Council clash

Litigation can be a scary business for clients, particularly when a co-appellant decides to throw in the towel and settle.

Supreme Court Justice Lord Hope
Supreme Court Justice Lord Hope

This was the predicament Harrow London Borough Council (LBC) found itself in just months before it was due to go to the Supreme Court to challenge a Court of Appeal (CoA) decision on public sector procurement policies.

Brent LBC pulled out of the action prior to the December hearing, settling the case with the respondent insurer Risk Management Partners (RMP) under terms that were kept confidential.

At the heart of the dispute was whether 10 London local authorities, led by Brent LBC, could establish their own mutual insurance company, London Mutual Authority (LAML), to self-insure and help drive down insurance costs.

Claimant RMP argued that Brent had put the contract out to tender in accordance with the Public Contracts Regulations 2006, but then withdrew from the tender process in favour of opting into the mutual.

Consequently, RMP launched judicial review proceedings against the council,  arguing that it had acted ultra vires – outside its remit – in establishing LAML. In May 2008 the court upheld RMP’s case.

At this point Harrow LBC and LAML were named as second and third defendants, working separately on the case.

Brent LBC then instructed 11KBW’s Nigel Giffin QC to take the case to the Court of Appeal, this time arguing that it was entitled to act outside its remit because the Teckal exemption enabled it to do so.

The Teckal exemption, created by EU case law, allows a public authority to award contracts to another entity without having to meet EU regulations on procurement. The crux of the matter to be considered by the court was how the Teckal exemption should be interpreted by domestic law.

As more local authorities move to pool their assets as budgets are slashed, the outcome of the CoA trial was eagerly anticipated. When it refused the appeal, the CoA struck a blow to local government by finding that Brent LBC had not met the prerequisite criteria needed for the Teckal exemption to apply. Specifically, Brent LBC could not demonstrate that it had sufficient control over LAML.

The defendants were given leave to appeal and Harrow LBC and LAML joined forces, with Weightmans continuing its fight.

Then, just months before the appeal was due to be heard by the Supreme Court, Brent LBC settled claims against it by RMP. Meanwhile, Weightmans had managed to secure Supreme Court whiz Jonathan Sumption QC to lead the advocacy for Harrow LBC and LAML.

Today’s decision to allow the appeal was handed down by Supreme Court Justice Lord Hope, who presided over a panel of five. It is a dramatic reversal of the CoA decision and gives the leading and determinative case authority in England and Wales on the obligations upon public sector bodies to put out to procurement contracts for services and works.

The EU regulations on procurement strategies were not intended, the judgment said, to protect he commercial market. The judgment added: “The purpose of the directive is simply to ensure that, if public authorities do decide to obtain the services which they need from outside bodies, proper procedures are followed to ensure that potential providers of the services have an opportunity to compete for the work.”

Brent LBC will no doubt be wondering whether it was right to pull back from the action, especially when the court is asked to decide on costs and Harrow LBC presses for an award its favour for all appeals it pursued.

With ever more cases reaching the courts rather than settling this is a trend we should expect to see more of.