19 June 2008
In a landmark case, the High Court has ruled that Brent Council does not have the power to join insurance group London Authorities' Mutual. Paul Snell reports
Taking legal action is always a risk, but for one insurance services provider it has been worth it.
Risk Management Partners (RMP) won two claims against London's Brent Council in the High Court in April and May. These involved the local authority's participation in an insurance mutual. The cases were described by both sides as "landmark".
And the judgments give important guidelines to authorities considering similar schemes.
Brent decided to join the London Authorities' Mutual (LAML) - the first mutual assurance company to be set up in more than 100 years - when it became dissatisfied with the lack of competition in the insurance market and by the cost of its premiums. But although the council had committed to joining, there were concerns the group would not be able to provide cover before Brent's previous deal ran out.
The council decided to hold a new tender process. But after submitting the most "financially advantageous" bid, RMP discovered the contest had been abandoned and the contract awarded to LAML, who didn't even take part.
RMP then sought legal recourse. April's judgment concerned Brent's authority to participate in the mutual. RMP claimed the council's participation was outside the powers granted to it by Parliament. Brent's legal team relied on two defences, section 111 of the Local Government Act (LGA) 1972 and section 2 of the LGA 2000.
Section 111 concerns the powers the authority is able to use to conduct its operations. But, because as a member of the mutual Brent would be responsible for providing insurance as well as obtaining cover, the judge ruled it had no power to join under this defence.
Section 2 allows a council to take any action if it promotes the "well-being" of its area or inhabitants. The judge believed Brent had not justified its participation under this defence either, as its primary purpose in joining was to save money. However the judge did not say that this ruled out any authority joining LAML. "I do not think that it follows that no local authority has the power to participate in LAML," he said, adding local authorities could join LAML provided it offered a service that promoted the well-being of the area or its inhabitants.
This part of the ruling pleased LAML chairman Nathan Elvery. "This decision is great news for the mutual and for local government as a whole. It sends a clear signal for authorities wanting to join. It also sends a positive message to other groups of authorities that are developing similar mutual proposals."
The second judgment in May, described as "the real part of the case" by RMP director Kaz Janowicz, was the first test of the "Teckal exemption" in the UK. The Teckal exemption is named after an Italian supplier who unsuccessfully challenged a local authority that awarded a heating services contract without a tender process to a consortium. But the Italian court found procurement rules do not need to apply if the contracting authority has sufficient control over the organisation it awards the deal to.
The judge said to be able to "side-step" procurement regulations as it did, Brent had to prove it had the same control over LAML as one of its own departments. But the council did not satisfy the judge this was the case, and he awarded costs and damages to RMP.
Jolyon Patten, partner at law firm Halliwells, said: "These regulations are there precisely to ensure transparency, fairness and competition in public sector procurement, and this decision underlines the fundamental importance of those principles to the local government sector."
The council and LAML intend to appeal against both rulings.