Supreme Court upholds Harrow appeal on the application of the Teckal exemption

11/02/11

In a judgment given by Lord Hope on 9^th February 2011, The Supreme Court has unanimously overturned the decision of the Court of Appeal in Brent London Borough Council and others (Harrow London Borough Council) (Appellant) v Risk Management Partners Limited (Respondent) [2011] UKSC 7.

In 2006 and 2007 Brent Council was one of 10 councils to form London Authorities Mutual Limited (LAML), with the aim of reducing costs of insurance by removing the profit element.  Under UK regulations a contracting authority is required to undergo a tendering process in relation to the award of certain public contracts.  Commercial insurers Risk Management Partners (RMP) claimed damages against Brent Council on the basis that they had not undergone the tendering process, which could have resulted in the award of the contract to RMP.

Brent council based their argument on the Teckal exemption, derived from case law of the European Court of Justice, which "provides that, in certain circumstances, the award of a contract by one public body to another separate legal person will not fall within the definition of ‘public contract' in the Directive, with the result that the Directive will not apply to it and EU law will not require the contract to be put out to tender."  To apply the Teckal exemption both the ‘control' and ‘function' tests must be satisfied.

Harrow Council pursued the appeal to the Supreme Court, represented by Jonathan Sumption QC, to decide the issues of principle (Brent Council instead made the decision to settle with RMP for an undisclosed sum).  The Supreme Court considered three questions of principle concerning the application of the Teckal exemption: if the exemption applies to UK Regulations at all; if it applies to contracts of insurance; and if the control exercised over the contractor, which must be similar to that exercised over a council's own department, is sufficient when exercised collectively, or if it must be individually.  The panel of 5 held that the requirements of the Teckal exemption were met on all three points.

Whilst LAML is now in liquidation this is a landmark judgment opening a gateway for councils to make savings of millions in sharing services without normal procurement constraints.

The judgment is here.