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England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Certain Bus Operating Companies In the Stagecoach Group & Ors v Secretary of State for Transport & Anor  EWHC 223 (Admin) (16 February 2010)
Cite as:  3 CMLR 8,  EWHC 223 (Admin),  Eu LR 505
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| CERTAIN BUS OPERATING COMPANIES IN THE STAGECOACH GROUP (1)
CERTAIN BUS OPERATING COMPANIES IN THE GO-AHEAD GROUP (2)
CERTAIN CONCESSION AUTHORITIES (3)
|- and -
|THE SECRETARY OF STATE FOR TRANSPORT
CERTAIN TRAVEL CONCESSION AUTHORITIES
Mr Richard Gordon QC & Mr Toby Sasse (instructed by Backhouse Jones) for the Claimants (2)
Mr Jonathan Swift, Ms Jessica Simor & Ms Eleni Mitrophanous (instructed by the Secretary of State for Transport) for the Defendants
Mr Timothy Straker QC & Mr Charles Bourne (instructed by Finers Stephens Innocent) for the Interested Parties
Hearing dates: 17-20 November 2009
Crown Copyright ©
Mr Justice Irwin :
i) an administering authority is required under the Transport Act 2000 and/or the Transport Act 1985 to reimburse an operator of eligible services for providing concessions consisting of a waiver of fares otherwise chargeable the amount of the revenue from the fares which would have been charged for the journeys actually made by the persons using the concession but which have been waived given the concessions provided plus any additional costs incurred by that operator in consequence of their provision (to the extent that such costs are not met by any payment in respect of revenue foregone);
ii) the amount to be paid by way of reimbursement for providing such concessions is not limited to providing reimbursement for providing concessions on journeys which would have been made in any event even if no concession had been available;
iii) the amount of additional costs incurred in consequence of the provision of such concessions is the amount of those costs which would not have been incurred if the relevant service had been provided by the operator only for those not having statutory concessions;
iv) such additional costs include a reasonable profit on any expenditure involved;
v) any values to be used in the calculation of reimbursement for providing concessions under the Transport Act 2000 and/or the Transport Act 1985 may not be specified in any arrangements for reimbursement so that they are not open to revision in the light of the facts, whether at all or on the application of an operator;
vi) it is unlawful, on the ground that it is incompatible with an operator's Convention right to have his civil rights determined by an independent and impartial tribunal under article 6(1) of the ECHR, for the final determination of the amount payable by way of reimbursement for providing concessions under the Transport Act 2000 and/or the Transport Act 1985 to be made by the administering authority; and
vii) the Secretary of State has power to modify any arrangements with respect to reimbursement which are unlawful on an application made to him under section 150 of the Transport Act 2000 and/or section 98 of the Transport Act 1985.
The European Regulation
"Whereas it is...necessary to terminate the public service obligations defined in this Regulation; whereas, however, it is essential in certain cases to maintain such obligations in order to ensure the provision of adequate transport services; whereas the adequacy of transport services must be assessed in the light of the state of supply and demand in the transport sector and of the needs of the community;
Whereas, for the purpose of implementing these measures, it is necessary to define the various public service obligations covered by this Regulation; whereas such obligations include the obligation to operate, the obligation to carry and tariff obligations;
Whereas is should be left to the Member States …to terminate or to maintain public service obligations; whereas however these obligations being such as to entail financial burdens for transport undertakings, the latter must be able to apply for their termination to the competent authorities of the Member States;
Whereas it is appropriate to provide that transport undertakings may apply for the termination of public service obligations only where such obligations involve them in economic disadvantages determined in accordance with common procedures defined in this Regulation;
Whereas, pursuant to Article 5 of the Council Decision of 13 May 1965…any decision by the competent authorities to maintain any public service obligation defined in this Regulation entails an obligation to pay compensation in respect of any financial burden which may thereby devolve on transport undertakings;
Whereas financial compensation for financial burdens devolving upon transport undertakings by reason of the maintenance of public service obligations must be made in accordance with common procedures…"
1. This regulation shall apply to transport undertakings which operate services in transport by rail, road and inland waterway.
3. The competent authorities of the Member States shall terminate all obligations inherent in the concept of a public service as defined in this Regulation imposed on transport by rail, road and inland waterway.
5. However, the competent authorities of the Member States may maintain or impose the public service obligations referred to Article 2 for urban, suburban and regional passenger transport services…..
1. "Public Service Obligations" means obligations which the transport undertaking in question, if it were considering its own commercial interests, would not assume or would not assume to the same extent or under the same conditions.
2. Public Service Obligations within the meaning of paragraph 1 consist of the obligation to operate, the obligation to carry and tariff obligations.
5. For the purposes of this obligation, "Tariff Obligations" means any obligation imposed upon transport undertakings to apply …..rates fixed or approved by any public authority which are contrary to the commercial interests of the undertaking and which result on the imposition of or refusal to modify special tariff provisions.
1. It shall be for transport undertakings to apply to the competent authorities of the member states for the termination in whole or in part of any public service obligation where such obligation entails economic disadvantages for them.
1. Any Regulation to operate or to carry shall be regarded as imposing economic disadvantages where the reduction in the financial burden which would be possible as a result of the total or partial termination of the obligation ……exceeds the reduction in revenue resulting from that termination.
2. A tariff obligation shall be regarded as entailing economic disadvantages where the difference between the revenue from the traffic to which the obligation applies and the financial burden of such traffic is less than the difference between the revenue which would be produced by that traffic and the financial burden thereof if working were on a commercial basis – account being taken both of the costs of those operations which are subject to the obligation and of the state of the market.
1. The amount of the compensation provided for in Article 6 shall, in the case of an obligation to operate or to carry, be equal to the difference between the reduction in financial burden and the reduction in revenue of the undertaking if the whole or the relevant part of the obligation in question were terminated for the period of time under consideration.
1. The amount of the compensation provided for in Article 6 and in Article 9 (1) shall, in the case of a tariff obligation, be equal to the difference between the two amounts as follows:
(a) The first amount shall be equal to the difference between, on the one hand, the product of the anticipated number of units of measure of transport and:
- either the most favourable existing rate which might be claimed by users if the obligation in question did not exist; or,
- where there is no such rate, the rate which the undertaking, operating on a commercial basis and taking into account both the costs of the operation in question and the state of the market, would have applied;
and, on the other hand, the product of the actual number of units of measure of transport and the rate imposed for the period under consideration.
(b) The second amount shall be equal to the difference between the costs which would be incurred applying either the most favourable existing rate or the rate which the undertaking would have applied if operating on a commercial basis and the costs actually incurred under the obligatory rate.
2. Where, by reason of the state of the market, compensation calculated in accordance with the provisions of paragraph 1 is not sufficient to cover the total costs of the traffic affected by the tariff obligation in question, the amount of the compensation provided for in Article 9 (1) shall be equal to the difference between such costs and the revenue from such traffic. Any compensation already made under Article 10 shall be taken into consideration when making this calculation.
Costs resulting from the maintenance of obligations shall be calculated on the basis of efficient management of the undertaking and the provision of transport services of an adequate quality.
Interest relating to own capital may be deducted from the interest taken into account in the calculation of costs. "
"…literal analysis of the text is not always appropriate in view of the nature and scheme of the measure in question or the circumstances in which the provision was adopted. The literal meaning of a provision must be discarded if it is inconsistent with the purpose, general scheme and the context in which it is to be applied…In consequence, even if the wording used seems to be clear, it is still necessary to refer to the spirit, general scheme and context of the provision, or the practicalities of operating the provision, in order to support the interpretation that flows from the words used (a fortiori if the wording is unclear.)"
"The reason why the actual costs are deducted from the costs which would be incurred if the traffic to which the obligation applies was dealt with on a commercial basis is that an operator may save costs if he does not have to operate on a commercial basis in respect of the traffic to which the obligation applies. Accordingly the revenue which would have been obtained from that traffic if it had been charged for on a commercial basis (for which article 11.1(a) provides) is not required to meet such avoided costs." Claimants' skeleton paragraph 26
"The operator remains under an economic disadvantage if the difference between (a) the revenue which would be produced by the traffic to which the obligation applies (which is all the traffic taking advantage of it), and (b) the financial burden of such traffic, if working on a commercial basis (ie the profit which the operator would have obtained if he had been able to charge that traffic on a commercial basis) is less than his net revenue from it. The Secretary of State's case would leave the operator suffering an economic disadvantage even taking into account the compensation the Secretary of State contends is payable. Whilst it is true that Member States are not obliged to terminate public service obligations under the European Regulation which entail economic disadvantages for an operator when its continuation is necessary to ensure the provision of adequate transport services, the quid pro quo for decisions to maintain them to the disadvantage of the operator is compensation for the financial burden imposed on the operator. That is not achieved on the Secretary of State's case. "
Claimants' skeleton argument, paragraph 34.
"The reason why a "floor" is required for the amount of compensation under article 11.2 is that the state of the market may mean the revenue which would be obtained from the traffic to which the obligation applies on the relevant commercial basis may not meet even the efficient costs of the operator, taking account of a reasonable profit for discharging the obligation. Article 11.2 accordingly provides for such a floor." Claimants' Submissions para 31
"Interest relating to own capital may [emphasis added] be deducted from the interest taken into account in the calculation of costs."
"the reason why the second paragraph of article 12 provides that interest relating to own capital, as distinct from any interest actually payable, may be deducted from the interest taken into account in the calculation of costs is to avoid the possibility of double recovery under article 11.2 if the cost of the operator's own capital is taken into account as well as a reasonable profit for discharging the obligation." Claimants' Submissions paragraph 31
The Problem of an "Aid"
"Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market."
As he also points out, there are exceptions to that basic principle, one of which is contained in Article 73 (now Article 93 EU) of the Treaty which states that:
"Aids shall be compatible with this Treaty if they meet the needs of coordination of transport or if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service."
ECHR Article 1 Protocol 1
ECHR Article 6
"The determination of the amount of reimbursement to which an operator is entitled under section 149(1) of the Transport Act 2000 and section 96(3) of the Transport Act 1985 involves a determination of that operator's civil rights for the purpose of Article 6(1) of the European Convention of Human Rights. Such a determination is one required to be made by an independent and impartial tribunal. The relevant authority liable to reimburse the operator is interested financially in that determination and consequently lacks objective impartiality. It is thus incompatible with the operator's Convention rights for any arrangements for reimbursement to be made (without that operator's agreement) that provide for the final determination of the amount payable by way of reimbursement (or elements thereof) to be made by the authority itself as explained above." Claimants' skeleton paragraph 95
"(2) Subject to the following provisions of this section, a person on whom a participation notice has been served may apply to the Secretary of State for cancellation or variation of that notice on either or both of the following grounds, that is to say-
(a) that there are special reasons why his participation in the scheme in question or any of the services to which the notice applies would be inappropriate; and
(b) that any provision of the scheme or of any such arrangements as are mentioned in subsection (1)(b) above are inappropriate for application in relation to operators other than operators voluntarily participating in the scheme
(5) Where on any such application the Secretary of State finds the ground mentioned in subsection (2)(a) above established, he may cancel the participation notice or (as the case may require) vary it by excluding from it any service operated by the applicant in respect of which he considers the applicant's participation in the scheme would be inappropriate.
(6) Where on any such application the Secretary of State finds the ground mentioned in subsection (2)(b) above established, he shall cancel the participation notice unless he considers that a direction under subsection (7) below would meet the case.
(7) Where on any such application the Secretary of State does not cancel the participation notice, he may direct that the current arrangements for reimbursement of eligible service operators participating in the scheme shall apply in the case of the applicant or (as the case may require) in the case of any service operated by the applicant to which the participation notice applies with such modifications as may be specified in the direction."
"An operator who considers that he may be prejudicially affected by the proposals may apply to-
(a) the Secretary of State (in the case of arrangements [in England]…)
(b) the National Assembly of Wales (in the case of arrangements [in Wales] …)
for a modification of the proposed arrangements, or proposed variations, on the grounds that there are special reasons [emphasis added] why they would be inappropriate with respect to one or more local services provided by him."
The extent of the jurisdiction of the Secretary of State or Assembly
Declarations (1) to (iv), (vi) and (vii)
Article 13 and Declaration (v)
"1. Decisions taken under Articles 6 and 9 shall fix in advance the amount of compensation for a period of at least one year. At the same time they shall determine the factors which might warrant an adjustment of that amount.
2. Adjustment of the amount referred to in paragraph 1 shall be made each year, after closure of the annual accounts of the undertaking in question.
3. Payment of compensation fixed in advance shall be made by instalments. The payment of any sums due by reason of the adjustment provided for in paragraph 2 shall be made immediately after the amount of the adjustment has been determined. "
"any element …relevant to the computation under article 11.1 or to the floor created by article 11.2 that may change or be corrected by further information during the period for which the compensation is fixed".
to lead to an adjustment. They say it is not in accordance with the Regulation:
"to specify in arrangements for reimbursement [under either Act] values that are not open to subsequent revision in the light of the facts, whether at all or on the application of the operator".
"all parties appear to agree that values to be used in the reimbursement calculation may not be specified in arrangements or in decisions by the Secretary of State upon applications by bus operating companies, so that they are not open to revision in the light of the facts as they later emerge".
In oral argument, Mr Straker amplified his submissions, giving some graphic examples of unexpected events which might affect the accuracy of compensation based on projections, such as floods in Tewkesbury or Cumbria, or swine flu affecting travel by the elderly. He questioned the need for the declaration sought, but emphasised the broad principle that if the outcome is affected by facts, the facts must be taken into account in any reconciling mechanism.