Risk Management Partners Ltd v Brent London Borough Council (No 1)

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLORD WALKER,LORD BROWN,LORD HOPE,LORD DYSON,LORD RODGER
Judgment Date09 February 2011
Neutral Citation[2011] UKSC 7
Date09 February 2011

[2011] UKSC 7

THE SUPREME COURT

Hilary Term

On appeal from: [2009] EWCA Civ 490

before

Lord Hope, Deputy President

Lord Rodger

Lord Walker

Lord Brown

Lord Dyson

Brent London Borough Council and Others (Harrow London Borough Council)
(Appellant)
and
Risk Management Partners Limited
(Respondent)

Appellant

Jonathan Sumption QC

Rhodri Williams QC

(Instructed by Weightmans)

Respondent

John Howell QC

Javan Herberg

James Segan

(Instructed by Sedgwick Detert Moran & Arnold LLP)

Heard on 8, 9 and 13 December 2010

LORD HOPE
1

In 2006 and 2007 a number of London local authorities entered into arrangements for mutual insurance against various classes of risk, including property, liability and terrorism. Mutual insurance occurs where a group of similarly placed persons or organisations agree to insure each other against risks in which they all have an interest. It relieves its members of the profit element which is built into an ordinary commercial premium. The criteria for membership may also reduce the level of risk, and thus the overall cost of cover, in comparison with the level of premium that is needed where risks are accepted from a large number of policy holders, some of whom represent a greater risk than others. The aim of the arrangements that the London local authorities entered into was to reduce the cost of premiums to its members and to raise the standard of risk management. In pursuing these objectives they were acting solely in the public interest.

2

The insurance was to be provided by London Authorities Mutual Ltd ("LAML"), a company limited by guarantee. One of the local authorities involved in these arrangements was the London Borough of Brent ("Brent"). On 9 October 2006 Brent's Executive gave approval in principle to Brent's participation in LAML, subject to a report from officers once they had fully explored the option and taken legal advice. On 13 November 2006 the Executive was told that the cost of the insurance premiums with LAML would be at least 15% less than the premiums Brent was paying an insurance company for its insurance, and that this saving could be used in its budget to fund priority growth or to reduce overall expenditure and hence the level of council tax. Having also been advised that Brent had power to enter into the arrangements, the Executive resolved to give approval to its participation in capitalising LAML.

3

In December 2006 Brent decided to invite tenders for combined and miscellaneous insurance for the period commencing 1 April 2007. The invitation, which was divided into seven lots and was issued in accordance with the Public Contracts Regulations 2006 (2006 SI/5) ("the 2006 Regulations"), was extended to, among others, Risk Management Partners Ltd ("RMP"). RMP was informed that the invitation was being issued because it was not clear whether LAML would be a viable option until January 2007, by which date it would be too late to seek tenders. This invitation was abandoned because the brokers had used incorrect documentation. Brent became a member of LAML, as did nine other of the 32 London boroughs including Harrow London Borough Council ("Harrow"), by subscribing to its Memorandum and Articles of Association on 18 January 2007. In February 2007 Brent again invited tenders in accordance with the 2006 Regulations for the same period, to be submitted by 23 February. RMP submitted a tender. LAML did not do so. It took no part in the public procurement process.

4

On 16 March 2007, after LAML had been authorised to carry out insurance business by the Financial Services Authority, Brent paid to LAML the sum of £160,500 as a capitalisation amount. On 27 March 2007 it entered into a guarantee by which it undertook to pay sums on demand to LAML up to an aggregate amount of £609,500. On the same date Brent informed RMP that it had abandoned the contract award procedure that was being carried out in accordance with the 2006 Regulations for six of the seven lots, as it was proposing to award the contract to LAML. On 30 March 2007 LAML submitted an offer to insure Brent in respect of terrorism, liability, property and contents for 2007–2008. Brent accepted this offer and, on payment of premiums of £520,328.14, it became a participating member of LAML. On 6 April 2007 it issued a press notice announcing that LAML had opened for business. The court was informed that the company is now in provisional liquidation.

5

The business of LAML was restricted to the provision of insurance to participating members or persons or bodies sponsored by them, referred to in the Memorandum of Association as affiliates. It was funded by paid and guaranteed contributions from participating members, by premiums, by supplementary calls on participating members and by reinsurance placed in the open market. The management of its affairs was vested in a Board which comprised a majority of directors appointed by participating members. There had to be at least two independent directors. On 27 March 2007 LAML entered into a management agreement with Charles Taylor & Co Ltd to perform for it the various management services described in the agreement.

6

RMP decided to challenge these arrangements. It claimed that, as a commercial insurer, it might have obtained the insurance business that was placed with LAML had the tender process under the 2006 Regulations not been discontinued. Its challenge took two distinct forms. First, RMP took proceedings in the administrative court seeking judicial review of Brent's decision to participate in LAML on the ground that it was beyond its statutory powers. Harrow and LAML participated in those proceedings as interested parties. Secondly, in separate proceedings in the Queen's Bench Division, RMP claimed damages against Brent on the basis that by entering into insurance contracts under the mutual insurance scheme it had acted in breach of the 2006 Regulations.

7

By a judgment delivered on 22 April 2008 Stanley Burnton LJ declared that Brent had no power under either section 111 of the Local Government Act 1972 or section 2 of the Local Government Act 2000 to participate in establishing LAML or become a participating member of that company, or to make payment of the capitalisation amount or to grant a guarantee to the company: [2008] EWHC 692 (Admin); [2008] LGR 331. By a further judgment delivered on 16 May 2008 Stanley Burnton LJ held that Brent had acted in breach of the 2006 Regulations when it abandoned the tender process and awarded the insurance contracts to LAML: [2008] EWHC 1094 (Admin); [2008] LGR 429. His judgment in that action was confined to the issue of liability. He reserved issues of causation and quantum of damages. He granted permission to appeal in both cases. By a single judgment the Court of Appeal (Pill, Moore-Bick and Hughes LJJ) affirmed both decisions and dismissed the appeals: [2009] EWCA Civ 490; [2010] PTSR 349.

8

The scope of the dispute has narrowed considerably since the decision of the Court of Appeal. There have been two significant developments. First, on 12 November 2009 Royal Assent was given to the Local Democracy, Economic Development and Construction Act 2009 ("the 2009 Act"). Section 34 of the 2009 Act gives power to local authorities to enter into mutual insurance arrangements of the kind in issue in this case. It also permits the benefit of such arrangements to be extended to other persons to be specified by regulation. That section is not yet in force, but it is expected to be brought into force shortly. This change in the law has largely superseded any question as to the statutory power of local authorities to enter into such arrangements. Secondly, the proceedings between Brent and RMP have been settled. This has resulted in Brent being given leave to withdraw its appeal to this court. In the result the appeal is now confined to the question of principle arising in the damages action only, in which Harrow still has an interest. This is whether, by entering into the mutual insurance arrangements with LAML, Harrow was acting in breach of the 2006 Regulations.

9

In their written case Counsel for Harrow explain why, notwithstanding the enactment of section 34 of the 2009 Act, this question of principle continues to be of considerable importance. Until it ceased trading in 1992, most insurance provided to local authorities in the United Kingdom was provided by Municipal Mutual Insurance Ltd. As its name indicates, that company was a mutual insurer. It was created on the initiative of a number of local authorities and had been in existence since 1903. Mutual insurance is potentially a source of significant financial savings for local authorities, and it provides other advantages which are not readily available in the commercial insurance market. The effect of the decisions of Stanley Burton LJ and the Court of Appeal, if they are allowed to stand, is that local authorities are likely to find it difficult in practice to avail themselves of their expanded powers under section 34 of the Act of 2009 because of the requirement that they must comply with the 2006 Regulations. This is a source of real concern not only to Harrow but also to other local authorities insured by LAML or who are interested in obtaining mutual insurance on a similar basis. There are currently six other actions for damages pending in the High Court against local authorities who contracted with LAML. They have been stayed pending this appeal.

The Public Contracts Regulations 2006
10

The 2006 Regulations were made under section 2(2) of the European Communities Act 1972. They give effect to Council Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts ( OJ 2004 L134, p 114). The broad object of Directive 2004/18/EC, and of the Regulations that give effect to it, is to ensure that...

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