Yes. Preamble of section C states that rule 18 does not apply at a starting mark surrounded by navigable water. Rule 16 requires Blue to give Red room to keep clear if Blue changes course. Until the last second and well after it became clear that there would be no room for Red between Blue and the RC boat, Red could have kept clear by going to the wrong side of the RC boat, but she chose not to do so. As long as she complies with rule 16, Blue is permitted to luff until head to wind and to close the gap between Blue and the starting vessel. The starting signal being made does not change this situation.