London Authorities Mutual is dealt a blow by High Court but remains positive over future.

The landmark case that challenged the London Authorities Mutual (LAML) has undoubtedly thrown a spanner in to the works of the mutual.

The company, which has only been in business for just over a year was the first local government insurance company to be set up in more than a century.

The mutual’s hierarchy admitted surprise at the court's decision but it insists that its future is still bright.

In a statement, Nathan Elvery, chairman of LAML and director of finance and resources at Croydon council, said the decision contradicted the legal advice it had taken before the creation of the mutual and more recently as more local authorities have joined the mutual.

The statement added; “In April, the High Court gave the all-clear for local authorities to join LAML, providing they use powers pursuant to the well-being powers under section 2 of the Local Government Act 2000.

“Brent LBC had based its decision on section 111 of the Local Government Act 1972. This earlier decision ruled in favour of LAML – throwing out claims from the private sector that councils are acting beyond their designated powers – as long as local authorities base their decision on section 2 of the 2000 Act.”

Councils wishing to join the mutual in the future will have to do so under section 2 of the Local Government Act 2000, the so-called “well-being” power.

Councils will have to prove that they are not joining the mutual to save money on their insurance as well as show that they are promoting the well-being of the area.

However, councils will not be able to join via section 111 of the Local Government Act 1972. During the High Court case, the judge, Lord Justice Burnton, found that Brent had “speculated on its success as an insurance company” and held that the provision of insurance to others was “not incidental to the discharge of any function of a local authority” and consequently fell outside the scope of Section 111.

All councils must now adhere strictly to the tender framework following Risk Managament Partners, a company providing insurance services to local authorities, decision to take action after accusing Brent of side-stepping EU-regulated procurement procedures and awarding its insurance services direct to the LAML.

Jolyon Patten, partner at national law firm Halliwells LLP, who acted for RMP, said: “The judgment is a tremendous success for RMP and will be a relief to all those providing insurance services to the local government sector.

“LAML has never explained how its operating as a monopoly could benefit authorities.

“These regulations are there precisely to ensure transparency, fairness and competition in public procurement, and this decision underlines the fundamental importance of those principles to the local government sector.”

The LAML says that the ruling will not stop its progression and insists that more councils are queuing up to join the mutual. However, with the private sector now on a level playing field, councils will have significant decisions to make before choosing where to place their insurance.