Civil legal action for residential building defects: guidance from the English Court of Appeal

PS: permission has been granted to appeal this to the Supreme Court. It is due to be heard in December 2024 by a panel of 7 Justices

Introduction

As discussed here (Britton), and here (Bright) the Building Safety Act 2022 (BSA) made significant changes to  the limitation regime (time limits within which civil claims must be started in court) in  England & Wales. This post discusses the recent Court of Appeal case, URS Corporation Ltd v BDW Trading Ltd, which considers how this applies to litigation already commenced prior to the BSA coming into force.

The limitation changes, taking effect from 28 June 2022, extend the time for starting legal action in relation to a dwelling under the Defective Premises Act 1972 (DPA) from 6 to 15 years. This regime also applies to a different statutory right of action (not yet brought into force): the Building Act 1984 s 38 (breaches of duty under the Building Regulations). More radically, a claim under the DPA s 1 (in outline, liability for defective work in providing a dwelling) may now be made for a breach occurring up to 30 years ago, this new and extensive backdating ‘treated as always having been in force’ (BSA s 135). Each relevant limitation period starts when a ‘right of action’ (the power to make a claim in court) first ‘accrues’ (comes into being). In most situations case law, not statute, defines this moment.

The current case

URS v BDW is a post-Grenfell civil claim (but not about cladding, insulation or fire risk) by a developer (BDW) against structural engineers (URS), concerning the defendants’ design responsibility for structural defects in concrete slabs in a series of residential tower blocks, completed in London and Leicester in 2008–2012 – more than 500 flats. The developer claims damages in tort (negligence), but the engineers’ duties arose out of their contractual obligations to the claimant developer, expressed in terms of ‘reasonable skill care and diligence…’. The central claim is for the cost of rectifying the alleged defects, which Fraser J in the Technology and Construction Court (TCC) had already held was within the scope of URS’s duty of care.

Limitation as a key issue

Time limits potentially give the engineers a complete defence, even if the developer could otherwise establish their liability, but this depends on when BDW’s right of action ‘accrued’. Was it when the alleged design faults were ‘built in’, on completion of construction; or only in 2019, when the developer became aware of structural problems in the blocks? Only the later date would bring the start of litigation within the standard six-year period for an action in negligence.

Paradoxically for a defendant, URS argues that BDW’s right to sue ‘accrued’ later rather than earlier: after the developer had disposed of its interest in each development and after buyers of flats would have been too late to start legal action against the developer (under the then normal six-year limitation period). Once the developer no longer has any property rights in the buildings affected and is not legally at risk from flat owners (but does remain at risk of claims under the DPA), the engineers say that it has suffered no loss for which it can now claim damages. Their fallback argument (rejected again by the Court of Appeal) is that the scope of their duty of care did not include protecting the developer against the structural risks which have materialised in the buildings.

Two further issues

Due to the retrospective extension of limitation periods for claims under the DPA 1972 s 1, the developer now sought to add this as a new head of claim. In turn, flat owners may also now be able to bring a DPA claim against the developer. The developer therefore also wished to add a precautionary claim for contribution against the engineers, shifting to them all or part of any eventual liability it may owe to flat owners. A different TCC ruling (unreported) allowed both additional claims to be added.

In the Court of Appeal

This complex mixture of procedural and substantive ‘preliminary issues’ comes before the Court of Appeal, URS challenging both earlier TCC judgments; in July 2023, Coulson LJ, a judge with extensive construction experience, gives the richly detailed leading judgment (almost 50 pages); King LJ concurs and Asplin LJ gives a short judgment agreeing with Coulson LJ on both ‘accrual’ and the impact of the BSA s 135.

‘Accrual’ of the cause of action

English law long ago rejected the claimant-friendly idea that this party’s knowledge (actual or constructive) of a construction defect should start time running for limitation purposes in tort. This judgment maintains that refusal, making a distinction between harm derived from physical damage to a building (caused by a defect), where the occurring of that damage starts time running; and harm derived from the existence of a defect, where the completion of construction with the defect already present starts time running.

URS v BDW falls into the second group, since the law categorises BDW’s claim as for ‘pure economic loss’ (the need to spend money on rectification, or a loss in value of the asset), hence suffered at practical completion of each block of flats. In both types of case, a claimant’s knowledge of the problem may occur long after time has started running (it may even have already expired), easily leading to injustice. As both concern defects in a building (there would eventually be damage to the building, if BDW did not do remedial work), the distinction between them is hard to justify, but has been well established in English case law since the 1990s.

The court also makes clear that for a claimant to have parted with the defective building does not prevent a claim based on those defects, if otherwise justified. Nor does the fact that claims by buyers and owners of flats in defective blocks against the developer-claimant may be blocked by the law of limitation. This is because, in English law, expiry of the limitation period does not extinguish the wrong on which the claim is based; at most, it just blocks the route to a remedy, but only if the defendant chooses successfully to raise limitation as a defence.

Retrospectivity and the DPA

As for BDW’s request to add a claim under the DPA s 1 for the engineers’ design work more than a decade ago, the Court of Appeal applies the wording of the BSA s 135 literally, giving effect to its plainly retrospective intention. The new Limitation Act 1980 s 4B contains an exception for litigation already finally determined – by settlement, judicial decision or arbitral award (not, significantly, by statutory adjudication); but the court finds no justification for extending this to litigation under way when s 135 came into effect.

Therefore, the TCC’s decision to allow BDW to add a claim under the DPA is confirmed (sale of its interest in the blocks being irrelevant to its statutory rights). Also confirmed – with perhaps the greatest impact for the future – is the TCC view that a developer (and site owner) can itself  benefit from the rights of action in relation to dwellings contained in the DPA s 1. The DPA duty has more usually been relied on by ‘lay purchasers’ (homeowners – freehold or long leasehold) against builders and construction professionals. URS v BDW confirms a wider application of the DPA than many had assumed. However, as Coulson LJ points out, the ‘unfit for habitation’ condition for liability under the DPA s 1 is higher than in most construction defect cases based on a claim at common law.

Final issue: contribution

Is it possible for BDW to add a claim now against URS under the Civil Liability (Contribution) Act 1978, ahead of any claims yet being made by third parties (flat owners) against BDW? A detailed analysis of the deeply unsatisfactory 1978 Act leads Coulson LJ to find for BDW: a prior claim against the party who would be the defendant in such an action (BDW) is not necessary before that party can trigger a claim for contribution against the party (URS) which it regards as liable ‘in respect of the same damage’. Coulson LJ also rejects URS’s limitation argument.

Next steps

Unless either party in URS v BDW successfully asks for permission to appeal to the Supreme Court against points determined by the Court of Appeal, the case moves onwards towards a trial on the merits, with an eventual outcome on the engineers’ liability; given the court’s view on ‘accrual’ of BDW’s main claim in tort, this may now be only under the DPA s 1.