The Supreme Court has issued its long awaited decision in the LAML case.

Wednesday 9th February 2011

Supreme Court Decision in Brent London Borough Council and others (Harrow London Borough Council) v Risk Management Partners Limited [2011] UKSC 7

The Supreme Court has today issued its long awaited decision in the LAML case.  The original litigation concerned the vires and procurement law implications of the establishment of the LAML mutual insurance company by a group of London Borough Councils.  Following the Court of Appeal's rejection of the case put by Brent London Borough Council ("Brent"), the original defendant, Brent settled the proceedings. However Harrow London Borough Council took the case to the Supreme Court as an interested party.

Several elements of the Court of Appeal's decision were not the focus of the appeal, and the rulings relating to whether the local authorities have the power to establish LAML remain good law.  These rulings related to the inability of the local authorities to use Section 2 of the Local Government Act 2000 (the well-being power) or Section 111 of the Local Government Act 1972 (incidental powers) to create LAML.  This part of the case has since become largely irrelevant due to the introduction of a specific power for local authorities to enter into mutual insurance arrangements under Section 34 of the Local Democracy, Economic Development and Construction Act 2009 and the proposals to introduce a general power of competence in the Localism Bill.

In relation to the procurement element of the case, the Supreme Court has unanimously allowed the appeal.  The local authorities were entitled to rely on the Teckal exemption to receive insurance services from LAML.  The Supreme Court does not consider that any reference to the European Court of Justice is needed to clarify the matter any further.

The Supreme Court has made it clear in its judgment the following:

1.    The Teckal exemption does apply within the UK's domestic procurement regime, the Public Contracts Regulations 2006 (as amended) (the "Regulations").  This does not differ from the Court of Appeal's decision; however the Supreme Court is much stronger in its view that there is no argument that the EU Directives differ from the Regulations where the Teckal exemption is concerned;

2.    That the first limb of the Teckal exemption (control) can be satisfied in a case where there is collective control of a local authority company by several local authorities.  This again does not differ from the Court of Appeal's decision;

3.    That the control held by the local authorities in relation to the specifics of the LAML arrangements did constitute the level of control needed to satisfy the first limb of the exemption.  This is where the Supreme Court has overturned the decision of the Court of Appeal, and it makes very interesting reading. 

The Court of Appeal had considered that several features of the relationship between the local authorities and LAML failed to satisfy the first Teckal limb. 

The Supreme Court, however, seems to have had no difficultly with these features.  It was not concerned that the local authority would not be involved in the decision making about its own insurance claims.  It was also not concerned that most of the day-to-day running of LAML would be carried out by the Board with directors that owed their duty of care to the company itself rather than the local authorities.

The fact that the local authorities held all the shares, had all the votes at general meetings and also had a power to direct the Board by special resolution with a 75% majority was considered to override these concerns.  The Supreme Court also considered it key that the local authorities had the power over the strategic direction and policy management of LAML; and

4.    That the second limb (that the entity carries out the essential part of its activities with the local authorities that control it) was satisfied in the LAML case. 

The judgment is important for local authorities looking to increase their ability to work collaboratively and drive efficiencies.  It provides a clear statement that, provided that there are sufficient levels of ultimate control over that entity by the authorities seeking to use it, that there is no private sector involvement and that the entity exists to provide its functions to the local authorities controlling it (it is not market orientated), the Regulations should not cause those local authorities concern. 

Local authorities contemplating these arrangements will no doubt take comfort from Lord Rodger's words that:

"To hold that the Regulations did apply in these circumstances would involve saying that the legislature intended to attach weight to competition law objectives in an area where they have no legitimate application.  This would, in turn, involve in appropriate interference with local authorities' right to co-operate in discharging their public functions."

If you would like to discuss these issues please contact Elizabeth Gibson on e.gibson@ashfords.co.uk , or by calling her on 01392 333802