Update: local government

Local authorities are concerned about the amount they have to pay to commercial insurers by way of premiums. Following extensive research, a number of London local authorities established the London Authorities Mutual Limited (LAML) '“ a mutual insurance company '“ and became members of LAML. They were required to pay a capital contribution and give an undertaking to pay on demand sums up to a specified total. The participating authorities expected to produce average savings in premiums of 15 to 20 per cent per annum.

Risk Management Partners Ltd is a commercial provider of insurance which seeks business from local authorities. It contended that Brent LBC '“ one of the LAML members '“ did not have the power to become a member of LAML or to make payments or enter into contributions to LAML. They further sought damages for breach of the Public Contracts Regulations 2006, which govern the process whereby public bodies awarded certain contracts only after fair competition and to the person making the most economically advantageous offer.

The cases came on before Stanley Burton LJ (as he is now) and, in two decisions '“ [2008] EWHC 692 (Admin) and [2008] EWHC 1094 (Admin) '“ he held that Brent LBC had no power to become a member of LAML or to make payments to LAML. He further gave judgment for Risk Management Partners Ltd in respect of their claims under the 2006 regulations (see Solicitors Journal 152/29).

Permission to appeal was granted by Stanley Burton LJ in each case and the Court of Appeal heard the matter as Brent LBC v Risk Management Partners Ltd, London Authorities Mutual Limited and another (Interested Parties) [2009] EWCA Civ 490 and dismissed both appeals.

The 'well-being power'

Brent LBC, supported by Harrow LBC and LAML (as interested parties), contended that the power to participate in LAML was found in section 2 of the Local Government Act 2002 and section 111 of the Local Government Act 1972.

Section 2 of the 2000 Act is commonly known as the 'well-being power' and provides that a local authority has power to do anything which they consider is likely to achieve the promotion or improvement of the economic, social or environmental well-being of their area. It includes a power to incur expenditure and enter into arrangements.

Brent LBC argued that section 2 was drafted in the widest possible terms. The premiums saved by the existence of LAML could be used to improve the economic, social or environmental well-being of their area. The guidance issued by the secretary of state, while not having the status of law, clearly envisaged local authorities using the section 2 power in a wide variety of situations, including to permit the formation of companies.

In addition, it was argued that section 111 of the 1972 Act was relevant. It provides that a local authority has power to do anything which is calculated to facilitate or is conducive or incidental to the discharge of any of its functions. Given that the functions of the authority included the maintenance of highways and the provision of education, it was prudent that those activities be insured.

As regards the public procurement, Brent LBC did not contend that it had complied with the 2006 regulations but argued that the decision of the European Court of Justice in Teckal Srl v Commune di Viano & Azienda Gas '“ Acqua Consorziale (AGAC) di Reggio Emilia [1999] ECR 1-8121 showed that a public body which contracted with an organisation which was effectively controlled by that public body was not required to comply with the 2006 regulations.

Risk Management Partners Ltd contended that the section 2 power was a power to do things, not to improve the local authority's financial position, even if the savings could then be used to improve the economic, social or environmental well-being of their area.

A step too far

As regards section111 of the 1972 Act, it was said that the creation and funding of LAML was 'incidental to the incidental'. While obtaining insurance might be incidental, establishing and funding a company for that purpose was a step too far.

As regards the public procurement issue, it was argued that Brent LBC did not, in fact, exercise a sufficient degree of control over LAML and, in any event, the Teckal exemption was not part of the law of England and Wales. The 2006 regulations had, it was argued, gone further than the original directive and had closed the loophole left in the directive.

On the vires question, the Court of Appeal accepted that the power to 'promote the well-being' was a general one with a broad meaning. It was, however, difficult to see how a complex arrangement which was designed to save money could be said to promote the well-being of an area. The promotion of well-being of the local community required substantive action.

The power under section 2 of the 2000 Act had to be seen in the context of section 111 of the 1972 Act. It was argued that Parliament had not intended, with section 2, to give a local authority carte blanche to make arrangements as it saw fit simply because there was, or may be, some financial advantage. Merely because the authority was able to save money did not mean that there would be any improvement in the well-being of their area.

While the establishment of a company could come within the scope of section 2, the participating in an insurance company with a view to seeking cheaper insurance premiums did not. The power under section 2 was not a power to enter into complex and speculative arrangements in an attempt to save money.

LAML was not apt to be caught by section 111 either. It was not merely a question of Brent LBC obtaining insurance. Rather, LAML was a commercial venture which exposed the local authority to a degree of risk. That was not incidental to any of the functions of a local authority.

It was common ground that Brent LBC had not complied with the 2006 regulations. The question was whether that non-compliance was permitted under the Teckal exemption. The Court of Appeal found that the exemption was not available on the facts of the case. Brent LBC did not have sufficient control over LAML to bring the exemption into play although, as a matter of law, such an exemption did exist.

This is a very disappointing decision for local authorities and, according to Nathan Elvery, chairman of LAML, takes the law 'back to the late eighties'¦ there will be enhanced nervousness about the extent of local authorities' powers '“ the very thing that the introduction of well-being powers were intended to resolve' (Local Government Chronicle, June 9, 2009).

That may be rather pessimistic. The upshot of the decision is to remind local authorities of the need to identify how the economic, social or environmental well-being of their area will be improved by any particular act. The decision does not prohibit a local authority from, for example, establishing or participating in a company, so long as the focus is on improving the well-being of the local authority's area.

Reintroducing homecare charges

R (Domb and others) v LB Hammersmith and Fulham [2009] EWCA Civ 941 concerned a decision by LB Hammersmith and Fulham to extend the scope of the charges it imposed for non-residential homecare services.

Between 2000 and 2006, LB Hammersmith and Fulham charged for homecare services. The policy was abandoned in 2006 by the then Labour administration. The Conservatives won control of the council in May 2006. Their election manifesto had included a promise of not charging for non-residential homecare services. Because of financial constraints, this proved difficult to fulfil. In addition, when the 2008/09 budget was being considered, a decision was taken to reduce council tax by three per cent. In January 2008, the council consulted on '“ and subsequently reintroduced '“ a homecare charging scheme.

The applicants were disabled persons in receipt of non-residential homecare services. They sought judicial review of the decision to reintroduce homecare charges.

A number of grounds of challenge were raised of which the most significant was the contention that the authority were in breach of the obligation under section 49A of the Disability Discrimination Act 1995 '“ to have due regard to the need to promote equality of opportunity between disabled persons and other persons.

It was said that, by taking a decision to reduce the council tax by three per cent, the council had failed to have due regard to this duty and had artificially narrowed their choices. Non-residential homecare services did not (or may not) have had to be charged for if the council tax reduction was not pursued. The applicants were supported in this regard by the Equality and Human Rights Commission, which intervened in the case.

The Court of Appeal accepted that this argument was a 'big point' but did not feel able to investigate it. Rix LJ, giving the main judgment, noted that there had been no challenge to the budget when it was announced and remarked that there was no evidence against which the court could test the budgetary decisions (i.e. whether or not the budget had to be balanced).

Sedley LJ was more sympathetic. While he too felt that the appeal had to fail, he did regard it as a 'highly debatable premise' that the decision to achieve a three per cent cut in the council tax had to be implemented. Once that decision had been made, it was inevitable that there would have to be changes to the non-resident care services, either by reintroducing charging or raising the eligibility threshold. There was a 'major question of public law: can a local authority, by tying its own fiscal hands for electoral ends, rely on the consequent budgetary deficit to modify its performance of its statutory duties'? The question was, however, not before the court as there had been no challenge to the budgetary decisions when they had been made. Sir Anthony Clarke, as he was then, expressed similar misgivings to those expressed by Sedley LJ.

With both Sedley LJ and Sir Anthony Clarke showing such interest in the issue, it can only be a matter of time before a case on the point comes back before the court. It will be fascinating to see what approach the court takes. Clearly, if a decision has been taken to reduce council tax in any given year, it is likely to result in a need to reduce spending and cut services. Are political decisions of that nature justifiable? Traditionally, the courts have been very reluctant to investigate questions of funding priorities. Perhaps this decision marks the beginning of a new era.