Repair Now, Sue Later: A Note on URS Corporation Ltd v BDW Trading Ltd in the UK Supreme Court

The UK Supreme Court has now handed down its unanimous decision in URS Corporation Ltd v BDW Trading Ltd. The judgments in the case are of great importance, both in settling certain difficult questions of law arising out of the Building Safety Act 2022 (‘BSA’) and in making clear the attitude of the courts towards the attempts made in that Act to clean up the nationwide problems of building safety revealed in the aftermath of the 2017 Grenfell Tower fire.

The facts of the case were relatively straightforward. BDW – a major building developer that includes developers such as Barratt Homes – was prompted by the Grenfell Tower fire to survey the safety of the high-rise residential developments it had been involved in and discovered serious structural flaws in two of its developments, built between 2005 and 2012. In 2020 and 2021, BDW carried out repairs to those developments, even though no claim had been made against it by the current owner of those developments, or those living in them. BDW then sought to recoup the cost of the repairs from URS, an engineering firm that BDW had appointed to work on the structural design of the developments and which – BDW alleged – was ultimately responsible for the structural flaws in the developments through their failure to do that work with reasonable skill and care.

The arguments

BDW sought to recoup its money in two ways. First, BDW argued that it was entitled to sue URS for compensation for the money it had spent repairing the developments because that money had been spent as a result of URS’s breach of a duty that it had owed BDW either under the law of negligence or under s 1 of the Defective Premises Act 1972 (‘DPA’). Second, BDW argued that as both BDW and URS were liable under s 1 of the DPA for the structural defects in the developments, BDW were entitled to make URS contribute to the costs it had incurred repairing those defects under the Civil Liability (Contribution) Act 1978. 

Image by the UK Supreme Court.

URS argued in its turn that: (i) BDW could not sue URS for compensation for expenditures that it had voluntarily incurred in response to URS’s alleged breach of duty; (ii) URS had not owed BDW a duty under s 1 of the DPA because that duty was only meant to be owed to the domestic owners/occupiers of residential premises and not the businesses that constructed those premises; and (iii) BDW could not bring a claim in contribution against URS when no judgment had been made against it, or settlement entered into, in relation to BDW’s liability for the structural defects affecting the developments.

The Supreme Court's judgment

The Supreme Court found for BDW on all counts. Its findings on points (ii) and (iii) turned on detailed points of statutory interpretation and need not detain us here. It is worth noting, though, that the Supreme Court’s rejection of URS’s arguments on point (ii) will benefit developers who wish to sue a subcontractor for defective work on a residential development, where the developer and subcontractor were not in a direct contractual relationship. In such a case, it will be difficult to say the subcontractor ‘assumed a responsibility’ to the developer for the purpose of finding that they owed the developer a duty of care under the law of negligence. But now the developer can simply sue the subcontractor under s 1 of the DPA, with the added benefit of an extended limitation period (30 years in the case where their cause of action under the DPA accrued before 28 June 2022; 15 years where it accrued after 28 June 2022, 15 years).

Image by Rodelfo Quirós.

On point (i), the Supreme Court held that there was no rule of law that barred BDW from suing for compensation for expenditure that it had voluntarily incurred as a result of URS’s alleged breach of duty. The fact that the expenditure had been incurred voluntarily might be relevant to a claim that URS’s alleged breach of duty did not cause BDW to incur that expenditure. However, whether the reasons why BDW had incurred that expenditure were such that there was a ‘break in the chain of causation’ between URS’s alleged breach of duty and BDW’s choice to repair the developments was an issue that could only be settled at a trial, and not as a preliminary issue. The Supreme Court went on to hold that in determining this question, the trial judge was not to take into account the fact that in 2022 the BSA retrospectively extended BDW’s liability to the owners/occupiers of the developments under the DPA by 30 years. This is because the expenditure incurred by BDW was incurred before 2022 and therefore in ignorance of the effect of the BSA. 

As to what the trial judge should take into account in determining whether BDW’s voluntary expenditure ‘broke the chain of causation’ between URS’s alleged breach of duty and that expenditure, Lords Hamblen and Burrows – who gave the principal judgment in the case – made it clear that the key question was whether BDW acted reasonably in going ahead and repairing the structural flaws in the developments without waiting to be sued. It seems obvious that a trial judge will find that BDW did act reasonably. As Lords Hamblen and Burrows observed (in questioning whether it was even true to say that BDW had acted voluntarily in repairing the developments) there was a risk that homeowners would be killed or injured if the repairs were not carried out. Further, BDW had a liability (albeit, at the time, unenforceable) to repair the developments under s 1 of the DPA, and also BDW stood to suffer substantial reputational damage if it did nothing after it found out about the structural flaws affecting the developments.

Key takeaways

The Supreme Court’s decision amounts to the strongest possible encouragement to developers to act promptly to repair dangerous defects in premises they have constructed and then seek to recover the costs of those repairs from those who were at fault for those defects arising. As such, the Supreme Court has completely aligned itself with the public policy imperative underlying the BSA: that of ensuring that those who construct dangerous residential buildings bear the cost of making them safe to live in. The Supreme Court’s taking this position will also be of interest to law firms that are considering whether to represent leaseholders on a no-win, no-fee basis where those leaseholders are seeking to sue for dangerously defective residences to be remediated under s 1 of the DPA (as was the case here). The fact that the Supreme Court seems eager to interpret and apply the law in a way that furthers the public policy goals of the BSA should provide such law firms with some reassurance that it is more likely than not that the courts will side with leaseholders bringing claims under s 1 of the DPA. In particular, they will be encouraged by the Supreme Court’s willingness to give effect to the retrospective effect of s 135 of the BSA (without any more than a nod to the rights of the defendant under the European Convention on Human Rights) on the basis that ‘Sometimes the unfairness to potential defendants of reviving expired rights and corresponding liabilities may be considered by the legislature to be a necessary price of achieving an important policy goal’ (Lord Leggatt, in a supporting judgment).

The Supreme Court’s decision in URS therefore represents a significant step forward in ensuring that the BSA is given its full intended effect. But doing so is likely to raise significant complications that the Supreme Court will be asked to address in future litigation. In particular, it is disturbingly unclear what the insurance position will be of a defendant who is held liable under s 1 of the DPA for work that they did (say) 20 years ago on a residential property by virtue of s 135 of the BSA. The defendant’s liability insurer at the time the work was done is likely to be able to argue that a claim against them is time-barred (while the Supreme Court held that s 135 would apply to ‘onward claims’ made by someone who was liable under s 1 of the DPA, it is unlikely that it would apply to a claim against a liability insurer), while the defendant’s current liability insurer will be able to argue that the defendant’s liability is not covered by their current policy as the liability arose if not 20 years ago, then some years ago (the Supreme Court declined to say exactly when a cause of action would arise against a defendant whose breach of duty resulted in a building becoming dangerously defective). A defendant like URS, with a current market capitalization value of $3.75bn, is not likely to be troubled by the prospect of having no liability insurance to cover its potential liability to BDW. However, many developers, architects and engineering firms of more modest means will have substantial cause to worry about being pushed into insolvency in the cause of making high-rise residences safe again.