Supreme Court reverses council insurance buying decision

10 February 2011

SupremeCourt judgement



SeaSrl v Comune di Ponte Nossa


Brent London Borough Council v Risk Management Partners


Brent enters legal storm


Council breaks purchasing laws

10 February 2011 | Paul Snell

The UK Supreme Court has ruled local authorities can collaborate to buy and provide insurance together in a mutual.

The law lords yesterday unanimously overturned a previous Court of Appeal decision in a case between The London Borough of Harrow and insurer Risk Management Partners (RMP).

It means authorities will now be able to rely on the so-called “Teckal exemption” if they want to set up an organisation to purchase insurance. The exemption is based on previous case law, which allows councils to side-step a tender process providing it wields sufficient control over the organisation that is awarded the contract.

Brent Council had initially relied upon this defence in the case against it brought by RMP in 2008, who claimed the authority should not have abandoned its tender process to join the London Authorities Mutual Limited (LAML), an organisation set up to obtain and provide insurance for a group of councils in the capital. Brent settled with RMP after losing the Court of Appeal case, but Harrow was allowed to appeal to the Supreme Court.

And it has now been decided the exemption does apply to UK procurement regulations, that it can apply to insurance contracts and councils only need to exercise “collective”, rather than individual, control over the insuring organisation for the exemption to apply.

In his judgement, Lord Hope said it did not matter that councils could not provide insurance themselves, only that they had sufficient control over the service provider.

He added that the principles of EU procurement rules would not be broken if authorities got together to purchase goods and services, as long as there was no private interest and they were acting solely in the public interest.

He said: “It follows that, as the Teckal exemption applies to the 2006 Regulations, Harrow did not act in breach of the Regulations when it entered into insurance contracts with LAML under the mutual insurance scheme.”

Kaz Janowicz, managing director at RMP, said: “We accept the legal interpretation of the Teckal conditions have changed over the past four years. Naturally authorities are looking at every way they can to reduce their insurance costs. All we ask is that we are given the opportunity to compete for business.”

There are currently six supplier claims for damages at the High Court against councils that contracted with LAML, which were pending this result.

LAML is currently in provisional liquidation.

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