Brent London Borough Council and others (Harrow London Borough Council) v Risk Management Partners Limited

This appeal determined the application of the Teckal in-house exemption to the Public Contracts Regulations 2006 and to contracts of insurance. The Supreme Court held that the Teckal exemption is read into the 2006 Regulations because those Regulations implement Directive 2004/18/EC, and that the exemption can apply to insurance contracts as well as other service contracts. The court reaffirmed the two Teckal tests: (1) the control test (the contracting authority must exercise control similar to that over its own departments) and (2) the function test (the contractor must carry out the essential part of its activities for the controlling authority or authorities). The court held that individual control by a single authority is not necessary; collective control exercised by the consortium of public authorities is sufficient. Applying those principles to the facts, the court concluded that LAML satisfied both tests and that Harrow had not breached the 2006 Regulations by placing insurance with LAML.

Background and parties

The case concerned arrangements by a number of London boroughs, including Brent and Harrow, to provide mutual insurance through London Authorities Mutual Ltd (LAML). Risk Management Partners Ltd (RMP), a commercial insurer and unsuccessful tenderer, challenged the authorities' conduct on the basis that the Public Contracts Regulations 2006 had not been followed. Brent initially appealed a finding of illegality but later settled; Harrow maintained an interest in the issue of principle in the damages proceedings. The appeal before the Supreme Court raised whether the Teckal in-house exemption applied to the 2006 Regulations and to insurance contracts, and if so whether LAML fell within it.

Procedural history

• High Court (Administrative Court): Stanley Burnton LJ held the authorities had no power to participate in LAML and that the 2006 Regulations had been breached: [2008] EWHC 692 (Admin); [2008] EWHC 1094 (Admin).
• Court of Appeal: affirmed the High Court decisions and dismissed the appeals: [2009] EWCA Civ 490.
• Supreme Court: granted hearing and determined the legal issues of principle: appeal allowed on the procurement point (this judgment).

Nature of the claim / relief sought

RMP sought judicial review and damages, alleging that the local authorities had acted beyond power and in breach of the Public Contracts Regulations 2006 by abandoning a competitive tender procedure and awarding insurance business to LAML without putting it to tender.

Issues framed

1. Whether the Teckal in-house exemption applies to the Public Contracts Regulations 2006.
2. Whether the exemption can apply to contracts of insurance.
3. Whether, to satisfy the Teckal control test, an individual authority must exercise control similar to that over its own departments or whether collective control by several authorities suffices.
4. If collective control suffices, whether it was satisfied in the present facts.
5. Whether the Teckal function test was satisfied.
6. Whether a reference to the Court of Justice was required.

Reasoning

The court took a purposive approach to the Regulations as measures implementing the Directive and held that the Teckal exemption, being an integral judicial gloss on the Directive, must be read into the Regulations. The court rejected the submission that the exemption could not apply to insurance; an insurance contract may be covered if the control and function tests are satisfied. On the control test the court reviewed the developing jurisprudence of the Court of Justice (including Teckal, Carbotermo, Asemfo, Coditel, Commission v Germany and others) and concluded that collective control exercised by a consortium of public authorities is sufficient; individual control by a single authority is not a prerequisite. Applying those principles to LAML, the court concluded that participating boroughs collectively had decisive influence over strategic objectives and significant decisions (notably by voting rights and the power to give directions by special resolution) and that LAML carried out its essential activities for those authorities. There was no private capital or private customers, and material governance safeguards reflected that public-only purpose. The court therefore held both Teckal conditions were satisfied and that no reference for a preliminary ruling was necessary.

Wider context: the judgment noted that subsequent statutory change (Local Democracy, Economic Development and Construction Act 2009, s.34) largely addressed the power issue, but the decision retained importance for ongoing and stayed actions concerning LAML contracts.

This was an appeal and it was allowed. The Supreme Court held that the Teckal in-house exemption is to be read into the Public Contracts Regulations 2006, that it can apply to insurance contracts, and that collective control by a consortium of public authorities is sufficient to satisfy the Teckal control test. Applying those tests to LAML the court found both the control and function tests satisfied and therefore Harrow did not breach the 2006 Regulations in entering insurance contracts with LAML.

Appeal from the Court of Appeal: [2009] EWCA Civ 490; earlier judgments below in the Administrative Court: [2008] EWHC 692 (Admin) and [2008] EWHC 1094 (Admin). The High Court and Court of Appeal had held the authorities lacked power and that the 2006 Regulations had been breached; the Supreme Court allowed the appeal on the procurement point (Teckal exemption).