Court of Appeal judgment affirming the High Court

The Court of Appeal dismissed the appeals and upheld the High Court’s conclusions that Brent and other London boroughs had no power to participate in London Authorities Mutual Limited (LAML) or to make the capital contributions, guarantees and premium payments required by that mutual under the statutory powers relied upon. The court held that (i) the Local Government Act 2000, s.2 (the "well-being" power) did not authorise participation in an insurance mutual of this kind where the primary object was cost‑saving and potential liabilities extended to other authorities; (ii) section 111 of the Local Government Act 1972 did not permit membership of and financial support for a separate insurance company whose structure and obligations meant members would indirectly underwrite others’ losses (the activity was ‘incidental to the incidental’ and beyond the statutory incidental power); and (iii) the contracts awarded to LAML were subject to the Public Contracts Regulations 2006 and the Teckal exception did not apply because the necessary degree of control over LAML by the participating authorities was absent. The court also rejected delay as a bar to the respondents’ claims on the facts.

The appellant local authority joined and financed LAML, a company limited by guarantee established by a number of London authorities to provide mutual insurance. The respondents (commercial insurers) challenged those steps through judicial review and by claims for damages under the Public Contracts Regulations 2006. The High Court (Stanley Burnton LJ) had (a) declared that Brent lacked power to become a member or participating member of LAML and to make the associated payments, and (b) awarded judgment to the respondents in their damages claim for breach of the procurement regulations. Permission to appeal was granted.

The Court of Appeal was asked to determine primarily two issues: (i) vires—whether a local authority could lawfully become a Participating Member of LAML and make capital contributions, guarantees and premium payments under either s.2 Local Government Act 2000 or s.111 Local Government Act 1972 (and related statutory material); and (ii) procurement—whether the Public Contracts Regulations 2006 required a competitive procedure (or whether the Teckal exemption applied).

• Vires (s.2 LGA 2000): appellants argued the well‑being power (s.2) was wide and permitted cost‑saving enterprises; the court held the well‑being power is broad but not an unrestricted licence to enter into speculative, long‑term financial undertakings whose principal object is to improve the authority’s finances. The structure and risks of the LAML arrangement, including guarantees and potential calls, took participation beyond Parliament’s contemplated exercise of the well‑being power.
• Vires (s.111 LGA 1972): appellants accepted local authorities may insure and that s.111 covers incidental steps to discharge functions. The court, however, distinguished ordinary procurement of insurance from membership of a separate mutual insurance company that requires capital contributions and exposure to other members’ losses; such commitments were beyond the incidental power because they were incidental to an incidental arrangement and not intrinsic to a council’s functions.
• Procurement (Public Contracts Regulations 2006 and Teckal): the court held the Regulations were to be interpreted in conformity with ECJ jurisprudence. The Teckal exemption can apply to insurance contracts and can be satisfied by joint control of a public entity, but on the facts LAML’s constitutional arrangements, its Board powers, management agreement with a private manager and the independence inherent in insurer/insured relationships meant the degree of control similar to that exercised over an authority’s own departments was absent. Accordingly the award to LAML fell within the Regulations and the competitive procedures should have been followed.
• Delay: the respondents commenced proceedings within three months of the operative breach (March 2007) and the court found either that time ran from the act constituting the breach or that good reason existed to extend time; delay did not bar relief on the facts.

The court therefore dismissed the appeals and endorsed the High Court’s legal conclusions on vires, procurement and remedies.

Appeal dismissed. The Court of Appeal agreed with the High Court that Brent had no power under s.2 Local Government Act 2000 or s.111 Local Government Act 1972 to become a Participating Member of LAML and to undertake the capital contributions/guarantees and related commitments; and that the Public Contracts Regulations 2006 applied to the awards to LAML because the Teckal exemption did not apply on the facts (insufficient control by the authorities). Delay did not bar the respondents’ claims on the facts.

Appeal from the Queen's Bench Division, Administrative Court (Stanley Burnton LJ): judgments at [2008] EWHC 692 (Admin) and [2008] EWHC 1094 (Admin). The High Court had (a) declared the appellants lacked power to join and support LAML and (b) given judgment for the respondents for breach of the Public Contracts Regulations 2006. Permission to appeal was granted and appeals were heard in the Court of Appeal, resulting in dismissal on 09 June 2009 ([2009] EWCA Civ 490).