When does a cause of action in tort accrue in defective design cases?

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Authored by: KK Cheung

In URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772, England’s Court of Appeal considered the issue of when the cause of action in tort arises for design defects.   

Background

URS was engaged by a developer, BDW, to carry our structural engineering design work for a number of developments consisting of residential tower blocks, including the developments called “Capital East Blocks” and “Freeman’s Meadow Blocks”. Practical completion of the former development occurred between March 2007 to February 2008 and for the latter between February 2005 and October 2012. Following the Grenfell tower tragedy in June 2017, in which a blaze in a tower block was found to have been exacerbated by the type of cladding used, many developers, including BDW, carried out investigations of properties they had developed.  BDW’s investigation, led to the discovery in 2019 that there were dangerous structural inadequacies in both the Capital East and Freeman’s Meadow Blocks. The defects were considered so serious that evacuation was necessary in some blocks. In other instances, temporary propping was utilised, followed by permanent works to remedy the structural defects.

Although by the time the defects were discovered in 2019, BDW no longer owned the Blocks, BDW maintained that it was, however, subject to liabilities to the occupants of the buildings in respect of them (including under contracts pursuant to which the individual units had been sold by BDW, as well as pursuant to the Defective Premises Act 1972 (DPA). It said that, given the seriousness of the defects, BDW did not, as a responsible developer, consider that it could simply ignore the problem once it had come to light. Rather, it was compelled to act to ensure that the Blocks were made safe and in doing so had incurred or would incur expenditure running to many millions of pounds, the recovery of which it now sought from URS for its negligent designs, which necessitated this expenditure.

URS maintained that BDW had never suffered any damage, and so had no accrued cause of action in tort against it.  In the alternative, URS maintained that, in circumstances in which BDW no longer owned the relevant buildings and could have raised a defence of limitation in respect of claims that might have been brought against it, the losses suffered must be outside the scope of URS’s duty of care in tort and/or be too remote to recover and/or have been caused by BDW itself as opposed to URS and/or represent a failure by BDW to mitigate.

Judgment of court below

Trial on Preliminary Issues

A trial of certain preliminary issues took place before the court below. In relation to which that court held:

• The majority of heads of loss pleaded by BDW were conventional heads of loss (costs of investigations and remedial work etc)

• Other than reputational damage, the scope of URS’s duty extended to the claimed losses.

• BDW’s cause of action in tort against URS accrued no later than the date of practical completion of the Blocks and not (as contended by URS) the time the defects were discovered in 2019.

Building Safety Act 2022

Subsequent to the preliminary issues judgment referred to above, the Building Safety Act 2022 (BSA) came into effect, which retrospectively extended the limitation period for claims brought under s.1 of the Defective Premises Act 1972 (DPA) from six years to 30 years. BDW sought and obtained the court’s leave to amend its claim to include claims under s.1 of the DPA and for contribution under the Civil Liability (Contribution) Act 1978.

Court of Appeal Decision

URS appealed against the judgment on preliminary issues and that granting BDW permission to amend its claim, referred to above.

The scope of URS’s duty

The Court of Appeal held that the common law duty of care owed by URS was co-existent with its duties owed under the contract, to the effect that the structural design would be produced using reasonable skill and care.  The risk which URS had to guard against was the risk that their negligent structural design would lead to structural defects and an unsound building. This was a standard duty, the court said, imposed on a design professional which was co-existent with that professional’s contractual obligations. The risk of harm was that, in breach of the professional’s duty, the design of the buildings would contain structural defects which would have to be subsequently remedied. For the purposes of the Preliminary Issues, it was assumed that the design was not only defective but dangerous, requiring multi-million pound remedial works and, in one Block, the evacuation of the residents. In such circumstances, it was impossible to conclude that the losses were somehow outside the scope of URS’s duty.

What losses were recoverable?

The court held that although BDW could not claim for reputational damage, it could claim for conventional losses – costs of investigation, temporary works, evacuation of the residents and the carrying out of permanent remedial works.  As a matter of law, the possible absence in 2019 of an obligation on the part of BDW to carry out such works was irrelevant to BDW’s ability to recover those costs as damages, the court said.  The court said that it has long been the case that a builder who goes back to rectify defective work can recover the relevant cost, even if he was under no obligation to carry out such remedial works. It added that, common law generally seeks to encourage a builder or developer to act in accordance with its underlying obligations and would, if possible, seek to avoid penalising them for acting responsibly. If the type of damage is recoverable in principle (as it was here, being the cost of investigations, remedial work etc), then BDW’s precise motivation for carrying out those works was immaterial, the court said.

Limitation Issues

The court said that if there was an inherent design defect which did not cause physical damage, the cause of action accrued on completion of the building, which conclusion was entirely consistent with the DPA. The court held that BDW’s cause of action against URS arose, at the latest, when the individual buildings that comprised Capital East and Freemens Meadow respectively, were practically completed. At that point, the defective and dangerous structural design had been irrevocably incorporated into the buildings as built. At that moment, BDW had suffered actionable damage because those buildings were structurally deficient. It was a damaged asset. Their cause of action in tort was complete. The court therefore rejected URS’s submission that BDW’s cause of action in tort against URS did not accrue until they discovered the defects in the structural design in 2019.

Comments

This judgment answered difficult questions which are recurring in construction cases, in particular, the question of when the cause of action accrues for design defects. It considered numerous judgments on this question and concluded that where there is physical damage, the cause of action in tort accrued on the date when physical damage occurred. Such conclusion is consistent with the Hong Kong Court of Final Appeal decision in Bank of East Asia Ltd v Tsien Wui Marble Factory Ltd and Others [2000] 1 HKLRD 268, which was also about the defective design of external wall cladding.

This judgment also decided that where there was no physical damage, the cause of action accrued on the practical completion of the building. This decision is important in that the same question was raised, but not answered, in Bank of East Asia since physical damage did occur there.

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Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

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