Negligence under the judicial microscope

Stuart Pemble considers whether a developer can bring a claim in negligence when there is no physical damage and it no longer owns the building. Key points Designers can owe duties of care in tort not to cause economic loss to their clients’ proprietary interests In the absence of physical damage, a cause of action for negligent design in a construction context will accrue at practical completion Anyone thinking that their understanding of the law on negligence is a bit rusty could do worse than read Coulson LJ’s leading judgment in URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772; [2023] PLSCS 116. The judge (with whom King and Asplin LJJ agreed) suggested that the appeal had “all the hallmarks of a three-day examination in construction law”. Limitations of space mean that this Legal Note cannot cover all of the points raised. Rather, it will focus on two key issues: (1) what does the duty of care owed by a professional designer relate to; and (2) when does a cause of action accrue in negligence where there is no physical damage?  The facts BDW is a developer with a track record of developing blocks of flats across the UK. Many were designed by engineering firms who were consolidated as part of URS. This case concerns two projects – Capital East on the Isle of Dogs (where practical completion of five separate tower blocks was achieved between March 2007 and February 2008) and Freemens Meadow in Leicester (where practical completion of seven towers was achieved between February 2005 and October 2012).  In 2019, following the Grenfell Tower tragedy, BDW undertook a widespread review of its developments, including those where, as was the case for both sites, it no longer had any legal interest in development. That review found defective design by URS in both projects and, in March 2020, BDW commenced proceedings against URS alleging negligence (BDW accepting that a claim for breach of contract would be statute-barred).  The judgment dealt with two appeals from URS. The first was from a decision of Fraser J ([2021] EWHC 2796 (TCC)) that BDW’s losses were within the scope of URS’s duty of care. The second was from two unreported judgments of Adrian Williamson KC in which the deputy judge allowed BDW to amend its pleadings to take account of the longer limitation period introduced to the Defective Premises Act 1972 by the Building Safety Act 2022. Central to URS’s appeal was an argument that the cause of action only accrued in 2019, when BDW no longer owned or had any interest in the building and could not have suffered any loss. It is one of the quirks of the case that the consultant being sued was arguing for a later accrual of a cause of action than the developer suing it. The position in most negligence cases is the reverse. The scope of the duty Coulson LJ felt that the answer was very simple. The duty owed by URS in tort was co-existent with the duty of care in contract. Fraser J’s conclusion – that URS was subject to a duty to take care against the risk of economic loss caused by the construction of a building using a negligent design such that it was built containing structural deficiencies or defects – was “entirely conventional and correct”. There was no need, as URS argued, to consider the six questions asked by the Supreme Court in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 40; [2021] EGLR 34 and Khan v Meadows [2021] UKSC 21 to establish whether the alleged duty claimed correlated to the harm claimed, but Fraser J had done so at first instance and reached “incontrovertible answers”. He also rejected URS’s attempt to describe BDW’s action as a claim for reputational damage, not least because the claim was not pleaded as such. The law also allows for the recovery of damages where the party claiming has parted with its interest in the property (including St Martin’s Property Corporation Ltd v Robert McAlpine Ltd [1993] UKHL 4). The accrual of the cause of action It was accepted that the negligent design had not caused physical damage. As such, the damages claimed were for economic loss. Coulson LJ stressed that there was a long line of construction cases (including Dyson J’s judgment in New Islington and Hackney Housing Association Ltd v Pollard Thomas & Edwards Ltd [2001] PNLR 20) that the cause of action in cases where there is no physical damage accrues at practical completion. As such, URS’s argument that it only accrued in 2019 when the defects were discovered was flawed.  This conclusion was supported by non-construction cases where the cause of action accrues when the claimant does something irrevocable because they have relied on the negligent advice. There was no need for the accrual of causes of action in construction cases to be treated differently to the accrual of causes of action in other types of negligence. At practical completion, “BDW had suffered actionable damage because those buildings were structurally deficient.” They were damaged assets. Further, there was no principle of English law that holds that a cause of action can only accrue at the date of knowledge. Coulson LJ also stressed that the famous House of Lords decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1 (a judgment he conceded had “some difficulties”) was not relevant since that was a case dealing with physical damage as opposed to economic loss. He also noted that it was no longer the law (as was prevailing view when Pirelli was decided) that there has to be physical damage for a cause of action to accrue in tort. The cause of action therefore accrued at practical completion when URS still owned the buildings. Stuart Pemble is a partner at Mills & Reeve Photo by Konstantin Kolosov/Pixabay