Great Western Coffee Shop

A high court battle pitting rail operators against the government is due to start on Monday, with Stagecoach and others seeking tens of millions of pounds in compensation in a case that could have far-reaching implications for the privatised rail system.

Stagecoach is suing the Department for Transport after being disqualified from bidding for three rail franchises last year for failing to comply with demands on pension liabilities. It is expected to argue that the DfT mismanaged the bid process with regards to the Railway Pension Scheme, where a £7.5bn deficit has been identified by the regulator, and was attempting to shift too onerous a responsibility on to private firms.

The litigants, which also include Stagecoach’s bid partners Virgin and SNCF, and the rival firm Arriva, claim that franchising contracts, which make the operators responsible for pension liabilities, pose an unacceptable level of risk, whether through strikes or financial collapse.

Although the DfT has said there are mechanisms to mitigate the risk, operators fear they could be landed with a huge bill to close the pensions deficit, on relatively low-margin rail contracts. Existing franchises are already seen as precarious, with warnings that South Western and others may have to be renationalised, following the collapse of the Stagecoach-run Virgin Trains East Coast franchise in 2018 after the firm lost around £200m.

Any alterations to rail pensions – a final salary scheme that remains open to new entrants and is payable at age 62 – would be fraught politically, with unions threatening a national strike should the current scheme be modified. Following earlier warnings of action from the RMT, the TSSA union wrote to train operating companies last week saying: “The pensions scheme is off the table … or a national rail strike is very much on the cards.”

Should the train operators succeed in their high court action, and have their franchise bid disqualification ruled unlawful, they could be awarded compensation. The sums sought would cover bid costs and possibly loss of earnings on three affected franchises – SouthEastern, East Midlands and West Coast.

The outcome could potentially lead to the two completed franchise competitions being declared invalid, after the awards to Abellio on East Midlands and First-Trenitalia on West Coast, posing fresh headaches for the government.

DfT mandarins are expected to be cross-examined, including the highest-paid civil servant, Peter Wilkinson, the architect of recent rail franchises, who declared in 2016 that the government was ready for the battle with unions that the franchise contracts would provoke.

A Stagecoach spokesperson said: “We believe in a rail system which is focused on delivering the best services for customers, is financially sustainable and has the confidence of the public. It is disappointing that we have had to resort to legal action; however, we believe there are important issues to be determined by the court and we have a strong case.”

A DfT spokesperson said: “We do not comment on legal proceedings. However, we have total confidence in our franchise competition process and will robustly defend decisions that were taken fairly following a thorough and impartial evaluation process.”

The hearing is expected to last around four weeks in the high court, with a judgment following later this year.

Rail pensions are a growing issue for the industry and government, although the franchising system is likely to be reformed. The government-commissioned Williams review into the future of the rail industry is due to report soon, and the chairman Keith Williams has already said franchising no longer works in its current form.

Couldn't see this posted elsewhere, so......

The litigants, which also include Stagecoach’s bid partners Virgin and SNCF, and the rival firm Arriva, claim that franchising contracts, which make the operators responsible for pension liabilities, pose an unacceptable level of risk, whether through strikes or financial collapse.

https://www.justice.gov.uk/courts/court-lists/list-cause-rolls2#Techno

In the High Court of Justice - Business and Property Courts of England and Wales
Technology and Construction Court (QBD)
ROLLS BUILDING
COURT 26
Before MR JUSTICE STUART-SMITH

Monday 20 January 2020
At 2:00 PM (All Day)

TCC Trial

HT-2019-000158 Stagecoach East Midlands Trains Limited v Secretary of State for the Department of Transport

HT-2019-000160 Arriva Rail East Midlands Limited v The Secretary of State for Transport

HT-2019-000173 West Coast Trains Partnership Limited and others v Department for Transport

HT-2019-000187 Stagecoach South Eastern Trains Limited and others v Secretary of State for the Department of Transport

Arriva have agreed a settlement and have withdrawn the claim. Details to be confirmed.
https://www.bmmagazine.co.uk/news/arriva-settles-legal-action-with-government-over-railway-franchise-action-ban/

Arriva has settled legal action brought against the government for banning it from bidding for a rail franchise, the High Court has heard.

The train operator was one of several companies suing the Department for Transport for disqualifying them from bidding for three separate rail franchises because of a row over pensions.

At a hearing in London yesterday, Mr Justice Stuart-Smith was told that Arriva had reached a settlement with the transport department over its disqualification from bidding for the East Midlands franchise. In a statement, an Arriva spokesman said: “We have agreed a settlement . . . and, as a result, have withdrawn our claim.”

The case against the Department for Transport is now being brought by other companies that were blocked from bidding for the East Midlands, West Coast and South Eastern franchises. They claim that the government acted unlawfully in the way it conducted the process.

Opening the case on behalf of West Coast Trains Partnership, a joint venture between Stagecoach and Virgin Trains, Jason Coppel, QC, said that the case was the first time that “contracts for passenger rail franchises” had been challenged at the High Court. He said one reason for this was that “the rail franchise system is in crisis”.

He submitted that this was “because of risks which the [government] has required them to assume or because of over-optimistic bids, which the department should not have accepted”.

Mr Coppel said that a further reason for the present legal action was that the Railways Pension Scheme “is in crisis”. He added that the procurement process was “shrouded in secrecy to an unprecedented degree”.

The Department for Transport is resisting the legal challenge. Mr Justice Stuart-Smith is due to hear the case over four weeks.

Department for Transport officials did not tell the then transport secretary about a plan that could have prevented a costly legal dispute between rail operators and the government, the high court has heard.

Stagecoach and other rail firms are seeking tens of millions of pounds in compensation in a claim that could have far-reaching implications for a privatised rail system that lawyers acting for the firms said was “in crisis”.

The rail company Arriva settled with the government over the East Midlands franchise on the eve of the trial but the case went ahead on Monday. A court heard that the DfT was responsible for a “long series of missteps and mistakes” when it was run by Chris Grayling between July 2016 and July 2019.

Well its all finished now.  Judgement paper here (but Health Warning; its 193 pages long, so use as some bedtime reading if you wish).  The actual outcome is in the very last Paragraph No.601!  Enjoy (not): https://www.judiciary.uk/wp-content/uploads/2020/06/Judgment-V4-Redacted.pdf

When STUVING has absorbed it all, perhaps he might like to summarise it for us ;)

5. Three Claimants (who may conveniently be referred to generically as Arriva, Stagecoach and WCTP) issued proceedings challenging the decision of the Secretary of State to disqualify them and making other complaints about the procedure the Secretary of State had adopted. Their complaints may broadly be divided into two categories: (a) those relating to pensions and (b) other matters.

6. After an expedited process, the pensions issues came on for trial over three weeks in January and February 2020. Arriva settled on the Friday before trial on terms that are confidential and not known to the court. Arriva has remained an interested party in relation to the EM competition and proceedings. Its legal team (Mr Moser QC, Mr Barrett, Mr Williams and Ms McAndrew instructed by Stephenson Harwood LLP) had played a full and constructive part in the litigation until then, but they took no part in the trial hearing. This judgment is the result of the trial of pensions issues that followed.

Conclusion
601. For the reasons given in this judgment, the Claimants’ pension-based challenges fail.