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Articles | Wed 25th Nov, 2020
Last week the Grenfell Inquiry heard shocking evidence of the dishonest marketing used to promote the cladding installed at Grenfell Tower. The legal repercussions of the Grenfell fire will be varied and will continue for some time. In R (Clarke) v Birmingham City Council  EWCA Civ 1466 the Court of Appeal was asked to review a decision retro fit sprinkler systems.
Shortly after the Grenfell fire, Birmingham City Council considered a proposal which it eventually approved to retro fit sprinkler systems in its high rise blocks at a cost of £19m. The decision was “called in” by the Scrutiny Committee which requested that the Cabinet review its decision and, “in particular that Cabinet carefully considers all the information and evidence available to assure itself that this large expenditure is wholly justified. ”
The Cabinet revisited the decision to install the sprinkler system and confirmed its original decision without carrying out the review of the evidence requested by the Scrutiny Committee.
Mr Clarke who was a tenant on the 20th floor of one of the tower blocks considered the expenditure an unjustified waste of money and challenged the decision by way of judicial review. His main ground of objection was that the Cabinet has failed to take account of “value for money” as a relevant consideration. He was unsuccessful at first instance but when granting permission to appeal Lewison LJ raised the question of whether there was also an issue concerning the fiduciary duty owed to the council tax payers of Birmingham.
The Court of Appeal dismissed Mr Clarke’s appeal. On the “value for money issue” the Court of Appeal held that there was a distinction between considerations that it was necessary for a decision maker to take into account and considerations that it was permissible for a decision maker to take into account. The Court of Appeal observed that the power to improve the Council’s housing stock under the Housing Act 1985 was drawn in wide terms and held that it was not necessary for the Cabinet to carry out the kind of review the Scrutiny Committee had requested. The Cabinet had had sufficient regard to value for money considerations which it had balanced against its desire to provide the residents with the best possible fire protection. Mr Clarke was unable to identify something “obviously material” which the Cabinet was bound to take into account which it had not taken into account.
So far as the “fiduciary duty issue” was concerned the Court of Appeal held that Mr Clarke was not owed a separate fiduciary duty as a tenant and, as the capital works were to be funded by loans secured against the Housing Revenue Account, there was no material conflict of interest between the residents who would benefit from the sprinkler systems and other council tax payers. The “fiduciary duty issue” did not ultimately add anything to the “value for money issue”.
Judicial review is not the only way decisions of landowners about expenditure on fire safety improvements can be subject to review. A landlord’s discretion to make improvements and recover the costs of doing so under a service charge regime must be exercised rationally (Braganza v BP Shipping Ltd  1 WLR 1661 and Waaler v Hounslow London Borough Council  1 WLR 2817). This is essentially the same standard Birmingham City Council’s decision to retro fit sprinkler had to meet.
However, where the service charge is found in a residential tenancy to which the Landlord and Tenant Act 1985 applies the requirement of reasonableness imports an objective standard (Waaler). It is not enough for the decision making process to be rational, the outcome itself must be objectively reasonable. Mr Clarke might still have failed had that test been applied but the court would have to had to examine in closer detail his complaint that, “A more considered evaluation would have shown that the fitting of sprinklers was not necessary or justified”. The First-tier Tribunal conducted such an exercise in E & J Ground Rents No 11 LLP v Various Leaseholders 2018 WL 01184704 . In that case there was a dispute as to whether the costs of a “waking watch” were reasonably incurred. The Upper Tribunal examined the reasons for the decision to pay for fire wardens quite closely and concluded that the costs were reasonably incurred because the building’s insurers expected the landlord to take all reasonable steps and fully comply with the fire authorities’ requirements so that the landlord would have run a significant risk of being in breach of the policy if it did not implement a ‘Waking Watch’.