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Councils did not breach public procurement rules with shared insurance service

10 February 2011

A group of ten London councils that set up a mutual insurance service did not breach European public procurement rules, the Supreme Court has ruled.

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 and improve risk management.

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 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 had been stayed pending the appeal to the Supreme Court. Lord Hope said that what has become known as 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, made 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 he 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.

“Shared service delivery vehicles are at the centre of plans for maximising the efficient delivery of public services.”

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Police & Prisons Local government