Secretary of State for Transport v Stagecoach Southwestern Trains Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Gross |
| Judgment Date | 09 October 2009 |
| Neutral Citation | [2009] EWHC 2431 (Comm) |
| Docket Number | Case No: 2009 FOLIO.667 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 October 2009 |
[2009] EWHC 2431 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Gross
Case No: 2009 FOLIO.667
Jonathan Hirst QC and Jasbir Dhillon ( instructed by Treasury Solicitor) for the Claimant
John McCaughran QC (instructed by Herbert Smith) for the Respondent
Hearing date: 18th September 2009
Mr Justice Gross:
INTRODUCTION
There is before the Court an application of the Claimant (“the Secretary of State”), seeking a declaration under s.72(1)(c) of the Arbitration Act 1996 (“the Act”), that the Revenue Support Dispute (“RSD”), identified by the Respondent (“Stagecoach”) in paragraphs 17 – 27 of the Amended Notice of Arbitration, dated 12 th May, 2009 (“the Amended Notice of Arbitration”), has not been submitted to arbitration in accordance with the Franchise Agreement dated 21 st September, 2006 (“the Franchise Agreement”).
S.72(1)(c) of the Act provides as follows:
“(1) A person alleged to be a party to arbitral proceedings but who takes no part in the proceedings may question –
(c) what matters have been submitted to arbitration in accordance with the arbitration agreement,
by proceedings in the court for a declaration…..”
The issue, as will become apparent, involves a single and short point of construction: namely, whether the RSD is within or outwith the arbitration clause contained in paragraph 2.6 of Schedule 8.1 to the Franchise Agreement (“the arbitration clause”), which is in the following terms:
“If either party disputes the amount of a Franchise Payment, the dispute shall be resolved in accordance with the Dispute Resolution Rules but shall not affect the obligation of either party to pay a Franchise Payment notified in accordance with this paragraph 2.”
The Secretary of State submits that the RSD falls outside, whereas Stagecoach submits that it comes within, the scope of the arbitration clause.
To begin with the Court had been faced with further questions, in summary, as to (1) whether the Secretary of State was precluded from relying on s.72 of the Act and (2) whether Stagecoach was itself precluded from alleging that the Secretary of State was so precluded (“the preclusion issues”). As it seemed to me, there was a high risk that these potentially time consuming and costly issues would, in this case, be pointless. By way of illustration, if Stagecoach succeeded before me on (1) and then before the arbitrator on the question of his jurisdiction, the Secretary of State would, as a matter of right, be entitled to a re-hearing in Court. It therefore appeared to me that it made more sense to get on and deal with the jurisdiction question at once. Fortunately and sensibly if I may say so, after consideration and on instructions, Mr. McCaughran QC for Stagecoach, was in a position to agree not to pursue preclusion issue (1), so that preclusion issue (2) fell away. Any question of costs can be dealt with at a later stage.
I return to the issue of construction. The factual background to the present dispute is not, or not seriously, in dispute and can be shortly summarised. The Secretary of State is the franchising authority for the franchising of passenger rail services in England and Wales. Pursuant to the Franchise Agreement, Stagecoach operates the South Western rail franchise, which broadly covers the provision of passenger train services in the South West of England – essentially, services from Waterloo Station and in the Isle of Wight. The Franchise Agreement incorporates the National Rail Franchise Terms (“NRFT”).
In the event, two disputes arose under the Franchise Agreement and, by a Notice of Arbitration, dated 28 th April, 2009 (subsequently amended, as already noted, on the 12 th May, 2009), Stagecoach sought their determination by arbitration. As they have come to be termed, the two disputes were the “Car Parking Dispute” (“the CPD”) and the RSD.
The CPD concerns, on any view, an issue of construction—as to whether, for the purpose of calculating the amount of the Franchise Payment for the 13 th Reporting Period for the Franchise Year 2008 – 9, “Revenue” in the Franchise Agreement should include revenue derived from the sale of tickets for car parking at railway station car parks operated by Stagecoach South West Trains. Stagecoach contends that such car parking revenue does not count as “Revenue”; the Secretary of State contends that it does. Initially, the Secretary of State challenged the jurisdiction of the arbitrator to determine the CPD. However, by letter dated 18 th June, 2009, the Secretary of State conceded that the arbitrator did have jurisdiction in respect of the CPD. Accordingly, the CPD as such is not before the Court – but Stagecoach submits that the Secretary of State's concession in respect of the CPD undermines his arguments on the RSD, a matter disputed by the Secretary of State.
THE RSD
Turning to the RSD, the Franchise Agreement requires the Secretary of State to pay Revenue Support Adjustments if there is a shortfall to Stagecoach of Revenue as against Target Revenue. The Franchise Agreement contains two distinct regimes for Revenue Support: a regime for the first four years of the Franchise Period and a separate regime thereafter.
i) Under paragraph 4 of Schedule 8.1, Stagecoach is only entitled to Revenue Support before the end of the Fourth Year (i.e., from the Start Date) to mitigate the impact of Revenue decline (against Target Revenue) caused by a force majeure event occurring prior to the fourth anniversary of the Start Date, i.e., 4 th February, 2011 (the Start Date being the 4 th February, 2007). In other words, a force majeure event has to be established to entitle Stagecoach to Revenue Support under this regime. Paragraph 4 goes on to provide that no Revenue Support Adjustment may be claimed pursuant to this regime “…in respect of any Reporting Period starting on or after the fourth anniversary of the Start Date.” A “Reporting Period”, it may be noted, is defined in the Franchise Agreement as a period of 28 days, with 13 such periods in a Reporting Year.
ii) Under paragraph 5 of Schedule 8.1, Stagecoach is entitled to Revenue support to mitigate the impact on it of Revenue shortfalls against Target Revenue occurring after the first four years of the Franchise Period “in view of the inherent difficulty of accurately forecasting Target Revenue after such first four years”; accordingly, under this regime, there is no requirement to establish force majeure.
In essence and put neutrally, the RSD seeks to determine for the future, the proper approach, as a matter of construction, to the calculation of Revenue Support Adjustments (if any) payable for the period 4 th February to 31 st March, 2011.
Paragraph 5.2(a) of Schedule 8.1 to the Franchise Agreement is in these terms:
“5.2 A Revenue Support Adjustment shall be made …..in respect of any Reporting Period which starts on or after the fourth anniversary of the Start Date if:
(a) the Management Accounts for that Reporting Period disclose that the cumulative year-to-date Revenue for the period commencing on the first day of the Franchisee Year within which that Reporting Period starts and ending on the final day of that Reporting Period is less than 98 per cent of Target Revenue for that period….”
In the Amended Notice of Arbitration, Stagecoach seeks relief as follows:
“A declaration that paragraph 5 of Schedule 8.1 to the NRFT should be applied in accordance with its terms such that Revenue Support Adjustments for the period 4 February to 31 March 2011 should be calculated by reference to the amount of Revenue generated by the Claimant over the preceding Reporting Periods falling in the Franchisee Year 2010–2011.”
As helpfully summarised by the parties in an agreed Note, their respective substantive cases as to the RSD are as follows, beginning with the Stagecoach case:
“Stagecoach contends that, on its true construction, paragraph 5 of Schedule 8.1 of the Franchise Agreement should be applied such that Revenue Support Adjustments for the Reporting Periods starting on or after 4 February 2011, namely the 12 th Reporting Period (6 February to 5 March 2011) and the 13 th Reporting Period (6 March to 31 March 2011), are to be calculated by reference to Revenue generated by Stagecoach during the whole of the Franchisee Year in which those Reporting Periods fall, 2010–2011, up to the end of the relevant Reporting Period, i.e. between 1 April 2010 and 5 March 2011 (in the case of the 12 th Reporting Period) and 1 April 2010 and 31 March 2011 (in the case of the 13 th Reporting Period). Stagecoach contends that its construction gives effect to the plain language of paragraph 5.2, is consistent with the other provisions of Schedule 8.1 and that the Secretary of State is seeking to create a special regime applicable solely to the 12 th and 13 th Reporting Periods of the 2010–2011 Franchisee Year – for which there is no justification.”
Pausing there, it is at once apparent that the Start Date (4 th February, 2007) and the running of Franchisee Years (years from 1 st April to 31 st March) are, for whatever reason/s, not aligned. The Note then continues with the Secretary of State's case:
“The Secretary of State's case is that, on its true construction, Schedule 8.1, paragraph 5 of the Franchise Agreement only entitles Stagecoach to a Revenue Support Adjustment in respect of the 12 th and 13 th Reporting Periods to be calculated by reference to Revenue generated by Stagecoach during the 12 th and 13 th Reporting Periods of the Franchisee Year 2010–2011, i.e., between 6 February 2011 and 31 March 2011. The Secretary of State contends that the effect of Stagecoach's claim is...
To continue reading
Request your trial
-
The Application for Interim Relief Under Section 11A of the Grand Court Act (2015 Revision) and Section 54 of the Arbtiration Act, 2012 Between (1) Leed Education Holding Ltd (2) National Education Holding Ltd (3) Hyde Education Holding Ltd Plaintiffs v Minsheng Vocational Education Company Ltd Defendant
...70 Minsheng relied on the judgment of Gross J (as he then was) in Secretary of State for Transport v Stagecoach SW Trains [2009] EWHC 2431 (Comm), the judgment of the English Court of Appeal in BNP v Trattamento Rifuti Metropolitani SPA [2019] EWCA Civ 768 and the commentary in Lewison, I......
-
The Application for Interim Relief Under Section 11A of the Grand Court Act (2015 Revision) and Section 54 of the Arbtiration Act, 2012 Between (1) Leed Education Holding Ltd (2) National Education Holding Ltd (3) Hyde Education Holding Ltd Plaintiffs v Minsheng Vocational Education Company Ltd Defendant
...70 Minsheng relied on the judgment of Gross J (as he then was) in Secretary of State for Transport v Stagecoach SW Trains [2009] EWHC 2431 (Comm), the judgment of the English Court of Appeal in BNP v Trattamento Rifuti Metropolitani SPA [2019] EWCA Civ 768 and the commentary in Lewison, I......