National Union of Rail, Maritime and Transport Workers and Others v Secretary of State for Transport First Capital Connect Ltd (Interested Party)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cranston |
| Judgment Date | 11 July 2014 |
| Neutral Citation | [2014] EWHC 3030 (Admin) |
| Docket Number | CO/1336/2014 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 11 July 2014 |
[2014] EWHC 3030 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Cranston
CO/1336/2014
The Queen on the Application of
Mr Gordon Nardell QC and Mr James Potts (instructed by Thompsons Solicitors) appeared on behalf of the Claimant
Mr James Eadie QC, Mr Rob WilliamsandMs Julianne Kerr Morrison (instructed by the Treasury Solicitor) appeared on behalf of the Defendant
Mr Nigel Giffin QC (instructed by Burges Salmon LLP) appeared on behalf of the Interested Party
Introduction
This is a renewed application for permission to apply for judicial review, which was issued on 25 March 2014. It followed refusal on the papers by Patterson J on 14 May 2014. The claim involves two grounds: ground 1 concerns what is said to be a lack of consultation prior to the tendering of the InterCity East Coast franchise and ground 2, the direct award of a short interim agreement for the Thameslink Great Northern franchise.
The claimants are well-known trade unions: the National Union of Rail, Maritime and Transport Workers being Britain's largest specialist trade union; the Transport Salaried Staffs' Association representing workers in the transport and travel industries; and the Associated Society of Locomotive Engineers and Firemen, as the name suggests, the trade union for train drivers. The Secretary of State, the defendant, needs no introduction. The interested party, First Capital Connect Limited, is a subsidiary of FirstGroup Plc. In relation to ground 1, its interest is that a sister company, East Coast Trains Limited, has successfully qualified to bid in the InterCity East Coast franchise competition and has been invited to tender. As regards ground 2, First Capital Connect has been the operator of the Thameslink franchise since 2006, and currently under an interim franchise agreement remains the operator until September 2014, when a new long-term franchise contract will begin.
Ground 1
The InterCity East Coast line has been run by East Coast Main Line Limited, a subsidiary of Directly Operated Railways ("DOR"), a state-owned company, since November 2009. In January 2010 the Secretary of State published a public consultation on proposals for that franchise. When the new Government came to office in May 2010, it decided on a significant change in rail franchising policy. There was a consultation in June 2010; a paper "Reforming Rail Franchising" in January 2011; and a Command Paper, "Reforming our Railways", in March 2012. The significant changes introduced a rebalancing of the risk— and profit-sharing mechanisms. They also, in relation to specification of train services, introduced greater flexibility for the bidders, for the franchises and ultimately for the operators, to design the most commercial service.
Given these changes in franchising policy, the Government carried out an additional consultation exercise for the InterCity East Coast railway. A consultation paper was issued in June 2012, which at several points mentioned the introduction of greater flexibility in the franchise specification. Chapter 2 was entitled "Purpose and policy". Paragraph 2.3 stated:
"Stakeholders were consulted in 2010 on replacing the ICEC franchise. There have been substantial reforms to rail passenger franchising policy since then, and so the Department considers it appropriate to carry out this additional consultation exercise."
In 2012 there was the well-known fiasco over the awarding of the franchise on the Intercity West Coast route. That led to the establishment of two inquiries. The inquiry of greatest relevance to this application is that conducted by Richard Brown, entitled "The Brown Review of the Rail Franchising Programme". It was published in January 2013, and its recommendations were in the main accepted by the Government in July of that year. That review stated that franchise agreements needed to be capable of accommodating significant change where required by Government. In particular, the review called on the Government to resolve the issue of exogenous revenue risk. It underlined the point that the InterCity West Coast franchise proposal provided only limited protection from macroeconomic risk, and that bidders had responded by bidding higher profit margins to provide a cushion against the exogenous revenue risk they were expected to undertake. The review concluded that the Government needed to retain full exogenous revenue risk as far as practicable. In chapter 5 of the review, entitled "Franchise Procurement", the issue was addressed of a looser specification for bidders and operators while ensuring minimum essential service levels to protect passengers.
In June 2013 the Department of Transport issued a Rail Franchising Competition Guide. That divided pre-procurement activities into three stages. The second stage contained a provision for consulting stakeholders before (in the third stage) the Department "formally go[ing] to market".
In relation to the InterCity East Coast franchise, a consultation summary report was published in October 2013. In the foreword, the Department of Transport stated that valuable comments and suggestions as a result of the consultation had been considered and "are being used to inform the development of the specification for the InterCity East Coast franchise." It continued:
"We want to see a revitalised East
Coast railway; the responses you have already provided will help us to deliver a railway that puts passengers and their needs at the heart
of its operations."
The foreword added that the responses to the 2012 consultation exercise had provided valuable insight into stakeholder and user views of the East Coast Main Line services, which would inform decisions about future development of the franchise.
The Government "formally went to market" in October 2013 by publication of the requisite notice in the Official Journal of the European Union. The prospectus for the InterCity East Coast franchise contained the franchise requirements in chapter 5. It stated that passengers were at the heart of the approach and that the franchise requirements had been developed following the 2012 consultation exercise. At paragraph 5.6.1, the Department stated that the train services which the Department specified were at the heart of the franchise specification. The Brown Review had recommended for franchisees that train service requirements be constructed in such a way as to give flexibility to bidders to offer more resource efficient ways of delivering them. The invitation to tender was published on 21 March 2014.
Meanwhile the Department had sent two — in wonderful Euro-jargon — "non-papers" to the European Commission. In the first of these, dated 17 January 2013, the Department stated that the franchising competition would be restarted after the interlude caused by the InterCity West Coast exercise. To achieve that would require some redesign of the franchise proposition and, more fundamentally, the process for evaluating bids as identified in the Brown Review. Particular issues to be addressed were the amount of "risk capital" a bidder was required to inject, the structure of evaluation, and the consistency in the treatment of demand and capacity. The Department informed the Commission that the intention was to deal with some of those issues by taking enough time to pilot the recommendations of the Brown Review.
In a second non-paper of 1 March 2013, the Department informed the Commission that the principles proposed by Brown represented a material departure from the Department's current approach which it would take some time to develop. However, once developed, those principles would need to be consulted upon and rigorously tested to avoid a repetition of the errors of the West Coast competition.
In his submissions on the claimant's behalf, Mr Nardell QC characterised this as a reconsultation case. Having recognised the need to consult in 2012 because of the changes in rail franchising after 2010, the even more significant changes after 2012 required the Secretary of State to conduct a reconsultation exercise. On the basis of R (on the application of Stirling) v London Borough of Haringey [2013] EWCA Civ 116, Mr Nardell QC contended that the trigger for the duty to reconsult is not whether there is a fundamental change in a proposal but whether the new factor is "of such significance that, in all the circumstances, fairness demands that it must (not may) be drawn to the attention of consultees" (paragraph 24). In this case Mr Nardell QC submitted that there have been significant changes of policy since 2012 as a result of the Brown Review which, in particular, introduced risk sharing and commercial flexibility. Previously, risk was significantly displaced onto the operator and the franchise agreement itself prescribed much of the detail for a service. The new approach was quite different. Bidder information about financial risk allocation and stability, and hence the criteria and processing for assessing that information, had become central at the time of selecting a franchisee.
In his second witness statement, Mr Mick Cash of the RMT makes a persuasive case that risk sharing has important implications for those working in the...
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