BSF Grant and Judicial Review

In Redrow PLC v  The Secretary of State for Levelling Up, Housing and Communities the Court of Appeal upheld a decision to award funding from the Building Safety Fund (BSF) to facilitate remediation of two blocks of flats in Birmingham. The award was challenged by the developer, Redrow PLC (and its subsidiaries, Redrow Homes Ltd and HB (WM) Ltd). They unsuccessfully argued that the decision of the Secretary of State (referred to as DLUHC below) to make BSF grants to the management companies of the blocks was both unlawful and procedurally unfair.

It may seem strange that the developer should bring the judicial review claim, and indeed their standing to do so was challenged, as noted below. The explanation lies in the strings attached to the grant of funding, and the fact that the insurers of the leaseholders in the blocks had accepted liability in principle. If remediation was covered by insurance monies, then Redrow might hope to be let off the hook.  (Although the insurers were also asserting that Redrow had an obligation to carry out the remedial works, and if they did not the insurers had a contractual right to an indemnity from Redrow and a right to bring a claim under the Defective Premises Act 1972 in the name of the leaseholders). However, if BSF funding was awarded Redrow would definitely be on the hook as the grants are conditional on the recipients (the management companies) taking ‘all reasonable steps’ to recover from those responsible. This, explicitly, includes seeking recovery from developers who have signed ‘the pledge’, that is, the voluntary commitment to remediate life-critical fire safety issues. The pledge includes a promise to reimburse any government funding awarded. Redrow signed the pledge in April 2022, and this was converted to contractual form in March 2023.

Leaseholders in the blocks had a Zurich 10 Year Home Warranty Policy with East West Insurance Co Limited (a company which was in administration). In April 2022 the insurers accepted liability for one of the blocks. It was also anticipated that they would accept liability for the second block although formal acceptance was much later, in September 2022. Given this, Redrow informed DLUHC in May 2022 that it would not reimburse funding for these blocks – and that DLUHC should not grant funding: that is, effectively, that the remediation would be paid for by the insurers and that there should be no grant awarded. Redrow’s position was that the insurer should either undertake remediation itself or fund it. Meanwhile, plans were progressing to start work. On 26 August 2022 DLUHC agreed to grant funding. Works were estimated to start on the buildings in September and October 2022; in practice, one block had started by October, but the other did not start until January 2023.

The allocation of funding led to a further twist. In October 2023, the insurers ‘appeared to be saying that they would not be paying out to the leaseholders under the relevant insurance policy because of the decision to fund the works out of the BSF, and [Redrow’s] liability to reimburse the BSF those sums.’ [22]

To recap. As it looked likely that the insurers would pay, Redrow had argued that no BSF funding should be allocated, because if it was they would become liable to provide an equivalent sum to the government. In turn, following the BSF grant, the insurers stated that they did not anticipate indemnifying leaseholders, pointing both to the BSF funding and to Redrow’s liability under the pledge contract. The effect, therefore, of the grant funding and the insurer’s position is that Redrow were on the hook, even though the insurers had in principle accepted liability. Hence the judicial review application.

The judicial review application was refused at first instance by Eyre J on the papers, and by Garnham J on an oral review hearing. On further appeal four issues were raised: standing, delay, lawfulness and procedural fairness. Coulson LJ gave judgment for the Court of Appeal.

Standing

Even though Redrow had no ‘rights’ in relation to the funding decision, the grant of money could end up costing them £30 million: this was sufficient to give them standing. At the time of the decision (Aug 2022), prior to the pledge commitment becoming contractual (March 2023), Redrow had no legal basis to challenge the allocation save for judicial review. This would not be the position if the developer had already signed a ‘self-remediation contract’: as Coulson LJ noted these contracts set out the rights that developers have against DLUHC and enable a limited route for challenging funding decisions (see clause 13.18 Deed of Bilateral Contract). Hence this type of issue will not arise in the future.

Delay

The pre-action letter was sent on 19 October 2022. In the circumstances, the Court of Appeal considered this was promptly enough to satisfy CPR r.54.5(1) (requiring it to be prompt and in any event not later than 3 months after the grounds to make the claim first arose). This was especially so as the DLUHC’s letter of decision had promised a more substantive reply in the future to questions raised by Redrow’s solicitors.

Lawfulness

In determining the lawfulness of the decision, the focus was on whether DLUHC had followed the BSF guidance, even though this was not a detailed and formal policy: as Coulson LJ observed, ‘the BSF guidance is the only guidance available, all those with an interest in a decision by the respondent in respect of BSF funding are entitled to assume that the decision will be made in accordance with the BSF guidance and general principles of good administration, unless there are good reasons why not.’ [44]

Redrow’s counsel argued that the decision should not have been taken when the claim against the insurers was ongoing and unresolved. The argument made was effectively that as the BSF guidance requires applicants to take all reasonable steps to recover costs from others the grant should not have been made as they could not show that there were unable to pay for the works: this may have been possible once the insurance position was settled.

This, Coulson LJ said, was to misunderstand the guidance: claimants had to take reasonable steps to recover the monies but it is not the case that funding cannot be awarded before any  claims have been finalised. Indeed, the BSF guidance notes that if monies are recovered it is necessary to reimburse the BSF to that extent. In any event, the applicants here had done everything that they could reasonably have done, but at the date of the decision they still had not got an unqualified promise from the insurers, ‘much less actual hard cash’. Further, speed is important and is ‘baked into the whole rationale for the BSF’, and at the time of the decision the parties were committed to the remediation works and it would be wrong to abandon them.

Procedural Fairness

Redrow had argued that they had not been able to participate in the process prior to the funding decision, but Coulson LJ disagreed, and found that DLUHC could not have done more to accommodate them. In relation to a separate complaint concerning the absence of reasons in the decision letter he accepted that DLUHC could have done more but nonetheless the decision followed a transparent process which Redrow had been involved in.

The Tangled Web

It is clearly right that funding should not be held up whilst applicants pursue other avenues for recovery. The complexity of the liability web, and the resistance from all those with potential liability, means that if remediation is to proceed at speed the grant funding is essential. When the FTT granted a remediation contribution order in the Triathlon case (discussed here)  it was similarly noted that things should not be held up whilst awaiting the outcome of complex litigation. The term ‘reasonable steps’ (used in the BSF guidance) is also found in section 20D of the Landlord and Tenant Act 1985, enabling leaseholders to challenge the payability of remediation charges if the landlord has not taken ‘reasonable steps’ to recover the costs from others. If this section (and the draft guidance) is ever brought into force what approach would be followed? The BSF guidance refers to ‘all reasonable steps’; section 20 D to ‘reasonable steps’.  The draft guidance on section 20D notes that landlords should commence remediation without waiting for the outcomes of alternative cost recovery routes, but is not explicit about whether the steps taken must be completed before charging leaseholders. The tone, however, suggests that leaseholders should be the last resort, and perhaps this will be taken to require finality.

Redrow is facing a significant bill for its liability: although government data reports that at least 43 of their buildings in England require remediation, the total number (including both external and internal remediation, and those in Wales) is likely to be closer to 160.  The two buildings in this case alone are likely to cost around £30 million. They have also been involved in protracted litigation in relation to the Celestia development in Wales for more than a decade, and have recently offered to pay for remediation there. This case again shows the complexity of solving the building safety crisis, which often turns on who should pay.