Thursday 9 May 2019

Stagecoach Takes Legal Action Against Department for Transport

Transport secretary Chris Grayling could be called to the stand to defend the government after Stagecoach formally launched legal action over its decision to disqualify it from three rail franchises.

After weeks of tension, Stagecoach formally launched legal action against the Department for Transport (DfT) over its decision to disqualify the firm from the East Midlands, the West Coast and South Eastern franchises last month.

The East Midlands franchise was instead awarded to Abellio after the DfT accused Stagecoach of submitting "non-complaint" bids in its refusal to share open-ended pension liabilities with the government. The liabilities are estimated to be well in excess of £1 billion.

As part of the proceedings, Grayling may be forced to give oral evidence in court to defend the decision.

Stagecoach Press Release

Stagecoach Group plc ("Stagecoach" or "the Company") confirms that its wholly owned subsidiary, Stagecoach East Midlands Trains Limited, has commenced legal action against the Department for Transport ("DfT").

A claim has been issued at the High Court in London under Part 7 of the Civil Procedure Rules (a "Part 7 claim"). The claim alleges that the Department for Transport breached its statutory duties under the relevant provisions of Regulation 1370/2007[1], in connection with the procurement of the new East Midlands rail franchise.

Stagecoach East Midlands Trains Limited was disqualified from the procurement of that franchise and the DfT announced on 10 April 2019 that it intended to award the franchise to Abellio after the expiry of a voluntary 10 working day standstill period. That standstill period has subsequently been extended but was due to end at midnight on 8th May.

The company have informed the DfT that they are also preparing a claim for judicial review of its decisions to disqualify Stagecoach from bidding for the East Midlandsrail franchise and to award the franchise to Abellio. Additionally, consideration is being given to legal action against the Department in respect of the ongoing competitions for the West Coast Partnership franchise and a new South Eastern franchise.

The Part 7 claim that has been issued and the further legal actions under preparation vary in certain respects but common to all is the refusal to accept the potential pension risks that the DfT requires operators to bear in relation to the three new franchises. The full extent of these risks is unknown but estimated to be well in excess of £1 billion. Further information on those pensions risks was provided in a regulatory announcement by Stagecoach on 2 May 2019.

Martin Griffiths, Stagecoach Group Chief Executive, said: "We remain deeply concerned at the Department for Transport's procurement of the three most recent rail franchise competitions and the rationale behind its decisions.

"Despite our continued requests for full transparency around these matters, many fundamental questions remain unanswered. As a result, regrettably we have had no option but to commence legal action against the DfT to ensure the serious issues involved and the DfT's opaque decision-making are subject to proper public scrutiny.

"In view of the legal action we have taken today we believe it would be untenable for the DfT to proceed to sign any contract for the East Midlands franchise without a full and proper review of the procurement of that franchise to help restore public confidence in the process."

Stagecoach took legal action in December 2012 when the West Coast franchise was wrongly awarded to Firstgroup . Irregularities in the franchise letting were proven and as a result the DfT backed down and re-awarded it to the current Virgin /Stagecoach partnership.  Is this history repeating itself?