Supreme Court negligence ruling opens door to historical defects claims

The UK Supreme Court held (89-page / 694KB PDF) that while voluntarily incurred costs can be recoverable as a matter of law, there may be circumstances in which the voluntary actions businesses take to address risks caused by another party’s negligence could prevent them from successfully recovering the cost of doing so. This, the court said, is because it could break “the chain of causation” applicable to negligence claims, which requires the negligence to be linked to a breach of a duty of care and to loss sustained from that breach.

The Supreme Court suggested, however, that where businesses take action to address building defects on safety grounds, the costs they sustain in taking remedial action are unlikely to be classed as being voluntarily incurred.

The court was considering the scope of the law on negligence in a case where housing developer BDW Trading (BDW) and engineering firm URS Corporation are in dispute.

BDW engaged URS to design homes for two developments. Building works for the London apartments were completed in or around March 2007 to February 2008, while the Leicester apartments were completed between February 2005 and October 2012. In the case of both developments, BDW sold the properties following practical completion and transferred its interests in them – by December 2008 and May 2015, respectively.

Following the Grenfell disaster, BDW conducted a review which identified structural design defects in respect of the London and Leicester developments. BDW subsequently incurred millions of pounds worth of costs in investigating the issues, carrying out temporary works, evacuating one apartment block in the London development, and carrying out permanent remedial works.

In March 2020, BDW raised professional negligence claims against URS before the High Court, seeking compensation for the losses it incurred. It was subsequently granted permission by the High Court to amend its claims against URS to add claims under the Defective Premises Act 1972 (DPA) and under the Civil Liability (Contribution) Act 1978 (CL(C)A) as a result of the extended limitation period brought in by the 2922 Building Safety Act

BDW’s negligence claim was for pure economic loss for a defective building which has a lower value than it should have had, not physical damage to the building. This loss is not normally recoverable. The main exception is where there is an assumption of responsibility by the defendant to the claimant, here by URS to BDW, through the contract for professional services between them, requiring URS to take reasonable care in providing structural designs to BDW such that buildings constructed based on those designs would not be defective and cause BDW pure economic loss.

Had BDW carried out repairs to the developments before selling them, the cost of repairs incurred by BDW would have been recoverable by BDW. Because the repairs were carried out by BDW on the developments that no longer belonged to it and without any enforceable legal obligation to do so – because, it was argued, BDW would be able to defend any claim against it by homeowners whether under the Defective Premises Act or for breach of a contractual collateral warranty on the basis that they would be time-barred – URS argued  the loss suffered was outside the scope of its duty of care and/or was too remote.

URS argued that there is what it labelled a “voluntariness principle” established in case law that applied to the circumstances in this case and meant the loss BDW claimed was outside the scope of the duty and/or was too remote. The Supreme Court rejected that argument. There is no rule of law which meant that the carrying out of the repairs by BDW rendered the repair costs outside the scope of the duty of care owed or were too remote, it said. The remoteness test and its application reflect the policy of the common law on where to draw a line to achieve a fair and reasonable allocation of the risk of the loss that has occurred as between the parties, the court considered.

A dispute between the parties over whether the DPA claims were time-barred as well as whether URS owed a duty to BDW under the DPA was also decided by the Supreme Court. A definitive ruling on both matters has now been provided by the Supreme Court.

The DPA imposes a duty on a person taking on work for or in connection with the provision of a dwelling to see that the work which they take on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.

The court ruled that the extended period for bringing claims provided for under the Building Safety Act 2022 (BSA) applies to claims that are dependent on the DPA, not just those brought under the DPA. This is a significant element of the decision. It means that the effect of the retrospective limitation period extends to claims which are dependent on the limitation period in section 1 of the DPA but are not actions brought under that section. This includes where there is a claim for damages for repair costs because of, or there is a claim for contribution in respect of, those repair costs.

The duty under section 1(1)(a) of the DPA is owed to any person, including a developer, to whose “order” a dwelling is being built. That person will ordinarily be its first owner. In this case, relevant work was carried out by URS “to the order of” BDW and URS therefore owed a section 1 DPA duty to BDW. The court ruled that a developer that acts as first owner can both owe a DPA duty and will be owed a DPA duty. The court said its ruling on this point not only reflects the wording in section135(3) of the BSA itself, where the extended limitation periods are provided for, but also the purpose behind the provisions.

The Secretary of State made representations to the Supreme Court on the issue, highlighting concerns that “contractors responsible for historical building safety defects would be able to avoid liability” if the extended limitation period was considered not to apply. It said that outcome “would undermine the legislative purpose of the BSA in ensuring those who caused historical building safety defects should pay for their remediation” and “produce unjust consequences for developers and other stakeholders who are not responsible for defects but are unable to bring onward claims against those who are”. In relation to the same building safety defects, contractors and developers would be susceptible to DPA claims brought by leaseholders, but contractors would be insulated from negligence and contribution claims brought by developers, it added.

The Supreme Court made it very clear that as a matter of policy, section 135(3) of the Building Safety Act and the 30-year limitation period is not restricted solely to actions under section 1 of the DPA. It considered that he purpose of the Building Safety Act would be seriously undermined if that were the case. The 30-year limitation period would only apply to claims brought by homeowners against a developer under section 1 of the DPA, but not to “onward” claims for contribution or for negligence brought by that developer against the contractor – whether builder, architect or engineer – directly responsible for the building safety defect, as illustrated by URS’ case.

Zoe de Courcy of Pinsent Masons, who specialises in construction dispute resolution, said: "Understandably, there is often significant pressure placed on developers and contractors to remediate defective buildings which are potentially dangerous, both in terms of doing what is morally right as well as acting in a commercially and reputationally prudent manner. Having done so, only to face the position that recovery against others involved in the defective performance, certification or insurance of it, is elusive, is a highly unenviable position.”

“In the current context of building safety, the prospect that reasonably offering to remedy dangerously defective buildings is ‘voluntary’ and breaks the chain of causation is somewhat unpalatable. Because it is unpalatable, it is no surprise the Supreme Court made the judgment it did. Whilst a marked legal change, the Supreme Court's decision is perhaps unsurprising and opens the door to a rethink on the operation of the law of negligence in this area," she said.   

The court also said that BDW “had no realistic alternative” but to complete remediation works following its post-Grenfell review, citing the risk of injury to homeowners and the risk that BDW itself could be held liable to the homeowners if it did not act, as well as the potential reputational damage that it could suffer “if BDW did nothing once it knew of the danger to homeowners”. The repair costs were incurred by BDW, the court added, “because they were the obvious consequence of URS failing to perform its services with the professional skill and care required”.

Building safety expert Katherine Metcalfe of Pinsent Masons said: “Safety laws require a claimant in BDW’s position to carry out the repairs to ensure that danger to homeowners is addressed. The court’s decision to align the claims position on this issue and on the relevance of the Defective Premises Act and its impact on contractors appears to be heavily policy driven, influenced by the submissions of the Secretary of State for Housing, Communities and Local Government.” 

The Supreme Court further confirmed that BDW can bring a contribution claim against URS under the Civil Liability (Contribution) Act 1978 (CL(C)A), even though BDW has itself not faced any actual claims from third parties. Lord Leggatt gave the leading judgement on this issue. He said it is sufficient that BDW has made a payment in kind, by performing remedial works, in compensation for the damage suffered by the homeowners, to entitle it to bring a claim against URS under section 1 of the Contribution Act. There did not need to be a judgment or settlement between BDW and any third party and nor did any third party need to have ever asserted any claim against BDW, for BDW to be entitled to raise such a claim, he added,

In a sign of the broader importance of the issues raised by the case, a full seven-judge bench of the Supreme Court sat to hear the parties’ arguments. Their decision was unanimous.