Re Metronet Rail BCV Ltd (in public private partnership administration)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PATTEN |
| Judgment Date | 23 November 2007 |
| Neutral Citation | [2007] EWHC 2697 (Ch) |
| Date | 23 November 2007 |
| Court | Chancery Division |
| Docket Number | Case Nos: 5106 and 5109 of 2007 |
[2007] EWHC 2697 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Patten
Case Nos: 5106 and 5109 of 2007
Mr Gabriel Moss Q.C and Mr David Allison (instructed by CMS Cameron McKenna LLP) for the Applicants
Mr William Trower Q.C and Mr Tom Smith (instructed by Herbert Smith LLP) for Transport for London and London Underground Ltd
Mr Mark Phillips Q.C (instructed by Allen & Overy LLP) for Balfour Beatty plc, Mr Antony Zacaroli Q.C and Mr Simon Johnson (instructed by Denton Wilde Sapte) for Thames Water Ltd and EDF Energy plc, Mr Simon Mortimore Q.C (instructed by Shadbolt & Co LLP) for Trans4M Ltd, Mr Richard Adkins Q.C (instructed by Norton Rose LLP) for Bombardier Transportation (Holdings) UK Ltd, Mr Richard Sheldon Q.C (instructed by Taylor Wessing LLP) for Metronet Rail BCV Finance plc and Metronet Rail SSL Finance plc
Hearing dates: 12 and 13 November 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
On 18 July 2007 Lightman J made a PPP administration order (as defined by s.220 of the Greater London Authority Act 1999) (“the 1999 Act”) in respect of two of the three PPP companies involved in the maintenance of the London underground train network. The companies in question are Metronet Rail BCV Limited (“BCV”) which has a contractual responsibility for the Bakerloo, Central, Victoria and Waterloo and City lines and Metronet Rail SSL Limited (“SSL”) which is responsible for the District, Circle, Metropolitan, Hammersmith and City and East London lines. The third PPP company (which is not affected by the administration order) is Tube Lines Limited (“TLL”) whose contract covers the Jubilee, Northern and Piccadilly lines.
Public-private partnership agreements (commonly referred to as PPP agreements) were authorised by Chapter VII of the 1999 Act as a means of financing and carrying out the maintenance of the infrastructure of the underground network as part of the Mayor of London's transport strategy. Section 154 of the 1999 Act established a body corporate known as Transport for London (“TFL”) which is required to exercise its functions for the purpose of securing or facilitating the implementation of the transport strategy: see s.154(3). This is a reference to s.141 of the 1999 Act which imposes on the Mayor the duty to develop and implement policies for the promotion of safe, integrated, efficient and economic transport facilities and services to, from and within Greater London and confers on the Greater London Authority powers which are exercisable for that purpose.
The Mayor is required to prepare and publish a transport strategy setting out his policies and proposals (see s.142(1)) and subject to the power of the Secretary of State for Transport to direct revisions of the transport strategy (see s.143) it is then implemented by TFL on behalf of the Greater London Authority. TFL is empowered under s.156(1) of the 1999 Act to form a company to carry out the relevant activities and for this purpose it has operated through London Underground Limited (“LUL”) a wholly owned subsidiary.
LUL has vested in it what are described in the evidence as the infrastructure assets. These include the rolling stock, signalling systems, stations, tracks, depots, tunnels, bridges and other structures forming part of the network. The operation of the underground system remains the responsibility of TFL and LUL but as part of the Government's Public Private Partnership initiative TFL was empowered under s.210 of the 1999 Act to enter into contracts with companies for the provision, construction, renewal, improvement and maintenance of the infrastructure. Section 210 provides that:
“(1) For the purposes of this Chapter a public-private partnership agreement (referred to as a “PPP agreement”) is a contract in the case of which the conditions set out in the following provisions of this section are satisfied.
(2) At least one of the parties to the contract must be a relevant body for the purposes of this Chapter, that is to say—
(a) London Regional Transport;
(b) Transport for London; or
(c) a subsidiary of London Regional Transport or Transport for London.
(3) The contract must be one which involves—
(a) the provision, construction, renewal, or improvement, and
(b) the maintenance,
of a railway or proposed railway and, if or to the extent that the contract so provides, of any stations, rolling stock or depots used or to be used in connection with that railway.
(4) The railway or proposed railway must be one which—
(a) belongs or will belong to, or to a subsidiary of, London Regional Transport or Transport for London, or
(b) is being provided, constructed, renewed or improved under the contract for, or for a subsidiary of, London Regional Transport or Transport for London.
(5) If a party who undertakes to carry out or secure the carrying out of any or all of the work mentioned in subsection (3) above (a “PPP company”) is a public sector operator at the time when the contract is made, that party must no longer be a public sector operator on the day following the expiration of the period of six weeks beginning with the day on which the condition in subsection (6) below is satisfied.
(6) The contract must be one which is, or is of a description which is, designated as a PPP agreement.”
Under these powers LUL entered into 30 year agreements with BCV and SSL in respect of the lines referred to above. The contracts themselves are not in evidence but in summary they provide for the achievement of specified levels of performance in relation to the serviceability and condition of the infrastructure; the introduction of major upgrades to the network; various specific projects including train fleet replacement and refurbishment and the improvement of stations; and more generally asset management and maintenance.
Some of these services are provided by the PPP companies themselves but much of the work involved is outsourced to sub-contractors. The principal sub-contractors involved are WS Atkins plc, Balfour Beatty, Bombardier, Thames Water and EDF. These five companies are also the ultimate shareholders in BCV and SSL. The sub-contracts relate to a number of different projects. Balfour Beatty, for example, has contracts (for 7 1/2 years from April 2003) to carry out track renewal on all nine underground lines covered by the PPP agreements with BCV and SSL; to upgrade the Victoria line; and to modernise Earl's Court station. For these purposes it has seconded managerial staff to the PPP companies under a secondment agreement and also provides project management services and procurement support. It estimates that the two PPP companies have pre-administration liabilities to it under the various sub-contracts of approximately £44.5m.
Another significant sub-contractor was Trans4M Limited (“Trans4M”) which is a special purpose vehicle owned by a consortium made up of WS Atkins plc, Balfour Beatty, Thames Water and EDF. Its contracts (which were also for a period of 7 1/2 years from April 2003) related to station upgrades and civil engineering work, much of which was then in turn sub-contracted out to its shareholder companies. The contracts with the PPP companies were terminated by Trans4M on 30 August 2007 but there are outstanding obligations and liabilities in respect (e.g.) of snagging work which remains to be completed. Subject to this, Trans4M claims to be a substantial creditor of both BCV and SSL for sums in excess of £150m.
In addition to the sub-contracts there are also complex financial arrangements in place under which two companies (Metronet Rail BCV Finance plc and Metronet Rail SSL Finance plc) (“the Fincos”) have provided in excess of £1.6bn to the two PPP companies in order to finance their obligations under the PPP agreements with LUL. As I understand it much of this was raised directly from the European Investment Bank (“EIB”) and a syndicate of banks and from the issue of bonds but at least £100m was provided as a loan by the ultimate shareholders in the PPP companies to the Fincos with each shareholder contributing £20m in respect of both BCV and SSL. The shareholder loans are, of course, subordinated to the bank and bond holder liabilities.
As between the Fincos and the PPP companies the loans are unsecured but both the borrowings from the EIB and the other banks and those from the bondholders are secured by guarantees and fixed and floating charges over the assets and undertaking of the Fincos and the two PPP companies.
Under the order of Lightman J of 18 July 2007 four partners in Ernst & Young LLP (Mr Alan Bloom, Mr Roy Bailey, Ms Margaret Mills and Mr Stephen Harris) were appointed special PPP administrators of BCV and SSL. The power of the Court to make such an order is contained in s.220 of the 1999 Act as follows:
“(1) A “PPP administration order” is an order of the court made in accordance with section 221, 222 or 223 below in relation to a PPP company and directing that, during the period for which the order is in force, the affairs, business and property of the company shall be managed, by a person appointed by the court,—
(a) for the achievement of the purposes of such an order; and
(b) in a manner which protects the respective interests of the members and creditors of the company.
(2) The purposes of a PPP administration order made in relation to any...
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