 BSA, URS also argued that the DPA was not intended to protect commercial developers such as BDW, but rather it is aimed at protecting lay purchasers. URS argued (amongst other reasons) that, as BDW owed a duty under the DPA to the purchasers, it could be owed a similar duty.

The Court disagreed, using the ordinary meaning of the words of the act as the starting point, it was clear that s1.1(a) DPA applied – URS was clearly 'a person taking on work for, or in connection with the provision of a dwelling' and there owed a duty 'if the dwelling is provided to the order of any person to that person'. On its simple meaning, URS owed a duty to BDW. The Court also confirmed there was no provision stating that the duty cannot be owed to companies. 

Civil Liability (Contribution) Act 1978 (CL(C)A)

URS also appealed against the permission of the amendments adding a claim for contribution under the CL(C)A on the ground that a third-party claim had not been made (nor intimated) against BDW, so no legal right to make a claim for contribution against URS arose.

Again, the Court examined the ordinary meanings of the wording of the CL(C)A and determined there was nothing in S1(1) CL(C)A indicating contribution claims can only arise after a third party claim has been made. It was held that "as a matter of statutory interpretation and as a matter of policy, there is no requirement or obligation for A to serve some sort of formal claim on B before C's liability to make a contribution to B arises" [para 206]. 

Commentary 

Not only does this judgment touch on real and pertinent issues for the construction industry, it is also clear that the Courts want developers to be proactive in rectifying any mistakes they become aware of. Public policy will have played a significant role alongside the legal considerations.