|
10 July 2002
ORR/09/02
The Rail Regulator, Tom Winsor, welcomed today's unanimous decision of the Court of Appeal to overturn the decision of the High Court in a case brought by him against the administrators of Railtrack.
The case concerned the ability of a railway company to obtain regulatory protection (under section 17 of the Railways Act 1993) and the power of the Rail Regulator to direct Railtrack to grant access to its network on terms determined by the Rail Regulator. The Court of Appeal has decided that regulatory relief of that kind is not constrained by the need first to obtain the consent of Railtrack's administrators or the permission of the court.
The Rail Regulator said: "Today's decision is good news for train operators and others who need to obtain the protection of the Regulator in cases where Railtrack is said to demand unreasonable terms for access to its network, or unreasonably refuses access to it.
"It confirms that the public interest remit of the Regulator in ensuring the fair and efficient allocation of the capacity of the network is wider than - and takes precedence over - the narrower interests of the administrators in protecting the interests of the shareholders and creditors of Railtrack."
Notes for editors - Section 17 of the Railways Act 1993 is concerned with compulsory third party access to railway facilities. In the case of the national network of track and signalling operated by Railtrack, it allows a passenger or freight train operator to ask the Rail Regulator to direct Railtrack to enter into an access contract for use of its network on terms determined by the Rail Regulator and not by Railtrack. If the Regulator gives such directions, the facility owner is under a statutory duty to comply with them. The section 17 procedure is therefore a form of control of the potential abuse of monopoly power, invoked in cases where the owner of a railway facility - track, stations or maintenance depots - demands unreasonable terms for access to that facility or unreasonably refuses access altogether. Regulators of other privatised network businesses have similar powers to protect the users of those networks and so the public interest.
- If the Rail Regulator grants a section 17 application, he determines what rights the train operator is to have to run trains on Railtrack's network, the price to be charged, the risk allocation between the parties and all the other terms of the contract.
- Section 11 of the Insolvency Act 1986 applies when a company is in administration. It provides that legal proceedings against a company in administration may only be pursued if the administrators give their consent or the court gives its permission.
- Railtrack PLC was placed in railway administration on 7 October 2001. It is still in railway administration.
- On 7 February 2002, the administrators of Railtrack claimed that the Rail Regulator's powers under section 17 of the Railways Act 1993 were subject to the overriding constraint of section 11 of the Insolvency Act 1986 and that accordingly the Rail Regulator could not proceed with a section 17 application without their consent or the permission of the court. The Rail Regulator disagreed, and applied to the High Court for a declaration of the correct legal position.
- The Rail Regulator's application was heard by the High Court (the Vice-Chancellor) on 8 and 9 May 2002 and decision was given on 21 May 2002. The High Court found against the Rail Regulator. The Rail Regulator appealed to the Court of Appeal. The hearing in the Court of Appeal was on 18 June 2002 and the decision was given on 10 July 2002.
- The initial action arose from a disagreement between EWS and the administrators of Railtrack. Like every train operator, EWS needs a track access agreement with Railtrack to be able to run its trains on Railtrack's network. EWS's then track access agreement expired on 31 May 2002. It therefore needed a new track access agreement with Railtrack to take effect from 1 June 2002. EWS had been unable to reach agreement with Railtrack on the terms of a new track access agreement and so, on 8 February 2002, EWS applied to the Rail Regulator for directions (under section 17, Railways Act 1993) to Railtrack to enter into a contract with EWS on terms to be determined by the Rail Regulator.
- In the Court of Appeal, the administrators of Railtrack asserted that the regulatory procedure under section 17 of the Railways Act 1993 - which allows the Rail Regulator to direct Railtrack to enter into an access contract on terms determined by the Rail Regulator and against the will of Railtrack - is a quasi-judicial procedure similar to that of a judge or arbitrator. They said that, accordingly, the statutory restraint on legal proceedings against a company in administration (contained in section 11 of the Insolvency Act 1986) applies to an application for regulatory protection under section 17 of the Railways Act 1993.
- The contrary view was taken by the Rail Regulator. His position was that the section 17 process is a regulatory public law function in which he decides the fair and efficient allocation of the capacity of railway facilities. It is not the arbitration of a private dispute between two parties, and the Regulator is required by the Railways Act 1993 to take into consideration public interest factors which go beyond the interests of the two parties to the section 17 case, and he may devise a solution which neither contemplated or wanted. The Rail Regulator also said that one of the primary functions of railway administration is to ensure continuity of normal business operation and that it is no part of the statutory scheme that the rules on the prevention of abuse of monopoly power are suspended. Section 17 is an instance of such powers.
- The Court of Appeal rejected the administrators' argument, and attached significance to the regulatory nature of the section 17 procedure and the duty of the Rail Regulator to take into account wider public interest considerations than those which Railtrack or the train operator concerned may wish to press on him.
- The Court said:
"... while the desirability of not interfering with administration is relevant to the issue [before the Court], more important is the broader public interest role of the Rail Regulator which goes beyond the interests of even the administration of a rail company as important as Railtrack".
"Notwithstanding the making of the railway administration order [in respect of Railtrack], the Rail Regulator's role over the whole rail network and in relation to a company in administration remains the same. Because of his statutory responsibilities, the Rail Regulator is better placed to make an overall assessment of what is in the interests of the rail network than the railway administrators or even the court."
"... Parliament [could not have intended the railway administrators of Railtrack] to have powers over the Rail Regulator. It is to turn the Rail Regulator's role on its head to make him subject to the consent of a body, namely the railway administrators, who it is his responsibility to regulate while the administration continues". - The Court of Appeal refused the application of the administrators for leave to appeal to the House of Lords.
Judgment: Approved by the Court for Handing down (subject to editorial corrections) - 10 July 2002
Press enquiries:
ORR Press Office : 020 7282 2002/2007 |
