RMP v Brent 2 – competition

We won the second phase of our case for RMP against Brent LBC, Harrow LBC and LAML today.

Here is the Press Release. As before, I hope to put up a more comprehensive guide to what the judgment means shortly.

Another resounding victory for Risk Management Partners in second part of landmark case against Brent LBC and others

In the second Judgment in a landmark case, the High Court has today found that Brent LBC acted unlawfully in side-stepping EU-regulated procurement procedures and awarding its insurance services direct to the London Authorities Mutual Limited (LAML), a mutual insurer for London borough councils. The effects of this Judgment will be felt throughout the local government arena as it confirms that all councils must adhere strictly to the tender framework.

Risk Management Partners (RMP), a company providing insurance services to local authorities, pursued the test case against Brent after Brent abandoned the EU-regulated public procurement process and awarded the contract for its insurance services to LAML, outside the tender framework.

Today’s decision follows an earlier ruling in the case which found, in principle, that no local authority can participate in such a mutual if it does so to save money on its insurance.

Jolyon Patten, partner at national law firm Halliwells LLP, who acted for RMP, comments:

“The Judgment is a tremendous success for RMP and will be a relief to all those providing insurance services to the local government sector. LAML has never explained how its operating as a monopoly could benefit authorities. These Regulations are there precisely to ensure transparency, fairness and competition in public procurement, and this decision underlines the fundamental importance of those principles to the local government sector.”

RMP’s Kaz Janowicz said:

“We are delighted at the Court’s findings. Our sole aim in this action has been to get back to a level playing-field. We are happy to compete with LAML, or indeed, anyone—all we ask is an equal opportunity to do so, and the Court has now given us just that.”

EU Regulations stipulate that public contracts above a certain value must be put out to open competitive tender. An authority may be able to side-step this process in limited circumstances under the so-called Teckal exemption (after an Italian case of that name). To do so, it must exercise over the contracting party a control similar to that which it exercises over its own departments. In the case of LAML, Lord Justice Burnton found that the authorities participating in LAML did not have the necessary control, pointing to the independence of LAML from any of its member authorities.

The second stage of the Teckal test is that the other contracting party must carry out the essential part of its activities with the controlling local authority or authorities. Given his conclusion on control, the judge did not consider it necessary to find on this point.

The judge also commented that these same issues are “likely to arise whenever a London borough is considering placing or renewing an insurance contract of sufficient size with LAML”.

RMP understands that as a result of these decisions, Brent has now obtained insurance outside LAML.

This decision follows the earlier decision of Lord Justice Burnton on the vires part of the case, in which he found that Brent had acted without authority in participating in LAML and that there was a “fundamental difference between…participation in LAML and normal commercial insurance”. Brent were not only buying insurance; they were providing insurance to others, taking on potentially unlimited liabilities to LAML in the event of future shortfalls. The judge found that the provision of insurance to others was “not incidental to the discharge of any function of a local authority” and thus fell outside the scope of s.111 of the Local Government Act 1972.

Brent further failed in their case on s.2 of the Local Government Act 2000, the so-called “well-being” power. The mere fact that Brent expected to save money on its insurance premiums did not justify participating in LAML since it did not promote the well-being of the area of Brent. This applies to all councils participating in LAML; an expectation that money might be saved is not enough to make participation lawful.

There is no question of these decisions putting the shared services agenda at risk. As the judge said at paragraph 84 of the vires decision, “if a local authority has power to do something, it may do so in association with other authorities. But this does not assist if what is being done is outwith the powers of that authority.”

Additional information:

• LAML and Harrow, who were in a similar position to Brent, originally joined the action as Interested Parties to the Judicial Review claim. Since no relief was sought against them in either claim, no finding was made specifically against them.
• Brent, Harrow and LAML obtained leave to appeal this judgment, and have already commenced appeal proceedings in the vires action.
• RMP were awarded costs.
• The full text of Judgment can be found here: http://www.bailii.org/ew/cases/EWHC/Admin/2008/1094.html