Building Safety - Defects in Dwellings: Who is responsible, in what ways and for how long and what if the developer puts right defects voluntarily?

Following the Grenfell tragedy, in 2019 BDW investigated developments it had constructed, including two sets of multiple high-rise residential building developments. BDW concluded that the defects it found in those two developments presented a danger to occupants and also risked serious damage to BDW’s reputation. Even though no claim had been made against BDW by the freeholders or the residents or any body acting for them, BDW voluntarily carried out remediation work to the blocks in 2020-2021.

Indeed, as the law was in 2019-2021, BDW would have been able to resist any claim from third parties relating to defects in the blocks, whether under a contract (such as a contract to buy a flat or a collateral warranty to an owner of the freehold or a funder) or under the Defective Premises Act 1972 (the DPA), because the periods allowed by law for any such actions had long since expired. It would be different if injury or death was caused – see below under Argument 1.

Readers may recall that s1(1) DPA requires that any person taking on work for or in connection with the provision of a dwelling owes a duty to the person who ordered the work and to future owners of the dwelling, to ensure the work is workmanlike, or professional, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.

In March 2020, BDW commenced proceedings against URS, under the tort (law) of negligence, to recover some or all of its costs of the remediation work from URS. URS had provided structural design services to BDW at the time the buildings were being developed. BDW did not make a claim against URS under the professional appointment of that firm or under the DPA, because, under the law as it was then, the limitation periods for making such claims had expired.

However, before a full trial of that case could occur, the law changed: on 28 June 2022 section 135 of the Building Safety Act 2022 came into force. Section 135 retrospectively increased the period for taking action by virtue of section 1 of the DPA for defects in dwellings provided before that date from 6 years to 30 years from the date the claim accrued/came into being – which meant there was now plenty of time for legal action to be taken by residents, and perhaps others (see below), in relation to the defects.

BDW therefore asked, and obtained, the High Court’s permission to amend its case to permit BDW to claim against URS under the DPA and also to allow a claim against URS under the Civil Liability (Contribution) Act 1978 (the Contribution Act) for URS to share BDW’s remediation costs.

URS appealed but lost at the Court of Appeal and then tried a final time at the Supreme Court.

There were four arguments:

Argument 1

Should BDW’s claim of negligence against URS fail because the costs of remediation were incurred voluntarily by BDW, not because of a formal claim against BDW or a settlement of a potential claim?

The Supreme Court stated that there is no rule of law that incurring costs voluntarily means that the negligent party did not cause them or that, in this case, BDW had failed to mitigate its losses. How much URS might be liable for will be a matter for a separate trial.

In any case, the Supreme Court held that BDW had not acted purely voluntarily: if it had not carried out the works, people might have been injured or killed and those persons or their representatives would then have had 3 years from the injury to take legal action against BDW.

Also, even though, under the law before s135 BSA came into force, BDW could have claimed, as a defence, that any person suing it under the DPA was out of time, the right to sue still existed. It would have been up to BDW whether or not it took the out of time argument.

The Court also considered that the reputational damage that BDW would have suffered if it had not remediated the defects, was a further indication that the remediation works were not strictly voluntary.

Argument 2

URS argued that s135 BSA only extends the period for claims made by dwelling owners under s1 DPA and so that it remained too late for BDW to pursue URS for negligence or for a contribution to remediation costs under the Contribution Act. URS said that, in 2019, the dwelling owners were out of time, as the law then was, to make a claim against BDW under s1 DPA and that the remediation works by BDW were purely voluntary: and the consequence was that there could be no related claims by BDW for negligence or for a contribution from URS.

The Supreme Court disagreed. It held that the wording of s135 BSA, which refers to claims “by virtue of” s1 DPA (rather than, for example, claims “made under s1 DPA”) meant that it was open to developers like BDW to claim moneys from their professional team or subcontractors for negligence or under the Contribution Act where there was a risk of or there was an actual claim against the developer under s1 DPA. Section 1 of the DPA Section 135 BSA therefore has the effect of extending the period for making such claims related to the principal claim of a dwelling owner (or other person entitled to make a claim – see Argument 3 below) under s1 DPA.

To hold otherwise could mean that the developer would be at risk, for 30 years from the date of breaches causing defects that occurred prior to 28 June 2022, of a claim from the homeowner under s1 DPA but all the professionals and subcontractors the developer employed might be able to escape liability to contribute to the damages payable by the developer. That would be contrary to public policy.

How the new limitation periods for claims against professionals and contractors, for example, arising by virtue of a s1 DPA liability for a developer, are to work is not completely clear. If, for example, a developer receives a claim under s1 DPA almost at the end of the 30 year limitation period, does the developer need to get its negligence and Contribution Act claims in against its contractors and professionals immediately or does it have further years to lodge them? It seems that answer may be that it will have further time – see Argument 4 below.

Professional indemnity insurers of contractors and professionals may be concerned about such long retrospective liability for their clients but building insurers and those insuring developers might be pleased to know that contractors and professionals can be liable for defects for a very long time and the net can spread wide.

Argument 3

URS argued that the only person who could take action for breach of s1 DPA is the homeowner – not, for example, BDW even though BDW owned the land while the dwellings were being designed and constructed, and BDW ordered the design work carried out by URS.

So, the argument was that the owners of the dwellings could take action against BDW and against URS and others in breach of s1 DPA but BDW could not sue URS for breach of section 1 because BDW was merely a developer.

The Supreme Court was clear that the s1 DPA duty is indeed owed to anyone who ordered the work. That person would normally also own the land at the time, but that does not seem to be a pre-requisite to protection under s1.

This is important because it may enable a developer to take action against a professional that advised it or a subcontractor that carried out work for it, in relation to a breach that occurred up to 30 years ago and before 28 June 2022. That might be an easier claim than a negligence or Contribution Act claim but, no doubt, often all three (and any others available) would be made.

Argument 4

URS denied that it was liable to make a contribution to BDW under the Contribution Act, on the basis that there had been no judgement against BDW nor any admission by BDW of liability to the building and flat owners nor any settlement agreement between BDW and such persons.

The Court disagreed and held that where two parties are liable for defects and one has been ordered to pay or agreed to pay compensation for the defects (which includes remedying them itself) than it can apply for a contribution from the other person liable, under the Contribution Act. The Court held that the 2 year limitation period for the contribution claim against the second party runs from the date that the amount of compensation payable by the first party is ascertained. That date might be on practical completion of the remediation works, for example.

For assistance on any building safety or property claims, please contact David Hacker or Mustafa Sidki or, on non-contentious construction matters, Andrew Harbourne.