Case Note: R (on the application of Risk
Management Partners Ltd) v Brent London Borough Council Risk Management Partners
Ltd v Brent London Borough Council and others
The case involved a new mutual insurance
company, The London Authorities Mutual Limited ("LAML"), established by a number
of London local authorities, of which the London Borough of Brent ("Brent") is one.
A number of London authorities, including Brent, were dissatisfied with their existing
insurance, and the possibility of establishing a mutual insurance company was investigated.
Reports to its executive indicated that there would be savings in terms of lower
premiums, which could be used elsewhere, and stated that the primary legal basis
for the proposal was s 111 of the Local Government Act 1972. External legal advice
was sought, and the executive ultimately resolved to participate in establishing
LAML as a mutual insurance company. As it was unsure whether insurance through LAML
would be in place when its extant policies expired, Brent commenced a tender process
and invited tenders, to be submitted for Combined and Miscellaneous Insurance. The
Claimant ("RMP") submitted a tender which appeared, when the contract award procedure
was abandoned, to have been the most financially advantageous of the offers received
by the Council. The claimant applied for judicial review.
The application for judicial review was allowed.
(1) A contract of insurance was not a contract for the provision or making available
of services within the meaning of s 1 of the Local Government ( Contracts ) Act
1997. Accordingly, entering into an insurance contract with a mutual insurance company
was not of itself a 'function' of a local authority for the purposes of s 111 of
the Local Government Act 1972.
(2) The taking of insurance was clearly incidental to the functions of a local authority;
the provision of insurance to others was not.
To establish or to become a member
of a mutual insurance company such as LAML for the purpose of obtaining insurance
was at best incidental to the incidental power to take insurance, and was not incidental
to the discharge of any function of a local authority. Applying settled principles,
an incidental power conferred by s 111 of the 1972 Act could not itself be a 'function'
for the purposes of that provision.
By becoming a member of LAML, Brent had become involved in the provision of insurance
rather than the taking of insurance. Considering the financial realities, there
was a fundamental difference between the creation of or participation in LAML and
normal commercial insurance. By participating in LAML, Brent had speculated on its
success as an insurance company. Further, the position of the policy holders of
the defunct Municipal Mutual Insurance was very different from that of Brent as
a participating member of LAML; members of the former did not guarantee the liabilities
of the company or any sums required by it to carry on its business. It followed
that Brent had no power under s 111 of the 1972 Act to participate in establishing
LAML, to become a participating member of that company, to make a capital contribution
to LAML or to guarantee such a payment.
(3) The financial well-being of a local authority was not the same as the economic,
social or environmental well-being of its area for the purposes of the pre-condition
to the exercise of the power under s 2 of the Local Government Act 2000.
Section 2 of the 2000 Act could not be read as authorising an authority to do whatever
it considered would be likely to promote its own economic well-being. The person
who was the object of the power was a person other than the local authority.
In those circumstances, the fact that Brent expected that its insurance would be
less costly if it participated in LAML could not, without more, justify exercising
the power under s 2 to join LAML.
However, the court did express the following opinion. A local authority could, pursuant
to s 2 of the 2000 Act, enter into a contract with a mutual insurance company under
which risk management services and insurance would be provided, and for that purpose
it could provide guarantees and otherwise provide financial assistance to the company
pursuant to s 2(4). The local authority would have to consider seriously whether
its agreement with the company would be likely to achieve one or more of the statutory
objects and decide that it would do so. In a case in which the effect of a transaction
on the well-being of the authority's area is not obvious (where the primary object
of the transaction is insurance of the liabilities of the local authority itself)
a vague and unspecific assumption, such as that in the Brent reports, that lower
premiums could result in additional resources being available for services may not
be sufficient.
We understand that Brent are appealing this decision. |
For More Information Contact:
Owen Willcox
The Projects Partnership Limited
53 Great Suffolk Street
London SE1 ODB
t 020 7620 0888
f 020 7620 0778
e info@tpplaw.co.uk
Email:
Owen
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