Promoting well-being - caution rules again? Brent LBC v Risk Management Partners: (the LAML case) part one

"For many years, innovative actions by local authorities have been stifled by concerns over the scope of their powers. While some legislation contains deliberate and specific constraints on local authority activities, there has been considerable uncertainty over the extent of the enabling powers that have been conferred on councils. The result has been a necessarily cautious approach to innovation and joint action, and a concomitant limitation of councils' contribution to the improvement of their communities' quality of life.

"The Government's purpose in introducing the well-being power is to reverse that traditionally cautious approach, and to encourage innovation and closer joint working between local authorities and their partners to improve communities' quality of life."

With these words, found in the guidance on the use of the so-called well-being power in section 2 of the Local Government Act 2000, the Office of the Deputy Prime Minister, as it then was, heralded a new dawn for local authorities and their lawyers – or so they thought.

Early skirmishes in the courts seemed to bear out these hopes (R (J) v Enfield LBC and R (Khan) v Oxfordshire CC). The section "has a broad purpose" and the scope of the powers "should not be narrowly construed" according to Lord Justice Dyson in the Enfield case. The power is to "do anything" which an authority considers is likely to achieve one or more of the promotion or improvement of the economic social or environmental well-being of their area. The power is to be exercised having regard to the guidance issued by the Secretary of State and the authority's sustainable community strategy. It is the power of "first resort" according to the guidance avoiding the need for laborious searching through other statutes relating to particular functions. 

But those of us who have been through the vires battles of the 1990s wondered if it would always be quite so simple and so it has been proved in the case of Brent LBC v Risk Management Partners [2009] EWCA Civ 490 where the Court of Appeal gave judgement on 9 June.

In this case a number of London boroughs set up a mutual insurance company to pool their risks. In 1903 local authorities had established the Municipal and Mutual Insurance Limited to act as an insurer for local authorities on a mutual basis but the company ceased writing new business in 1992. So there was a good precedent and the boroughs were advised that a new local authority mutual insurer would save costs and improve risk management.

But the Court of Appeal decided that the well-being power does not allow local authorities to embark on schemes which are just about reducing costs. The power is about doing something or procuring another to do something which directly affects the well-being of the area. Saving costs of itself without having the object of using the savings for an identified purpose to promote or improve well-being is not within the scope of the power. Lord Justice Pill also said that the approach to understanding the scope of the incidental powers of local authorities found in section 111 of the Local Government Act 1972 would also be relevant to understanding the breadth of the well-being power. So the ghosts of cases past around interest rate swaps, guarantees and companies are revived to live on in what was supposed to be a new world of creativity and innovation.

On a separate point the court found that Brent could not rely on the Teckal principle to award the insurance contract to LAML without going through the requirements of the EU procurement rules.

So what next for the well-being power? The clock has not gone back but local authorities and their lawyers need to keep in mind principles which served them well in the days before the well-being power. Going forward:

• lawyers have an important role to play in reviewing the content of the sustainable community strategy. Local authorities must have regard to its content when exercising the well-being power. It is the strategy which will identify the outcomes which will directly affect the well-being of their areas
• reports need particular careful drafting when use of the power is recommended to ensure that appropriate reference is made to statutory guidance and the strategy and there is a credible link between action and outcome
• it is better to rely on specific powers where they are available. The well-being power is often not the power of first resort as the statutory guidance suggests. Other powers may be easier to use
• other challenges may follow especially if local authorities attempt to move into areas which have traditionally been the turf of the private sector as they face the challenge of reducing budgets in the recession days ahead

Wragge & Co's head of public procurement Simon Taylor, (simon_taylor@wragge.com), will shortly be issuing an alert considering the public procurement implications of this case.