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Boost for cash-strapped councils as Supreme Court backs shared services

14 February 2011

In a boost for councils and other public bodies hoping to save money by combining their services, the Supreme Court has ruled that a mutual insurance service set up by ten London councils did not breach European public procurement rules.

Geoff Wild, director of law and governance at Kent County Council, said that at a time when local government had to use ever-more creative ways to make ends meet the judgment came as a “welcome silver lining to the cloud of austerity hanging over it”.

He went on: “This confirms that EU public procurement law is there to encourage and enable public authorities to cooperate and collaborate with each other on a collective basis, without having to perform legal somersaults.

“It removes all the unnecessary uncertainty that surrounded the legality of procuring shared services following the earlier Court of Appeal ruling in June 2009.”

Giving the leading judgment in Brent Council and others v Risk Management Partners [2011] UKSC 7, Lord Hope said the aim of the scheme was to allow the councils to cut the cost of premiums.

The insurance was to be provided by London Authorities Mutual Ltd (LAML). Risk Management Partners (RMP) challenged the scheme, seeking judicial review of Brent’s decision to participate in LAML on the ground that it was beyond the council’s statutory powers.

RMP also claimed damages, through separate proceedings at the Queen’s Bench Division, on the grounds that Brent had breached the Public Contracts Regulations 2006.

The Administrative Court ruled that Brent had no power under the local government Acts to set up LAML, while the Queen’s Bench Division held that the regulations had been breached. The Court of Appeal agreed with both decisions.

Lord Hope said these rulings meant that local authorities would find it difficult in practice to use their new powers under section 34 of the Local Democracy, Economic Regeneration and Construction Act 2009 to enter into mutual insurance arrangements.

He said since the proceedings between Brent and RMP had settled Harrow Council remained the sole appellant in this case. Six other High Court damages actions were stayed pending the appeal to the Supreme Court.

Lord Hope said the Teckal exemption applied to the UK public procurement regulations. The exemption originated in a case at the ECJ involving a corporate body set up by Italian municipal authorities to provide shared energy and environmental services (Teckal Srl v Comune di Viano and Azienda Gas-Acqua Consorziale di Reggio Emilia – case C-107/98).

Lord Hope said the exemption only applied if the “control and function tests” were satisfied.

He said the fact that the relationship between insurer and insured was “essentially one between two independent parties” did not of itself make the exemption inapplicable.

“Individual control is not necessary. No injury will be caused to the policy objective of the directive if public authorities are allowed to participate in the collective procurement of goods and services, so long as no private interests are involved and they are acting solely in the public interest in the carrying out of their public service tasks.”

He said it was plain that the function test of the Teckal exemption was also satisfied.

“LAML existed only to serve the insurance needs of its members. Rule 16 of its rules confined the persons to whom LAML might offer indemnity to the London local authorities.”

Lord Hope said there was no need for a preliminary ruling by the ECJ. He allowed the appeal. Lord Rodger agreed, for similar reasons. Lords Walker, Brown and Dyson agreed with them both.

A spokesman for Charles Taylor Consulting, managers of LAML, said publication of the Supreme Court’s ruling was a “bitter-sweet moment”.

He went on: “It is very satisfying for the highest court in the land to confirm our initial legal assessment of the options available to authorities, but sad that it has come too late to save LAML.”

Michael Green, partner at Weightmans, acted for Harrow Council. He said the Supreme Court ruling would increase the ability of councils to deliver shared services beyond insurance and remove the need to tender for them.

He said he expected to see more shared services in areas such as waste management and architecture. Green said that councils could also create shared services for legal work, posing “another challenge” for law firms.

“We argued all along that this is nothing new, it’s just that the High Court and Court of Appeal didn’t agree with us,” he said.

Green said it was a “real shame” that, as a result of the Court of Appeal ruling, LAML was in provisional liquidation. He added that he expected the 2009 Act, expressly allowing mutual insurance schemes, to come into force this April.

Simon Taylor, partner at Wragge & Co, said the ruling would be welcomed not only by local authorities but by housing associations, NHS entities and central government bodies.

“These will all be seeking to maximise the opportunities of cooperation without having to go through a costly and time-consuming tender procedure.”

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