We wrote some while ago of the decision of the Court of Appeal in the URS v. BDW case and its potential impact on construction professionals and their insurers.
The outcome of the appeal court’s decision against URS suggested that there could be a far greater number of claims under the Defective Premises Act (‘DPA’) than most commentators had assumed prior to the court’s judgement.
As we indicated at the time, the judgement was appealed to the Supreme Court. That judgement is now in, and we have the final word on the issues at large. Before considering URS’s grounds for appeal and the result, it’s worth reminding ourselves of the main facts of the case.
Facts
We are all aware that following the fire at Grenfell Tower, the Government sought to encourage developers to investigate high-rise developments for any safety defects, principally fire related, though the encouragement extended to any defects affecting building safety. That encouragement was enshrined and enforced in Statute by the subsequent introduction of the Building Safety Act (‘BSA’) in 2022.
In late 2019, as a result of its own post-Grenfell investigations, BDW discovered a number of structural design defects in two sets of high-rise building developments, known as Capital East and Freemens Meadow.
During 2020/21, BDW carried out remedial works to the two developments costing ‘many millions’, despite the facts that BDW no longer had any ownership interest in the properties and no claim against BDW had been made by any third-party owner or occupier of the developments. BDW undertook the work because they believed that the defects were a danger to the residents and might well negatively impact their reputation in the market.
The legal cases
BDW then sought to claim the costs of remediation from URS, the structural engineer on the developments. The first instance trial saw BDW largely succeed in arguing various preliminary matters, principally that URS’s duty largely extended to the losses claimed and those losses weren’t too remote. The court found that a full trial would be necessary to determine the claim, mainly because of detailed issues around causation and mitigation brought about by BDW’s arguably ‘voluntary’ actions taken in remedying the developments.
Before that full trial was heard, the BSA came in to force which, amongst other things, extended the limitation period for claims under the DPA from 6 years to 30 years. BDW applied to amend their claim to reflect the new Act. In doing so, they sought to:
- Amend their case to introduce the fact that BDW were now potentially liable to third- parties under the DPA;
- Bring a claim against URS under the DPA; and
- Bring a new claim against URS for contribution under the Civil Liability (Contribution) Act on the basis both parties were potentially liable to third parties under the DPA.
All this was allowed by the judge at first instance and URS appealed to the Court of Appeal, which broadly agreed with the trial judge, and now the Supreme Court. Whilst URS sought to strike out BDW’s claims on four separate grounds, a key question raised in the appeal for those of us involved in insuring professional risk was simply: can developers bring a claim under the DPA?
As we reported on here, the DPA imposes duties on those taking on work in connection with the provision of a dwelling to see the work is done in a professional (or workmanlike) manner so that the dwelling is fit for habitation when completed.
Consequently, developers, contractors, engineers and architects could potentially face claims under the DPA which, as a result of changes brought about by the BSA, now extend back 30 years for claims which arose prior to 28 June 2022 (the date the BSA came into force).
None of this was in dispute. The question the courts had to address was whether a developer could themselves bring a claim under the DPA.
URS’s position was that a developer could not bring a claim under the DPA. They argued that the DPA was intended to apply to lay purchasers of defective properties only, not commercial entities.
They also suggested that it couldn’t be right that a developer could both owe duties to other parties under the DPA, whilst also being able to claim under the DPA itself. Put another way, a developer couldn’t sue under the DPA and be sued under it.
The Supreme Court was not persuaded and the judges agreed with the Court of Appeal’s decision in ruling that a developer could bring a claim under the DPA.
Comment and implications
Claims under the DPA were always going to be a developing feature of the PI claims landscape. The question all of us involved with consulting engineers’ and architects’ PI were asking was: to what degree would this relatively unused piece of legislation act as a catalyst to drive future claims?
Prior to this decision, the general thinking was that the DPA primarily existed for individuals. Whilst the extension of the liability period from 6-years to 30-years post completion of the project was going to have an impact, it was probably unlikely to open the floodgates from individual homeowners. Indeed, as we discussed in our earlier piece on the DPA, inviting homeowners to embark on costly and uncertain litigation in order to secure redress was unlikely to fuel an enormous number of claims.
The ‘clarification’ brought about by this decision, that commercial developers can now make use of the longer period under the DPA, is another matter entirely. Given the much deeper pockets the developers will bring to a potential dispute, there is little doubt that it could have a significant impact on the answer to our question.
Insurers’ wariness is likely to be that the DPA route becomes increasingly familiar in the sector as developers seek to recover costs incurred as a result of righting the wrongs of the last 30-years. The question of whether there will be a fair and equitable distribution across industry of the costs associated with those potential liabilities is one that remains to be answered. Troublingly, does this right to sue under the DPA extend to contractors too? Time will no doubt tell.
For the moment, little has changed since July 2021, when we first wrote about the changes to the DPA. Insurers will continue to monitor the effects of the changing landscape and there is as yet no significant reaction from the PI market to the URS case.
For insureds concerned by the case, our advice remains consistent:
- The potentially ‘strict’ nature of liability under the DPA makes a ‘legal liability’ policy essential. Any firm operating with a ‘negligence only’ policy would need to determine if a suitable extension to cover can be arranged.
- This was not a ‘fire safety matter’, but a structural engineering matter. The focus of recent advice in relation to the DPA has been because of its potential to drive ‘fire safety’ claims. This case shows that the effect of the changes to DPA have the potential to impact all types of PI claim – fire related and otherwise. As ever, firms need to keep their PI limit under review to ensure that its levels of protection are adequate.
- Record retention will be vital. The defence of any claim is only as good as its evidence base and firms who have not purged ‘old’ files ought now to consider the appropriate time to maintain them. That period should consider that projects completed in the mid-90s are still potentially at risk from a claim under the amended DPA by virtue of the extended limitation period, which means that projects which reached practical completion prior to 28 June 2022 carry a 30-year limitation. In the case of a building completed on 1 June 2022, that would potentially take limitation to 2052. Any projects reaching practical completion from 28 June 2022, carry a 15-year period, so care should be taken to ensure documents are retained.
- One additional interesting feature of the appeal was the fact that no fewer than seven Supreme Court judges sat on the case. As the court themselves recognised in their judgement, this was because one possible outcome of the case would be that the long-standing judgement in Pirelli v. Oscar Faber & Partners might be overruled. Pirelli, a case in which Griffiths & Armour were involved, found that in the case of negligent design a claimant’s cause of action did not accrue until damage had occurred. In simple and general terms, this meant that consulting engineers and other professionals would enjoy a slightly more favourable position on limitation. Although the subsequent enactment of the Latent Defects Act eroded that somewhat, it was (and is) still ‘better’ than prior to the appeal in Pirelli. Whilst the complexities of the issues in Pirelli were not ultimately dealt with by the court in this current case, it is suggestive that the whole area of time limitation could be something which in the near future will once again come under the spotlight. The best advice for our clients is to continue to push for robust time limitation wordings in contracts, as recommended by our contract review service.
If you have any questions about the contents of this article, please reach out to the author.
