Sitting in judgement
One fascinating impact of Boris Johnson’s prorogation of Parliament was that judicial review was suddenly making headlines, highlighting that no decision is free from the risk that it could be overturned.
Judicial review is the process by which a judge examines the decisions of any public body, and considers whether the law has been correctly followed. The process was developed in the 1960s and 70s, in response to the increasingly broadly held sentiment that the United Kingdom lacked an effective system to supervise the bureaucracies governing the state. Before then there had been no way for an individual to lodge a grievance, or appeal any decision or action made by the state, simply because there was no existing forum in which to do so. The first application of the process to review a planning decision wasn’t until the late 1980s, when it was used to investigate the decisions behind the redevelopment of the Mappin & Webb building, a block of Grade II Listed Victorian gothic properties in the City of London, and what is now the site of No 1 Poultry.
Since then, planning decisions are regularly challenged via judicial review, often by disgruntled neighbours. While it is not a direct challenge on the final decision itself, it is often initiated as an attempt to overturn or alter the outcome. Whatever the motivation, the impact of such an application can be significant, especially to those involved in the development. Developers often want to start work on site as soon as planning permission has been granted, but judicial review has the potential to inflict major disruption and therefore substantial financial losses.
A successful review application will cause delays for the duration of the process, and could result in added or abortive costs to the developer if substantial changes need to be made to plans submitted, or if the planning decision is subsequently overturned altogether. If alternative planning consent is required but then refused, they could also see their property or land suffer a loss in value as a result. Even an unsuccessful application can cause delays, risking contractual issues and incurring costs.
There are usually other stakeholders involved, as the majority of developments require outside finance. Lenders will be concerned about the funding they have provided for the intended development, as well as repayments due. If an application for judicial review is successful, the lender is at risk of the developer being unable to repay the monies lent.
With so much at stake, we have definitely seen a change in customer behaviour since issuing our first Judicial Review policy back in the mid-1990s. Where we would perhaps only have seen requests for cover where a developer knew there was the likelihood of a problem arising, we now see cover more commonly being requested as a part of the transaction process. Getting the policy in place early on offers peace of mind for the developer, allowing work to start on site as soon as possible, and appeasing lenders and stakeholders.
When considering an enquiry, and because of the high financial risks involved, our underwriters will investigate several factors, as well as considering the potential financial loss. They will look at:
• the estimated fully developed value of the site and the approximate costs of the works to be carried out during the application period
• the limit to be attributed to delay costs
• the proposed use, as well as the works involved during the development
• the history and previous uses of the site
• whether the new use is contentious, and the extent of objections to the planning consent
• any adverse publicity, or additional consideration required by the planners.
They will also check that no listed buildings are involved, that the site is not is a conservation area nor has particular historical interest, or any environmental sensitivity, and finally, they will want to see a copy of the planning consent once obtained.
An expensive gamble
This intensive underwriting is justified when you consider the costs implications of a judicial review. Regardless of the outcome of any review, work will be suspended or delayed while due process runs its course, and even successfully defending a claim can incur significant costs. We recently handled a claim where we had issued cover for the residential development of six houses, which had been granted planning permission. The application for judicial review was submitted by the owner of a neighbouring property who was unhappy with a number of planning considerations, rather than highlighting or challenging the lawfulness of the decision. Even though the application was dismissed by the court as being without merit, the process still took five months, and we paid for the insured’s legal costs to help defend the claim against the local authority, which totalled £17,000.
While the review process itself can be protracted, so can the full financial impact. Another claim our team has handled was for a plot of land that had been granted planning permission for 75 houses. A claim was brought by a neighbouring property owner based largely on the failure by the planning committee to address points of noise pollution arising from an adjoining MOD Naval Airbase, and the claimants were requesting that planning permission be quashed. They were granted permission to bring the claim to court, and the developer (our insured) was advised to stand down their sub-contractor rather than risk a potential £5-6m loss if the decision went against them. At trial, the judge concluded that all the points being debated were essentially matters of planning judgement and the court should not have been involved, and the application for judicial review was dismissed.
But the end of the case didn’t mean the end of the claim. While the works on site went ahead following the decision and were subsequently completed, our insured submitted a claim from the sub-contractor for around £400,000. This was for losses they incurred under the building contract, due to the initial delay, and was in addition to the £65,000 legal fees we paid for helping successfully defend the original application.
Peace of mind
Judicial review continues to prove a genuine threat to developers and lenders, especially given the increasing claims culture in the UK, and the financial risk at stake. In line with shifting trends and changing customer behaviour, we have made changes to our judicial review legal indemnity cover, which now also includes delay costs as standard. The policy covers the cost of participating in a response or defence following a judicial review application being submitted to the Court, and if the application is successful and the Court quashes planning consent, the policy covers a number of losses. These include expenses involved in complying with a Court order, which may require works to be altered or demolished; any abortive professional fees, capital monies and contractual liabilities; or any reduction in value if no alternative planning consent is obtained.
If you want to talk to one of our underwriters in greater detail about judicial review cover, call the team on 01603 617617 or email email@example.com.