Risk Management Partners Ltd, R (on the application of) v The Council of London Borough of Brent

A local authority’s power to obtain insurance does not ordinarily authorise it to establish or join an insurer whose liabilities and capital requirements expose the authority to the losses of the insurer’s other business. Such participation is, at most, ancillary to the ancillary power to insure and falls outside Local Government Act 1972, section 111. The well-being power in section 2 of the Local Government Act 2000 is broad, but the authority must consider that the transaction is likely to promote or improve the economic, social or environmental well-being of its area. Financial benefit to the authority itself is insufficient, and the required opinion must be established on the evidence.

Brent joined and became a participating member of the London Authorities Mutual Limited, a mutual insurance company established by several London local authorities. It provided capital, gave a guarantee and purchased insurance from LAML after abandoning a tender exercise in which Risk Management Partners Ltd had submitted a tender.

RMP brought judicial review proceedings alleging that Brent lacked power to participate in LAML or to provide the associated financial support. It also brought a claim under the Public Contracts Regulations 2006. The present judgment determined the vires and authority issues, leaving questions of remedy, causation and quantum for later consideration.

1. Permission and delay. Permission to apply for judicial review was granted. The claim was brought within a reasonable period after the unlawful act became sufficiently clear. The need to determine whether public money and contingent liabilities had been unlawfully incurred outweighed the delay objection. The approach in R (Burkett) v Hammersmith and Fulham LBC [2002] UKHL 23 was applied.
2. Section 111. Section 111 of the Local Government Act 1972 is to be interpreted sensibly and liberally, but it is a subsidiary power. It requires an authorised underlying function to which the challenged activity is calculated to facilitate, or is conducive or incidental. An incidental power cannot itself become a function, otherwise there would be an infinite regression.
3. Obtaining insurance is ordinarily a paradigm subsidiary power. Participation in LAML was materially different from ordinary insurance. Brent incurred liabilities for capital contributions, supplementary calls and guarantees, which were separate from the insurance contract and were affected by LAML’s losses on other business. Brent thereby became involved in providing insurance, not merely obtaining it. Participation, the capital payment and the guarantee were therefore outside section 111. The reasoning in Hazell v Hammersmith and Fulham LBC [1990] 2 QB 697, McCarthy & Stone (Developments) Ltd v Richmond upon Thames LBC [1992] 2 AC 48, Crédit Suisse v Allerdale Borough Council [1997] QB 306, Crédit Suisse v Waltham Forest LBC [1997] QB 362 and Morgan Grenfell v Sutton LBC [1996] EWCA Civ 797 was followed or applied.
4. Contracts power. Section 1 of the Local Government (Contracts) Act 1997 did not assist. A contract of insurance principally provides a financial indemnity or payment, rather than the provision or making available of services within section 1. The provision could not convert an incidental power into a function for section 111 purposes.
5. Well-being power. Section 2 of the Local Government Act 2000 is deliberately wide, but the authority must consider that the transaction is likely to promote or improve the economic, social or environmental well-being of its area. The financial well-being of the authority is not the same as the economic well-being of its area. A decision based only on expected savings to the authority therefore cannot satisfy section 2.
6. Brent had not established that its Executive formed the statutory opinion. The reports and minutes did not identify the statutory objects or show that the Executive considered them. The evidence of the finance director did not cure that deficiency. Brent therefore failed to establish that its participation was authorised by section 2.
7. The judge expressed the view that a local authority might use section 2 to purchase specified risk-management services benefiting its area and might provide related financial assistance to a mutual insurer. That would require serious consideration of the statutory objects and a properly evidenced decision. The observation was unnecessary to the result.
8. The vires decision was separated from relief. The question of relief was reserved for further argument.

First-instance judicial review proceedings. The judgment determined vires and authority issues and reserved the question of relief for a subsequent hearing.