Developer loses Court of Appeal battle over allocation of funds from Building Safety Fund to replace cladding on tower blocks in Birmingham

Residential developer Redrow has lost a Court of Appeal case over the Secretary of State for Levelling Up, Housing and Communities’ decision to allocate funds from the Building Safety Fund (BSF) to replace cladding on two blocks of flats.

The high rise blocks in Birmingham, named Hemisphere and Jupiter 2, had cladding defects which required extensive remedial work.

Using BSF money would have meant that, If the decision was lawful, Redrow would be liable to reimburse the BSF some £30m.

Lord Justice Coulson said in Redrow PLC & Ors, R (On the Application Of) v Secretary of State for Levelling Up, Housing and Communities [2024] EWCA Civ 651 that the appeal raised issues as to the proper operation of the BSF.

Redrow had signed a pledge - along with many other developers - to the effect that "leaseholders should not have to pay for any costs associated with life-critical fire safety remediation work arising from the design, construction or refurbishment of buildings over 11 metres and above that they live in, and we want to work constructively and in good faith with you and building owners/responsible parties to achieve this”.

Purchasers of the flats had long leases and an insurance policy known as the Zurich 10 Year Home Warranty Policy, provided by East West Insurance.

In April 2022, Redrow was notified by the insurer that it had accepted liability for cladding defects at Hemisphere and later also Jupiter.

Redrow told the Department for Levelling Up, Housing and Communities (DLUHC): “We confirm that East West Insurance has accepted the claim in respect of the scheme at Hemisphere and we expect will come to the same conclusion at Jupiter 2. This being the case and in accordance with the pledge, Redrow will not reimburse the BSF in respect of these projects.”

In reply, the Department said: “For Jupiter 2 and Hemisphere, the department's objective remains that works continue at pace and without disruption. Noting the prospects of successful insurance claims on these projects, we will continue to run these projects through the BSF, and will expect Redrow to reimburse the department for the costs of BSF eligible works, with any insurance proceeds to be netted off from Redrow's reimbursement once such proceeds are made available to the department.”

Redrow rejected this and said: “It is Redrow's understanding that any application to the BSF placed an obligation on the applicant to exhaust all other avenues of funding prior to procuring the necessary remedial works. On the basis a third party has agreed to fund/undertake the [life critical fire safety] works, the respective BSF applications should be withdrawn by the applicant. If not withdrawn, they should be refused by the BSF.”

The correspondence continued with DLUHC responding: “Having assessed the available evidence, the department and its delivery partner (Homes England) do not agree that funding from insurance claims is available to fund the remediation of these buildings and allow works to start on their expected start dates.

“Given that you have indicated that Redrow are unwilling to take on the works for these buildings, we will be continuing with the BSF awards. As part of Redrow's commitments under the pledge, we will expect you to reimburse the department for the costs of BSF awards for these buildings, less any proceeds from the insurance claims.”

Coulson LJ said Redrow’s first complaint was that the Department failed to take into account the position of the insurers, who had accepted liability and the Department failed to comply with the BSF guidance since the BSF allocation should not have been made while the claim against the insurers was unresolved.

The judge said: "For a number of reasons, I reject those submissions. First, I consider that the appellants' submissions on this point mischaracterise the detail of the BSF guidance.”

He noted Redrow had argued the BSF guidance said funding will only be granted in circumstances where building owners are unwilling or unable to afford to carry out remedial works, and all reasonable steps to recover costs from insurers have proven unsuccessful.

“In my view, that is an inaccurate précis of the BSF guidance,” the judge said. “In particular, the words [‘have proven unsuccessful’] cannot be found anywhere in the BSF guidance. On the contrary, the BSF guidance required responsible entities to demonstrate only that they had taken ‘all reasonable steps’ to recover the costs of the works from those responsible (through, amongst other things, insurance claims).

“The BSF guidance did not require the responsible entities to demonstrate they had pursued all other claims to final 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.”

He said this misreading of the BSF guidance dated from a Redrow email in June 2022, which said it had to “exhaust all other avenues of funding” before being able to make a claim on the BSF.

“Again, that is not what the BSF guidance says,” Coulson LJ said.”What was necessary was the taking of all reasonable steps; the guidance certainly did not require pursuit of third parties to the point of exhaustion before an application for funding could be made.”

He said the BSF guidance “expressly anticipates that such claims may be ongoing at the time of the application, the allocation and the works themselves, and that whilst this would not affect the allocation of funds from the BSF, the responsible entities must pay any sums recovered from the third parties back to the BSF”.

DLUHC had been entitled to conclude that, although the insurer had accepted liability there was no unqualified promise to reimburse, “much less actual hard cash”.

Both tower block management companies had taken all reasonable steps to recover sums from the insurer “but there was no reason to believe that any proceeds of the policy would be forthcoming in time for the projected start date for the works, 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).

“By late August 2022, I am in no doubt that the delays on the part of the insurer did not render the [block management companies] ineligible for funding from the BSF.”

Coulson LJ rejected an argument that the department wrongly prioritised the urgency of the works over everything else, as once it had concluded that the management companies had taken all reasonable steps in pursuing the insurer, “the need to act quickly was inevitably a significant factor in the [department’s] decision-making process. It provides a second reason why the decision was not unlawful.”

He also rejected a suggestion that the decision was unlawful because of the absence of proper reasons.

“The decision was the culmination of a transparent process in which the appellants had been involved throughout, and which was simply the confirmation of the respondent's earlier statements…that they would be continuing with the BSF awards for the reasons they set out in those communications,” he said.

Summarising his conclusions, Lord Justice Coulson found:

• The appellants had the necessary standing to bring the claim.
• The claim was brought promptly.
• The decision was lawful and accorded with the BSF guidance.
• The decision was fair: “in particular the appellants were able to (and did) participate in the process and were aware of the reasons why their principal objection to the BSF funding allocation had failed”.

Lord Justice Dingemans and Lord Justice Stuart-Smith both agreed.

Mark Smulian