Brent London Borough Council v Risk Management Partners Ltd

A local authority’s power to promote the well-being of its area does not authorise an enterprise whose object is merely to improve its general financial position through cost savings. The authority must contemplate a reasonably defined outcome which directly or indirectly promotes local well-being.

Participation in a mutual insurer, including exposure to other members’ losses, is not incidental to the authority’s substantive functions merely because obtaining conventional insurance would be incidental.

The Teckal public procurement exemption applies under the Public Contracts Regulations 2006. Joint control by several public authorities may suffice, but they must exercise decisive influence over the entity’s strategic objectives and significant decisions. The exemption was unavailable where an independent board exercised substantial control over the mutual insurer.

Brent London Borough Council joined London Authorities Mutual Ltd, a mutual insurer established by London local authorities, and awarded it insurance contracts without following the competitive procedure in the Public Contracts Regulations 2006.

Risk Management Partners Ltd, a commercial insurer which had tendered for the work, brought judicial review proceedings and a damages claim. Stanley Burnton LJ declared that Brent lacked power to participate in the mutual and held that the contract awards breached the procurement regulations: [2008] EWHC 692 (Admin) and [2008] EWHC 1094 (Admin).

The appeals concerned Brent’s powers under section 2 of the Local Government Act 2000 and section 111 of the Local Government Act 1972, the application and requirements of the Teckal exemption, and whether the claims had been brought in time.

1. The appeals were dismissed unanimously. Brent lacked statutory power to participate in LAML. It had also breached the Public Contracts Regulations 2006 by awarding insurance contracts to LAML without competition.

2. Section 2 of the Local Government Act 2000 did not give local authorities carte blanche to undertake any project expected to save money. The proposed action had to pursue a reasonably defined outcome which the authority considered would promote or improve the economic, social or environmental well-being of its area. Improving the authority’s general financial position was insufficient by itself. Participation in LAML involved guarantees, exposure to other authorities’ losses and a speculative enterprise directed principally at reducing insurance costs. It therefore fell outside section 2. Had the power existed, however, Brent had sufficiently formed the required opinion that participation would promote local well-being.

3. Obtaining ordinary insurance may be incidental to a local authority’s substantive functions under section 111 of the Local Government Act 1972. Membership of LAML went materially further. It required the authority to capitalise an independent company and bear a share of losses incurred by other members. Those obligations were incidental to obtaining insurance, rather than incidental to the authority’s substantive functions. Section 1 of the Local Government (Contracts) Act 1997 did not convert entering a contract into a local-authority function for section 111 purposes.

4. The Teckal exemption formed part of the law implemented by the Public Contracts Regulations 2006. It could apply to insurance contracts and concessions. Several public authorities could exercise the required control jointly, including through majority decision-making. The exemption nevertheless had to be construed strictly. The authorities had to possess decisive influence over both the entity’s strategic objectives and its significant decisions.

5. LAML failed the control requirement. Its board had extensive powers over capital, reserves, membership and insurance terms; its directors owed duties to LAML; and its insurer-insured relationships were essentially relationships between independent parties. The members’ ability to direct the board by a 75% majority did not supply the required control. Had control existed, LAML’s activities for affiliates would have been marginal and the second Teckal condition would have been satisfied.

6. The claims were in time. Grounds for proceedings based on an actual procurement breach were distinct from grounds for anticipatory relief based on an apprehended breach. Time began with the relevant actual breach in March 2007. A claimant cannot, however, postpone time by awaiting the last of several actual procedural breaches. An extension would in any event have been justified.

1. Court of Appeal (Civil Division): The appeals were dismissed. The declarations and liability determination below were upheld: [2009] EWCA Civ 490.

2. Administrative Court: Stanley Burnton LJ declared that Brent had no power to become or participate as a member of LAML, make payments to it or undertake payment commitments: [2008] EWHC 692 (Admin).

3. Administrative Court: Stanley Burnton LJ held Brent liable in damages for awarding insurance contracts to LAML in breach of the Public Contracts Regulations 2006. Causation and quantum were reserved: [2008] EWHC 1094 (Admin).