A judicial review (Redrow PLC v The Secretary of State for Levelling Up, Housing and Communities [2024] EWCA Civ 651) has provided further Building Safety Fund developments concerning the involvement of insurers and delayed remediation works.
Judgment
The Court of Appeal has handed down judgment in a judicial review challenge by Redrow PLC, a developer, against a decision made by the Secretary of State for Levelling Up, Housing and Communities (DLUHC) to award funding from the Building Safety Fund (BSF) to two blocks of flats in Birmingham that required remediation for fire safety issues. The appeal followed a rejection of the judicial review claim by the High Court.
A separate civil claim by Redrow has been issued against DLUHC on the same matter seeking declarations from the Court in similar terms as to liability for sums that Redrow contend are insured, and also that Redrow was not liable for the cost of variations that shouldn’t have been funded by the BSF. At the time of writing, the claim has been filed and a defence from DHLUC is awaited. This second case is likely to be followed with interest by developers.
Background
The BSF was established by the Government in 2020 to provide financial support for the removal and replacement of unsafe cladding systems on high-rise residential buildings in England.
Grants were conditional on the recipients taking all reasonable steps to recover the costs from those responsible for the fire safety defects, including developers who subsequently signed a voluntary pledge to remediate and reimburse any government funding.
The pledge is an initiative launched by the Government to encourage developers to take responsibility for the remediation of unsafe cladding systems without passing the costs onto leaseholders. Redrow signed the pledge in April 2022, becoming a contractual obligation in March 2023 under a Bilateral Deed with DLUHC. The application for BSF funds were made after the pledge, but prior to signing the Bilateral Deed. Redrow agreed in the Bilateral Deed to carry out the remediation works and refund any BSF funding that had been or would be paid.
Long leaseholders of the blocks had the benefit of a latent defects insurance policy, and the insurer accepted liability in principle for the remediation costs in April and September 2022. The policy covered the costs of repairing or replacing any defective materials or workmanship that caused damage to the property within 10 years of the completion of the construction.
Redrow argued that the BSF funding should not be granted, as the insurers should pay for the remediation. However, after the BSF funding was granted in August 2022, the insurers acknowledged their acceptance of the liability to the leaseholders but claimed that Redrow were obliged to carry out the remedial works pursuant to the Bilateral Deed. If not, the insurers had a contractual right to claim an indemnity against Redrow for all the reasonable costs incurred in procuring the works. The insurers also claimed a right to bring a claim against Redrow in the name of the leaseholders for breach of the Defective Premises Act 1972.
Redrow’s potential liability for the remediation costs is around £30m. They sought to challenge the remediation costs and BSF decision on the grounds of lawfulness and procedural fairness. Redrow claimed that the decision was irrational, inconsistent, and contrary to the BSF guidance and intention of the pledge contract.
Lawfulness
The Court of Appeal upheld the lawfulness of the BSF funding decision, finding that it was in accordance with the BSF guidance and the general principles of good administration.
The Court dismissed Redrow’s argument that the funding decision should not have been taken while the claim against the insurers was unresolved, as this was not supported by the BSF guidance.
The Court held that the BSF guidance did not require applicants to show that they were unable to pay for the works, but only to take all reasonable steps to recover the costs from others. “Reasonable steps” expressly includes pursuit of developers who have signed the pledge; leaseholders had done so and had not received any payment or assurance from the insurers at the time of the funding decision.
The Court also noted that the BSF guidance stated that the funding decision would not affect the applicants’ rights to pursue any claims against third parties, and that the applicants could still seek to recover the costs from the insurers after the decision.
The BSF scheme was designed to ensure that the remediation works were carried out as soon as possible, in the interest of public safety and the wellbeing of the leaseholders. The Court said that the funding decision was a pragmatic and sensible solution that enabled the works to proceed without further delay, and that the Secretary of State had acted reasonably and proportionately in making the decision.
A particular concern was that stopping the remediation works for the insurers to fund it would cause unnecessary delay – this decision is consistent with the policy of the First Tier Tribunal in Triathlon Homes LLP v SVDP, Get Living and EVML [2024] UKFTT 26 in granting a Remediation Contribution Order, despite BSF funding being in place and the remediation being mostly complete.
Standing
The Court of Appeal also rejected DLUHC’s argument that Redrow had no standing to bring the judicial review challenge, finding that Redrow had a sufficient interest in the matter. Redrow had no contractual recourse at the point of the grant, its only “rights” being pursuant to Judicial Review. The Court indicated that now there was a contractual right under clause 13.18 of the Bilateral Deed, the need for Judicial Review in this situation should fall away.
Redrow had a direct and substantial interest in the funding decision, as it affected Redrow’s contractual liability under Bilateral Deed. The Court also held that Redrow had a legitimate interest in ensuring that the BSF scheme was administered lawfully and fairly, and that the funding decision did not undermine the purpose and effectiveness of the pledge contract.
Delay
DLUHC’s argument that Redrow’s challenge was out of time was dismissed, with the Court finding that Redrow had acted promptly and with reasonable diligence. Time ran not from the funding decision date in August 2022, but when Redrow became aware of the facts giving rise to the challenge in October 2022. Redrow were only notified of the funding decision in September 2022, and the insurers’ refusal to pay in October 2022. Redrow had taken swift steps to seek legal advice, gather evidence, and issue the claim in November 2022, and that there was no detriment to DLUHC.
Conclusions
Whilst Redrow managed to satisfy the difficult timing and standing procedural hurdles for Judicial Review, the Court of Appeal was clear that the decision of DLUHC was lawful as it fell within the natural interpretation of the guidance. It is probably fair to say that the BSF guidance is not particularly detailed, which makes it difficult for a party to argue that any funding decisions based on the guidance were flawed.
There is a clear policy factor here in that the BSF forms part of the wider Building Safety policy, the intention of which is to remedy fire safety defects quickly and steps by developers to involve third parties (such as insurers, claims against contractors and professionals) that may delay remediation will not be tolerated, even if it causes issues for developers. This policy has now been applied to Judicial Review claims here with Redrow, BSA s.124 Remediation Contribution Orders in Triathlon, and BSA s.123 Remediation Orders in Secretary of State for Levelling Up, Housing and Communities (DLUHC) v Grey GR Limited Partnership [2024] 4 WLUK 558.
Whilst there initially appears to be some injustice in the insurer having accepted liability and then refused to pay out, had they satisfied the claim the insurers would have sought to subrogate the rights of the insureds and bring claims to recover their costs from Redrow. It is possible that a developer may be in a slightly better position in terms of cashflow (time) to argue the quantum of the costs but would ultimately be liable for the remediation costs to the insurer, or via the Bilateral Deed to the leaseholders or the BSF in any event. The route taken by the Court of Appeal here was that which remedied the defects quickest.
The separate civil claim is in progress and will doubtless be followed by developers with great interest. Whilst this is being addressed on the same facts as the Judicial Review claim, its basis is on the terms of the Bilateral Deed rather than the more limited procedural ground allowed in this judgment.