The need for speed in BSA funding decisions 22 July 2024
Redrow Plc, Redrow Homes Ltd, HB (WM) Ltd v Secretary of State for Levelling Up, Housing and Communities v Jupiter (Phase 2) Management Company Ltd, Hemisphere Management Company Ltd [2024] EWCA Civ 651
Key takeaways
- Parties are entitled to assume that the BSF guidance will be followed in respect of funding decisions unless there is good reason not to do so.
- The BSF guidance does not require applicants for funding to demonstrate that they had pursued all other claims against third parties to resolution and financial recovery, or to final failure, as a precondition to funding. What is required is that all reasonable steps be taken to recover the costs from those responsible.
- Perhaps unsurprisingly, given the background context of seeking to avoid another Grenfell Tower disaster, the need for speed will be a significant factor in any decision to allocate funding under the BSF (albeit not necessarily a trump card in every situation).
- Developers will struggle to take advantage of an unforthcoming, dilatory or insolvent insurer to put off funded works whose cost they may be required to bear by seeking to argue that the requirements of the BSF guidance are not satisfied.
- Due to the Deed of Bilateral Contract between the Secretary of State and developers, future funding disputes are more likely to be contractual, private law disputes rather than public law challenges by judicial review.
Applications were made to the Building Safety Fund (“BSF”) in respect of two high rise developments in Birmingham with cladding defects. In the event that BSF funding was provided, the developers would have been expected to reimburse the BSF funding less any proceeds from insurance claims (pursuant to a pledge referred to in the BSF guidance signed by the developers; many developers, including the appellants, have now signed a deed of bilateral contract to give the pledge commitments contractual force).
The home insurer had been in administration at all relevant times.
The developers argued that, where an insurer had accepted liability for the claim in respect of the cost of the works for one scheme and was (at the time of the application) expected shortly to come to the same conclusion in respect of the other, an application to the BSF should be refused, the applicants not having exhausted all other avenues of funding prior to procuring the necessary remedial works.
The respondent Secretary of State disagreed, since sufficient funding from insurance claims would not be available to fund the remediation of the buildings and allow works to start on their anticipated start dates.
The developers sought judicial review of the decision to proceed with BSF grant funding agreements in relation to both developments.
On the substantive question of the lawfulness of the decision, before the Court of Appeal the proposition that those affected by the respondent’s power to make decisions allocating funds from the BSF were entitled to assume that the respondent would follow the guidance, unless there was good reason not to do so, was unchallenged. To the extent any issue remained, Coulson LJ (with whom Dingemans and Stuart-Smith LJJ agreed) approved that proposition. Coulson LJ said:
“This is not a case where a public body has set out a formal or detailed policy statement to which it must subsequently be held. However, given that 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.”
So, the real question was whether the respondent had followed the BSF guidance.
The developers argued that the allocation from the BSF should not have been made at a time when the insurance claim was ongoing but unresolved, that money should not have been allocated from the BSF because it could not be shown that the interested parties were “unable” to pay for the remedial works and their inability to pay was a necessary condition to allocation of funding. It was said that the interested parties (the management company applicants) were “technically able to pay” because they had the backing of the insurers.
Those submissions were rejected on the basis that:
- The drafting of the BSF guidance contemplated unresolved claims against third parties co-existing with the carrying out of remedial works pursuant to BSF funding.
- The BSF guidance did not require the Responsible Entities to demonstrate they had pursued all other claims to resolution and financial recovery, or that it was only if the claims against third parties, such as the insurers, had finally failed, that they could make a claim under the BSF.
- What was necessary was the taking of all reasonable steps to recover the costs of the works from those responsible (through, among other things, insurance claims). This did not require the pursuit of third parties to the point of exhaustion before an application for funding could be made.
- Having (ultimately) obtained two admissions from the insurers, it was impossible to see what more the applicants reasonably could have done. If insurers who are in administration do not pay out, or if they say they will not pay, this could create a dispute that could take years to resolve. Such resistance by the insurer did not prevent an application under the BSF, and did not prevent the respondent lawfully deciding to allocate the appropriate funds.
- The more important factor was that an unqualified promise to reimburse had not been made, much less actual hard cash provided. There was no reason to believe that any proceeds of the policy would be forthcoming in time for the projected start date, or within any period that would enable the proceeds to be used to fund the timely carrying out of the works (and every reason to think they would not be).
A further argument was made by the developers that the respondent had wrongly treated speed as “a trump card” and so wrongly prioritised the urgency of the works over everything else. It was said that the respondent “could and should have waited” until the position with the insurer had resolved.
The Court found that “the need for speed will be a significant factor in any decision to allocate funding under the BSF”, even if it is “not a trump card in every situation”. The whole basis of the BSF was the need urgently to address the cladding issues revealed by the Grenfell Tower disaster. Where a position had been reached in which no money had been forthcoming from the insurer, who was also suggesting that they were entitled to an indemnity from the appellants in any event, this could not be a proper reason for delaying a decision on the application for funding under the BSF. Problems were to be addressed “as quickly as possible”, per the guidance.
Accordingly, the decision to fund was lawful. Coulson LJ said:
“By 26 August 2022, the respondent and the interested parties were essentially committed to significant remedial works at both buildings. Both contracts would have had long lead-in times. It would have been wrong (and doubtless expensive) for that commitment to have been abandoned by the respondent at the very last moment, simply because the insurer had admitted liability but was not paying out. Both the respondent and the interested parties were entitled to say that enough was enough, and that an acceptance of liability, without any payment and without any detailed commitment as to when any payments may be made, was simply not enough to jeopardise the carrying out of the remedial works.”
It should be noted that future disputes about funding allocations are likely to be governed by the deed of bilateral contract entered into between the Secretary of State and developers after the commencement of this dispute. Thus, future funding disputes will be likely to involve private contractual claims rather than public law challenges, to which different considerations may apply.
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