URS v BDW – Supreme Court Hands Down Highly Anticipated Judgment

Background

BDW, a property developer, engaged consultant engineering firm URS to provide structural designs for two residential developments (the “Developments”). Following the 2017 Grenfell Tower fire, BDW investigated the Developments and discovered serious defects. In 2020-2021, BDW performed remedial works on the Developments, although by then it had sold the Developments on to third parties, no claim had been made against BDW in relation to the defects by the new owners or occupiers of the Developments and any such claim would have been time-barred.

In 2020, BDW initiated a negligence claim in tort (to take advantage of the more favourable limitation period) against URS to recover the costs of remedial works undertaken to address these defects.

The Supreme Court considered the following four issues:

1. Did the fact that BDW ‘voluntarily’ incurred the remediation costs mean its losses were outside the scope of the duty of care and/or too remote to be recovered from URS? If so, had BDW’s negligence claim accrued at the time it sold the Developments?
2. Did s.135 BSA apply, even though BDW issued proceedings before the BSA came into force?
3. Did URS owe a duty to BDW under s.1(1)(a) DPA and, if so, were BDW’s alleged losses of a type which were recoverable for breach of that duty?
4. Was BDW entitled to bring a claim against URS pursuant to s.1 of the Contribution Act notwithstanding that there has been no judgment or settlement between BDW and any third party and no third party has ever asserted any claim against BDW?

Issue 1

It was common ground that in principle BDW had a negligence claim against URS, as URS assumed responsibility to BDW under its professional services contract, and had breached the resulting duty of care by providing defective designs.

However, URS argued that because BDW had carried out the remedial works on developments which it no longer owned and without any legal obligation to do so, BDW had incurred the costs of those remedial works voluntarily. URS argued that English law recognised a ‘principle of voluntariness’ which rendered BDW’s loss outside the scope of URS’s duty and/or too remote.

The Supreme Court held there is no rule of law that prevented the recovery of costs in a negligence claim simply because they were ‘voluntarily’ incurred. While the issue of whether costs are voluntarily incurred may go to questions of legal causation and mitigation, this will be fact specific and there is no ’bright line rule of law rendering loss too remote or outside the scope of the duty of care in the tort of negligence’.¹ In this case, the Court found it was strongly arguable that the repairs were reasonable (and so not truly voluntary in a way that breaks the causal chain or indicates a failure to mitigate).

The practical consequences of this are significant. It suggests that building owners or developers who incur costs to rectify defects, even when not under an immediate legal obligation to do so, are able to recover those costs from negligent parties, particularly where there may be safety issues at play. This might encourage developers to undertake necessary remediation work where they might not otherwise have done.

Because the Court found, on the first point in this ground, that the damage was not outside the scope of the duty of care owed by URS, the Court did not need to consider whether BDW had already accrued a cause of action in tort at the time it sold the Developments. However, in explaining its thinking the court commented on the House of Lords decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1² and gave a strong hint that its application could be limited going forward. The court said, obiter, that ‘“there are strong arguments of principle for accepting that there can only be an actual loss once the pure economic loss has been discovered or could reasonably have been discovered’.³

Issue 2

Section 135 BSA provides for a new 30-year limitation period for accrued claims under s.1 DPA (duty to build dwellings properly). Section 135(3) provides that the amendment to the limitation period ‘is to be treated as always having been in force’, save where that would involve a breach of a defendant’s rights under the Convention, or in respect of claims settled or determined before the commencement date. The Court noted that the retrospective effect of this, and other provisions of the BSA, was ‘central to achieving the aims and objectives of the BSA’.⁴

It was common ground that s.135 BSA applies to a claim brought under s.1 DPA. The issue was whether the retrospectivity of s.135(3) BSA applies to other claims which are dependent on the limitation period applicable to claims under s.1 DPA but are not actions brought under that section (i.e. in this case the claims in negligence and for contribution).

Based on the words, context and purpose of the statutory provision, the Court held that s.135(3) BSA does apply to claims which are dependent on s.1 DPA. To hold otherwise would undermine the purpose of the BSA, as while a homeowner would be able to bring a claim against a developer under the DPA, it would limit any ‘onward’ claims that the developer might make against the contractor directly responsible for the defect for contribution or in negligence.

Issue 3

This issue concerned whether URS owed a duty under s.1(1) DPA to BDW. URS argued that the purpose of the DPA was to address unfairness suffered by purchasers of new dwellings and not to protect developers, and that developers could not simultaneously owe DPA duties (to later purchasers) and be owed DPA duties (by those doing the work for the developer).

The Court held it was possible under the DPA for a developer to be both owed a duty and be a person to whom the duty is owed. The Court recognised that the policy of ensuring safe dwellings is better served if the DPA duty is widely owed.

This gives developers an additional route for recovery by way of a direct statutory cause of action, which has a 30-year limitation period, against those responsible for defects rendering dwellings unfit for habitation.

Issue 4

The Contribution Act gives a person (“D1”) who is liable for damage suffered by another person (“C”) a statutory right to recover contribution from anyone else (“D2”) who is liable for the same damage.

Here BDW claimed contribution for the repair costs from URS on the basis that BDW and URS are each liable to the homeowners for damage resulting from the defects. URS argued that as there has been no judgment or settlement between BDW and any third party, and no third party has ever asserted any claim against BDW, the right to contribution does not apply. BDW argued that the right to contribution arises as soon as C suffers damage for which D1 and D2 are each liable, even if C has not claimed or recovered compensation from either D1 or D2.

The Court held that a third interpretation was correct: the right to contribution arises when: (i) damage has been suffered by C for which D1 and D2 are each liable; and (ii) D1 has paid or been ordered or agreed to pay compensation for the damage to C. BDW carried out the repairs and the fact that there was no judgment against BDW or admission of liability or settlement between BDW and the homeowners did not prevent BDW from being able to claim contribution from URS.

The Wider View

The Supreme Court’s judgment gives developers a clearer path to recover remediation costs for defects from their supply chain, and may trigger a wave of fresh claims from developers who have covered the cost of safety remediation post-Grenfell. Ultimately, this decision reinforces the principle that costs should ultimately be borne by those responsible, and is aligned with the overall policy of the BSA and its related legislation.

¹ Paragraph 53.

² The Pirelli case has been used as precedent for the limitation period applicable to claims of negligent design, and that a legitimate cause of action for a negligent design accrues at the point at which physical damage to the building first occurred.

³ Paragraph 76.

⁴ Paragraph 87.