UK: Municipal Insurance And The Creation Of Insurance Mutuals - The Requirements For Open Tender

Last Updated: 17 February 2011
Article by Anthony Menzies

Harrow London Borough Council v. Risk Management Partners Ltd [2011]1
Supreme Court, 9 February 2011

Until it ceased trading in 1992, most insurance provided to local authorities in the UK was underwritten by Municipal Mutual Insurance Ltd (MMI). As the name suggests, MMI was a mutual insurance company, created by and for its member authorities.

Following the demise of MMI, local authorities were required to look to the private insurance market for coverage, until 2006 when several London authorities resolved to create and participate in a new mutual, to be known as London Authorities Mutual Ltd (LAML)2. By then, however, matters had been complicated by the introduction of the Public Contracts Regulations 2006 ("the 2006 Regulations"), giving effect to EU Council Directive 2004/18/EC ("the Directive"). In short, it is a requirement under the Directive and the 2006 Regulations that, where an authority seeks offers to undertake a public contract, it must put the contract out to tender and award it to the lowest price, or to the tender "most economically advantageous" from the point of view of the authority.

The parties to this Supreme Court appeal were the London Borough of Harrow ("Harrow"), being one of those participating in LAML, and a private insurer, Risk Management Partners Ltd ("RMP") as underwriting agents on behalf of Chartis Insurance. RMP contended that, by placing its insurance risk with LAML, Harrow was in breach of its obligations under the 2006 Regulations, in that it had failed to put the insurance contract out to competitive tender. Accordingly, RMP pursued a claim for damages.

For its part, Harrow relied upon the exemption considered in the case of Teckal Srl v. Comune di Viano (Case C-107/98) [1999] ECR l-8121. That case pre-dated the current rules as set out in the Directive, but it considered the definition of a "public contract" under the prior regime. The case concerned a consortium of Italian municipalities that had collectively established a company to provide them with environmental and energy services, without inviting tenders from private providers. The court concluded that a "public contract" meant one between a public authority "and an entity formally distinct from it and independent of it in regard to decision-making". Conversely, relationships with an entity over which the authority exercised control would be viewed in the same as internal relationships within its own departments, and hence not subject to the tender regime.

Among the issues that the Supreme Court was required to consider on Harrow's appeal were the following:


Did the Teckal decision apply to the 2006 Regulations?


If so, was the exemption applicable to contracts of insurance?


If so, to satisfy the Teckal "control" test, was it necessary that the authority exercised the same degree of control as that over its own departments, or was it sufficient that it did so collectively with other authorities?


If collective control was sufficient, was that requirement satisfied in the present case?

The Supreme Court found as follows:


The Teckal exemption applied to the Regulations. The broad object of both the Directive and the 2006 Regulations was to ensure that public bodies awarded certain contracts above a minimum value only after fair competition and to the person offering the lowest price or making the most economically advantageous offer. The Teckal exemption was to be read into the Directive because it would be undesirable for contracts of that kind to be open to public procurement. The absence of any reference to the Teckal exemption in the 2006 Regulations was of no more significance than the absence of any reference to it in the Directive that was being transposed.


The Teckal exemption was capable of applying to insurance.


Individual control was not necessary for the Teckal exemption to apply. No injury would be caused to the policy objective of the Directive if public authorities were allowed to participate in the collective procurement of goods and services, so long as no private interests were involved and they were acting solely in the public interest in the carrying out of their public service tasks. The decisive influence that a public authority must exercise over the contractor could be present even if it were exercisable only in conjunction with other public authorities.3 Therefore, collective control by the local authorities was enough.


On the facts, the required collective control over strategic objectives and significant decisions was with the participating authorities at all times. This satisfied the Teckal control test.

Result: Judgment for the authority, Harrow.


1 2011] EWSC 7

2 Under separate proceedings in the Administrative Court it was subsequently determined (under the law then in force) that the authorities lacked the power to create the company. See Brent London Borough Council v. Risk Management Partners [2009] EWCA Civ 490. LAML was placed in provisional liquidation on 8 October 2009.

3 Carbotermo SpA v Comune di Busto Arsizio (C-340/04) (2006) ECR I-4137 ECJ (1st Chamber), Asociacion Nacional de Empresas Forestales (ASEMFO) v Transformacion Agraria SA (TRAGSA) (C-295/05) (2007) ECR I-2999 ECJ and Coditel Brabant SA v Commune d'Uccle (C-324/07) (2008) ECR I-8457 ECJ (3rd Chamber) considered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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