Hampshire Fire and Rescue Authority Item 12

16 September 2009

Fire and Rescue Authorities Mutual Limited (FRAML): winding-up of the company

Report by the Clerk

Contact: Kevin Gardner, Tel: 01962 847381, email: [email protected]

1

Summary

1.1

The winding-up of FRAML involves the Authority agreeing to indemnify FRAML's managing agents against any future liabilities. It is in the participating member authorities' interests that the deed of indemnity is fair, appropriate and doesn't leave the authorities unreasonably exposed to any residual risks. Although FRAML is to be wound-up because of local authorities' lack of appropriate powers to legally participate in them, there is a determination that the Government should continue to be lobbied for appropriate powers to be introduced.

2

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2.1

That the Clerk, in consultation with the Chairman, be given delegated authority to sign the deed of indemnity with Charles Taylor Consulting plc when a form of wording acceptable to CTC and all nine participating member fire and rescue authorities of the Fire and Rescue Authorities Mutual Limited (FRAML) has been agreed.

2.2

That that the Chief Officer, in consultation with the Clerk and Treasurer, should prepare a response to the Government's consultation paper, "Strengthening Local Democracy" for the Chairman to send on behalf of the Authority.

3

Winding-up arrangements: indemnifying the managing agents

3.1

At its meeting on 24 June 2009 the Authority was made aware that, as a consequence of the Court of Appeal's judgement in respect of R (Risk Management Partners) v Brent LBC and others, the Fire and Rescue Authorities Mutual Limited (FRAML) would probably be wound up as a fully authorised and capitalised insurance entity. The managing agents of FRAML, Charles Taylor Consulting plc (CTC) have since been working on the detailed winding-up arrangements. This has included CTC issuing a deed of indemnity which it has requested all participating member authorities to sign.

3.2

As currently drafted this would effectively indemnify CTC against any costs, claims, expenses, liabilities, damages, proceedings and claims arising out of its management of FRAML. Several of the member authorities are concerned about agreeing to such a blanket indemnity which does not exclude circumstances where CTC may have been negligent or is in default in the provision of the services it has provided.

3.3

As a result there have been several suggested amendments to the proposed wording of the indemnity by legal advisers to the member authorities. At the time of preparing this report the final wording has not been agreed. It is therefore recommended that the Clerk, in consultation with the Chairman, be given delegated authority to sign the indemnity when a form of wording - acceptable to CTC and all nine participating member fire and rescue authorities - has been agreed.

4

Lobbying for powers to operate an insurance mutuals

4.1

At its last meeting the Authority also resolved that the Chairman writes to the Secretary of State of Communities and Local Government urging him to put in place, as soon as practically possible, legal powers that will enable local authorities to participate in the operation of an insurance mutual.

4.2

Attached as Appendix A is a copy of the letter that was sent. The Fire Minister, Shahid Malik, has replied (letter reproduced as Appendix B) on behalf of the Secretary of State acknowledging our concerns. He urges the Authority to respond to the Government's consultation document `Strengthening Local Democracy' which includes questions on whether local authorities should be allowed to operate insurance mutuals, An immediate concern is that there is no specific mention of whether such powers, if granted, should extend to Combined Fire Authorities. It is therefore recommended that the Chief Officer - together with the Clerk and Treasurer - should prepare a suitably robust response for the Chairman to send on behalf of the Authority.

5

Supporting our corporate aims and objectives

5.1

The cost of providing insurance cover was, and still is, a potentially significant expenditure item for making ongoing cashable savings through collaboration with other fire and rescue authorities.

6

Risk analysis

6.1

The only issues that remain outstanding are the distribution of the assets of the mutual to the subscribing "members" on a basis that has already been agreed with participating authorities, and the winding up of the company in an orderly fashion. As CTC is operating without supervision of a Board of Directors, CTC is asking each FRA to sign a deed of indemnity which indemnifies them on a full indemnity basis against all claims etc arising out of or in connection with any act or omission by them under the management agreement, or in connection with the management or administration of FRAML and the implementation of any scheme of operations, run off or insolvency proceeding in connection with FRAML.

6.2

In practice, claims are only likely to be made against CTC by any body who suffers financially as a result of their actions in winding up the company i.e. the participating fire and rescue authorities. This is unlikely to happen if those same participating authorities would then be obliged to pick up any such liability under the indemnity given. The risk of liability arising under the indemnity is therefore assessed as being very low. However, steps have been taken, and will continue to be taken, to ensure that the final wording of the indemnity offers maximum protection to the authorities e.g. by excluding liability due to CTC's own negligence or default.

6.3

Discussions are also continuing with a view to establishing that the giving of the indemnity sought is within the authorities' legal powers, particularly in the light of the Court's decision in the Brent case and other relevant case law.

6.4

FRAML clearly delivered substantial savings for its own members, and the Audit Commission (in its report `Rising to the Challenge') acknowledged that FRAML's very existence meant that other fire and rescue authorities received much better deals through the conventional marketplace as a result. Without the continuing competition that local authority run insurance mutuals can provide, there is a real possibility that the costs of providing insurance could return to previous higher levels.

7

People Impact Assessment

7.1

The proposals in this report are considered compatible with the provisions of the European Convention on Human Rights, the Human Rights Act 1998, and the Race Relations (Amendment) Act 2000.

8

Resource implications

8.1

Once the indemnity issue has been resolved, the Authority can expect to receive the return of its capital contribution to FRAML - about £282,000; and a share of any remaining operating surplus - up to £70,000.

9

Background papers

9.1

The following documents disclose the facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of the report:

None

Note: The list excludes: (1) published works; and (2) documents that disclose exempt or confidential information defined in the Act.