Water—or the scarcity of it—is not something people give a lot of thought to. But consider these facts:

1. Demand for clean water will rise by 100% between 2007 and 2040.
2. Irrigation for farming uses 60% of all water taken from rivers and aquifers globally.
3. While the world produces twice as much food as it did 25 years ago, it takes three times as much water to do so.
4. To produce 1kg of rice takes 2,000-3,000 litres of water.
5. 1kg of instant coffee takes 20,000 litres (yes, that’s twenty thousand).
6. 1 litre of milk takes 4,000 litres of water.
7. 1 hamburger takes 11,000 litres of water.
8. 1 cotton T-shirt takes 7,000 litres of water.
9. Already, 400 out of China’s 600 biggest cities are short of water.

So we can expect to see taxation on water, increased use of desalination, corresponding developments in agricultural technology, crops designed to rely on smaller amounts of water and an increased political focus on water extraction and use.

Water could be the new oil.

No related posts.

Toyoto is not having a good time. A couple of days back I wrote about the Toyota slow-motion PR wreck. Yet here is another perspective on the whole matter from Ed Wallace on Business Week.

He cautions, soundly, against knee-jerk reactions and suppositions, citing very very biased reporting and investigation in the cases of Audi, Suzuki (do you remember the rolling-over jeep?) and Firestone tyres. According to Wallace, almost everything in those cases was invented, there being, in truth, either no fundamental defect or one that was minor, limited and quickly remedied.

Talking about the Audi 5000 incident in particular, Wallace is instructive:

In the 60 Minutes piece on Audis’ unintended acceleration that put this story over the top, they brought in William Rosenbluth to prove that Audis were defective on camera. As 60 Minutes correspondent Ed Bradley said, “We took a car that had already been involved in two sudden-acceleration incidents and, without his foot on the gas pedals, showed it could do this.” Again from the book, Junk Science[1]: “… and 30 million viewers saw it with their own eyes.” What they saw was the gas pedal apparently moving under its own power.

But what the viewers didn’t see was also revealed in Walter Olson’s column, “It Didn’t Start with Dateline NBC:” Off camera, they had drilled a hole in the vehicle’s transmission and pumped extreme high-pressure air into it, which had the effect of moving the gas pedal down without the driver pressing it.

The audience and all of America came to believe that this Audi with two black marks against it was possessed. In reality, it was rigged.

As you’d expect, an Audi official appeared on that broadcast. He said his company had investigated these incidents and could find nothing wrong with their vehicles. Nobody believed him.

So it will be interesting to see what happens here.

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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

Related posts:

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On April 22nd 2008 Lord Justice Stanley Burnton handed down his judgment in R (on the application of Risk Management Partners) –v– the Council of the London Borough of Brent [2008] EWHC 692 (Admin).

LAML, who were an interested party in the case, say that the court threw “out claims from the private sector that councils are acting beyond their designated powers”.

In fact the Court found the very opposite—Brent had no power to establish or participate in LAML, to become a member of it, or to make a paid up or guaranteed capital contribution to LAML either under section 111 of the Local Government Act 1972 or section 2 of the Local Government Act 2000.

The Court granted RMP a declaration to that effect and ordered Brent to pay RMP’s costs of the claim.

LAML go on to say that “Harrow Council was also named in the case, but no finding of ultra vires was made against Harrow”. Like LAML, Harrow was merely an interested party in the case, not a defendant. The reason no finding was made against it—or against LAML— is because their actions were not the subject of this claim for judicial review.

LAML also claim that “the Judgment states that authorities do have powers, pursuant to well-being powers under s2 of the Local Government Act 2000 to join LAML.” That is simply incorrect. The judge said no such thing.

What he did find was that if a local authority bases its decision to enter LAML on what savings it might make on its insurance premiums then its decision will be unlawful under the “well-being” power in s.2 Local Government Act 2000 (paragraph 114 of the judgment). In that regard, it is worth noting that LAML continues to broadcast its primary message to authorities, that “it aims to save its growing membership up to 15 per cent per annum on their insurance premiums over the next five years”.

The only other comments by the judge in respect of the section 2 well-being power were made obiter and without having heard argument: “I think that a local authority could pursuant to its well-being power enter into a contract with a company for the provision of advice as to the avoidance of damage to property in its area through fire or accident, or for the avoidance of accidents to persons living or working there. In other words, a local authority could purchase what has been referred to as risk management services.” If so, he thought, it could contract with the company for the provision of such services and insurance, and provide guarantees and financial assistance to the company for that purpose pursuant to section 2(4).

But whatever the merits of these views expressed obiter, the simple fact is that LAML is not such a company: its principal object is to provide insurance for London local authorities. It is no part of LAML’s objects to provide risk management services in respect of property or persons living or working in any particular local authority area generally. And neither are the capital contributions required by LAML to meet the FSA’s requirements for its business, which is insuring local authorities themselves, made for such purposes.

Finally, it may be noted that LAML sought permission to appeal against the very judgment that it now claims is a “vindication of LAML’s actions”.

Related posts:

1. RMP v Brent 2 – competition We won the second phase of our case for...
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I just had a big win on a case of major importance in its field. Here is the press release. A more detailed analysis will follow:

Local authorities not authorised to act as insurers

In a landmark case, the High Court has found that Brent LBC had no power to participate in LAML, a mutual insurer for London borough councils.

It has further found, in principle, that no local authority can participate in such a mutual if it does so solely to save money on its insurance. In obiter comments, the judge held that there might be circumstances in which an authority could do so, but that there was no evidence that LAML could bring itself within those circumstances.

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

LAML and Harrow, who were in a similar position to Brent, joined the action as Interested Parties. Since no relief was sought against them, no finding was made specifically against them.

Lord Justice Burnton (as he now is) focused on the “fundamental difference between…participation in LAML and normal commercial insurance”. Brent were not only buying insurance; they were providing insurance to others. Rather than simply paying a premium for cover, Brent had also paid a £160,500 capitalisation charge to the mutual and more importantly taken on potentially unlimited liabilities to LAML in the event of future shortfalls.

The judge found that Brent had “speculated on its success as an insurance company”. He held 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, despite that section being very widely drafted. The mere fact that Brent expected to save money on its insurance premiums did not, without more, justify its actions and it therefore had no power to become a member of LAML.

As a result of this decision, there may be questions about the effectiveness of Brent’s insurance with LAML for the 2007—2008 year.

The parties still await judgment on a related yet equally important issue: RMP say that Brent had to follow EU-mandated rules and go to open competitive tender for the business; Brent rely on the so-called Teckal exemption to say that LAML effectively operated as an in-house function of Brent and hence that it was allowed to side-step the procurement process.

RMP’s Kaz Janowicz said

“While we are relieved at the Court’s findings we take no great joy from the decision. Our sole aim in this action has been to get a level playing-field. For us, the real part of the case comes when the decision on Teckal is given. We are happy to compete with LAML, or indeed, anyone—all we ask is an equal opportunity to do so.”

RMP were awarded their costs in full. Brent, Harrow and LAML were granted leave to appeal.

You can read the judgment online. Note especially paras. 93 and 110 (on the s.111 arguments), para. 114 (on s.2) and para. 120 (on some potential exceptions to the basic principle-see esp. the last 5 lines for the facts in this case).

Risk Management Partners
-v-
The Council of the London Borough of Brent
London Authorities Mutual Limited
The Council of the London Borough of Harrow

Neutral citation: [2008] EWHC 692 (Admin)

Related posts:

1. RMP v Brent 2 – competition We won the second phase of our case for...
2. RMP -v- Brent: What the decision means On April 22nd 2008 Lord Justice Stanley Burnton handed...
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In his 2008 letter to shareholders, Warren Buffett has a charming little story about the problems of IBNR and the known unknowns (ahem):

We also include a large reserve for losses that occurred before year-end but that we have yet to hear about. Sometimes, the insured itself does not know that a loss has occurred. (Think of an embezzlement that remains undiscovered for years.) We sometimes hear about losses from policies that covered our insured many decades ago.

A story I told you some years back illustrates our problem in accurately estimating our loss liability: A fellow was on an important business trip in Europe when his sister called to tell him that their dad had died. Her brother explained that he couldn’t get back but said to spare nothing on the funeral, whose cost he would cover. When he returned, his sister told him that the service had been beautiful and presented him with bills totaling $8,000. He paid up but a month later received a bill from the mortuary for $10. He paid that, too – and still another $10 charge he received a month later. When a third $10 invoice was sent to him the following month, the perplexed man called his sister to ask what was going on. “Oh,” she replied, “I forgot to tell you. We buried Dad in a rented suit.”

It’s a good story, and I’m reasonably certain that more suits will turn up for Berkshire. Possibly a lot more. In fact…oh better not.

Mr Buffett also goes on to make some scathing (well, insofar as he ever gets that scathing about anything) comments about financial salesmen and their proclamations about the future value of pension investments in particular. Basically, to continue the last century’s performance, the DOW would have to rise to 24m by 2100. Which, as he says, appears a trifle unlikely. See page 19 of the letter in particular.

Finally, returning to the insurance world, Buffett asks us all to note that in 2007:

…our insurance business – the cornerstone of Berkshire – had an excellent year. Part of the reason is that we have the best collection of insurance managers in the business – more about them later. But we also were very lucky in 2007, the second year in a row free of major insured catastrophes.

That party is over. It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. If the winds roar or the earth trembles, results could be far worse. So be prepared for lower insurance earnings during the next few years. [my emphasis]

Sorry, there should be more commentary here, but I just can’t really top what Buffett says.

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