Brent and Harrow head to Supreme Court over LAML case

The Supreme Court has given the London boroughs of Brent and Harrow permission to appeal in the high-profile London Authorities Mutual Limited (LAML) case.

The appeal has been listed for a hearing in December 2010. Permission to appeal had initially been refused by the Court of Appeal.

Confirming the move, a spokeswoman for Brent said the two councils "will be discussing the appropriate way forward in respect of this matter."

The case relates to the decision by ten London authorities to set up LAML in response to a perceived lack of competition in the local authority insurance market. The councils estimated they could save between 15-20% on their premiums and felt the arrangements would improve their risk management.

The scheme went live on 1 April 2007, with Brent and Harrow placing their insurances.

Risk Management Partners, a commercial insurer, then took Brent to court over whether it had the powers to enter into the arrangements and whether it should have conducted a competition in accordance with EU procurement rules

The two councils – Harrow was an interested party – lost in both the High Court and the Court of Appeal.

The central issue in respect of Brent’s power to enter into the arrangements was whether it could rely on the well-being powers contained in s. 2 of the Local Government Act 2000.

This gives local authorities power to establish entities, but government guidance suggested that they could only do so provided “they are satisfied that the formation of, or participation in, a particular company is likely to achieve the promotion or improvement of the economies, social or environmental well-being of the authority’s area”.

The Court of Appeal doubted whether participating in an insurance company in a bid to obtain cheaper premiums was covered by s. 2. The court also ruled that the incidental power contained in s. 111 of the Local Government Act 1972 could not be relied on either.

The judges separately found that Brent had failed to satisfy one of the two conditions required to take advantage of the Teckal exception, which allows an authority in certain circumstances to award a contract without competition.

According to the Court of Appeal, the council did not have sufficient control over LAML, which had – for regulatory reasons – a significant amount of operational flexibility. The mutual's management had extensive delegated powers as well.

In the aftermath of the Court of Appeal judgment the government gave councils new legislative powers to set up mutual insurance companies. These are contained in the Local Democracy, Economic Development and Construction Act 2009.

However, a spokesperson for Brent Council said that it was pursuing the appeal "as there are a lot of issues that reach far wider than the insurance matter".