Certain Bus Operating Companies In the Stagecoach Group & Ors v Secretary of State for Transport & Anor [2010] EWHC 223 (Admin)

Case No CO/3350/3356/4655/5087/3358/3807/2008[2010] EWHC 223 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 16/02/2010
Before
THE HON MR JUSTICE IRWIN
Between
CERTAIN BUS OPERATING COMPANIES IN THE STAGECOACH GROUP (1)ClaimantsCERTAIN BUS OPERATING COMPANIES IN THE GO-AHEAD GROUP (2)ClaimantCERTAIN CONCESSION AUTHORITIES (3)ClaimantTHE SECRETARY OF STATE FOR TRANSPORTDefendantCERTAIN TRAVEL CONCESSION AUTHORITIESInterested Parties
Mr John Howell QC & Mr Mark Laprell (instructed by Backhouse Jones) for Claimants (1)Mr Richard Gordon QC & Mr Toby Sasse (instructed by Backhouse Jones) for Claimants (2)Mr Jonathan Swift, Ms Jessica Simor & Ms Eleni Mitrophanous (instructed by the Secretary of State for Transport) for the DefendantsMr Timothy Straker QC & Mr Charles Bourne (instructed by Finers Stephens Innocent) for Interested PartiesHearing Hearing dates: 17-20 November 2009
JudgmentMr Justice Irwin :Introduction

Article 10

[1]The fundamental issue in this case is one of the interpretation of Regulation (EEC) No1191/69 of the Council of 26 June 1969 on action by the Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterways as amended (and now repealed)[“the European Regulation”]. Do Articles 11 and 12 of the Regulation mean that a transport operator, compelled by a travel concession authority [“TCA”] to operate a concessionary fare scheme, should be no worse off by reason of the scheme? Or does the Regulation mean that the operator is intended and permitted to make an additional profit by reason of the scheme imposed?[2]It does not appear to be in dispute that the existence of a travel concession scheme usually increases the volume of traffic, often considerably so. More people travel than would do, if they had to pay a commercial fare. The additional volume of traffic can be referred to as the “generated traffic”. The operator is compelled to carry all passengers eligible for concessions under the scheme, usually therefore in increased numbers, and often nowadays for no fare at all. There will commonly be an increase in costs associated with the extra volume of passengers, although not proportionate to the rise in numbers. In the course of the hearing, it was suggested by the Claimant bus operators (“the operators”) that there may even on occasion be an overall reduction in costs because of the concession scheme, however counter-intuitive this may be.[3]The contention of the Secretary of State and the TCAs is that the proper interpretation of the European Regulation, and of the UK legislation which they say is consistent with the European Regulation, is that the operator is to be compensated for the loss of the commercial fares which would have been paid, had the scheme not existed, and in addition for any extra cost generated by the larger numbers of passengers generated by the concession. Thus they say, the operators are put back in the position they would have been in, had the concession schemes not come about.[4]The operators claim that the European Regulation has a different meaning. They say that the Regulation means the operators are entitled to be reimbursed the full commercial fare for all the concessionary passengers who actually travel. They say the operator is compelled to carry passengers for reduced (or no) fare, and he is entitled to make a reasonable profit for doing so. They concede that credit should be given if there is a costs saving by reason of the extra, but concessionary, traffic. That, they say, is the meaning of the European Regulation. It is agreed that the domestic legislation is inconsistent with that.[5]It is agreed that the obligations on the part of the TCAs to reimburse operators for providing concessions under the statutory scheme, contained in the Transport Act 1985 [“the 1985 Act”] and the Transport Act 2000 [“the 2000 Act”], are “tariff obligations” within the European Regulation, Article 20.[6]It is also agreed that the amount of compensation paid is to be determined in accordance with the provisions of the European Regulation. The Secretary of State and the TCAs agree that the European Regulation is binding. However on their reading, the domestic legislation and the Regulation have a consistent meaning.

Procedural History

[7]The procedural history can be summarised as follows. In mid 2008 the Claimants issued six sets of judicial review proceedings, which together challenged 25 decisions made by the Secretary of State under s. 50(8) of the 2000 Act and/or s. 98(7) of the 1985 Act, pursuant to applications that the Claimants had made under s. 150(3) 2000 Act and s. 98(2) 1985 Act.[8]The Secretary of State served detailed grounds in response to all these claims. In relation to one ground of challenge, which was made in a number of cases listed by the Claimants in Schedule A to their new grounds, namely the claim that the Secretary of State should not have ordered the payment of a fixed sum alone, the Secretary of State conceded that single ground of claim, subject to any TCA wishing to argue that it had suffered prejudice as a result of undue delay.[9]On 9 March 2009 the Claimants made an application to the Court for permission to amend the claims for judicial review to claim seven declarations (“the amended claim”). Further, they sought a stay of any other grounds of judicial review in the original claim. The Claimants served grounds in support of the amended claim.[10]By an Order dated 14 May 2009 Wyn Williams J ordered consolidation of the claims. He granted permission in respect of the fixed sum point in decisions where the Secretary of State had made a fixed sum determination, and where the concession had been made.[11]After further rulings and directions, Wyn Williams J gave permission to amend the claim to seek the seven declarations, in the following terms: i) an administering authority is required under the Transport Act 2000 and/or the Transport Act 1985 to reimburse an operator of eligible services for providing concessions consisting of a waiver of fares otherwise chargeable the amount of the revenue from the fares which would have been charged for the journeys actually made by the persons using the concession but which have been waived given the concessions provided plus any additional costs incurred by that operator in consequence of their provision (to the extent that such costs are not met by any payment in respect of revenue foregone); ii) the amount to be paid by way of reimbursement for providing such concessions is not limited to providing reimbursement for providing concessions on journeys which would have been made in any event even if no concession had been available; iii) the amount of additional costs incurred in consequence of the provision of such concessions is the amount of those costs which would not have been incurred if the relevant service had been provided by the operator only for those not having statutory concessions; iv) such additional costs include a reasonable profit on any expenditure involved; v) any values to be used in the calculation of reimbursement for providing concessions under the Transport Act 2000 and/or the Transport Act 1985 may not be specified in any arrangements for reimbursement so that they are not open to revision in the light of the facts, whether at all or on the application of an operator; vi) it is unlawful, on the ground that it is incompatible with an operator’s Convention right to have his civil rights determined by an independent and impartial tribunal under article 6(1) of the ECHR, for the final determination of the amount payable by way of reimbursement for providing concessions under the Transport Act 2000 and/or the Transport Act 1985 to be made by the administering authority; and vii) the Secretary of State has power to modify any arrangements with respect to reimbursement which are unlawful on an application made to him under section 150 of the Transport Act 2000 and/or section 98 of the Transport Act 1985.

The judge ordered that there should be a trial of preliminary issues:

[12]whether permission should be granted to claim those declarations, whether they should in fact be made, and whether the determinations specifying a fixed sum listed in Schedule A to his order should be quashed and re-determined. The judge further ordered that the Claimants’ application for permission to claim judicial review on the other grounds recited should be stayed until the decision on the preliminary issues identified above. Hence, those issues came before me.

The European Regulation

[13]The legislative history to the European Regulation is of potential significance. The preamble to the Regulation recites, amongst other things:
“Whereas it is...necessary to terminate the public service obligations defined in this Regulation; whereas, however, it is essential in certain cases to maintain such obligations in order to ensure the provision of adequate transport services; whereas the adequacy of transport services must be assessed in the light of the state of supply and demand in the transport sector and of the needs of the community; … Whereas, for the purpose of implementing these measures, it is necessary to define the various public service obligations covered by this Regulation; whereas such obligations include the obligation to operate, the obligation to carry and tariff obligations; Whereas is should be left to the Member States …to terminate or to maintain public service obligations; whereas however these obligations being such as to entail financial burdens for transport undertakings, the latter must be able to apply for their termination to the competent authorities of the Member States; Whereas it is appropriate to provide that transport undertakings may apply for the termination of public service obligations only where such obligations involve them in economic disadvantages determined in accordance with common procedures defined in this Regulation; … Whereas, pursuant to Article 5 of the Council Decision of 13 May 1965…any decision by the competent authorities to maintain any public service obligation defined in this Regulation entails an obligation to pay compensation in respect of any financial burden which may thereby devolve on transport undertakings; … Whereas financial compensation for financial burdens devolving upon transport undertakings by reason of the maintenance of public service obligations must be made in accordance with common procedures…”
[14]All parties have made reference to the underlying policy to be derived from parts of the preamble. In my view the conclusions properly to be drawn amount to little more than the following. The underlying policy was and is to move transport provision from public service to the market; the market must be as free from distortion as possible; the competent authorities in the Member States nevertheless have the capacity to maintain public service obligations in the provision of transport in order to maintain adequate transport, but must do so subject to consistent rules, which the Regulation is intended to provide. Where obligations are perceived by transport undertakings as involving them in “economic disadvantages” they may apply for the termination of the obligation; the maintenance of any public service obligation brings the obligation to pay compensation in respect of any “financial burden” resulting.[15]The relevant parts of the Regulation read as follows: 16. “Article 1 1. This regulation shall apply to transport undertakings which operate services in transport by rail, road and inland waterway. 3. The competent authorities of the Member States shall terminate all obligations inherent in the concept of a public service as defined in this Regulation imposed on transport by rail, road and inland waterway. … 5. However, the competent authorities of the Member States may maintain or impose the public service obligations referred to Article 2 for urban, suburban and regional passenger transport services….. Article 2 1. “Public Service Obligations” means obligations which the transport undertaking in question, if it were considering its own commercial interests, would not assume or would not assume to the same extent or under the same conditions. 2. Public Service Obligations within the meaning of paragraph 1 consist of the obligation to operate, the obligation to carry and tariff obligations. … 5. For the purposes of this obligation, “Tariff Obligations” means any obligation imposed upon transport undertakings to apply …..rates fixed or approved by any public authority which are contrary to the commercial interests of the undertaking and which result on the imposition of or refusal to modify special tariff provisions. ……… Article 4 1. It shall be for transport undertakings to apply to the competent authorities of the member states for the termination in whole or in part of any public service obligation where such obligation entails economic disadvantages for them. ……… Article 5 1. Any Regulation to operate or to carry shall be regarded as imposing economic disadvantages where the reduction in the financial burden which would be possible as a result of the total or partial termination of the obligation ……exceeds the reduction in revenue resulting from that termination. ……. 2. A tariff obligation shall be regarded as entailing economic disadvantages where the difference between the revenue from the traffic to which the obligation applies and the financial burden of such traffic is less than the difference between the revenue which would be produced by that traffic and the financial burden thereof if working were on a commercial basis – account being taken both of the costs of those operations which are subject to the obligation and of the state of the market. ….. Article 10 1. The amount of the compensation provided for in Article 6 shall, in the case of an obligation to operate or to carry, be equal to the difference between the reduction in financial burden and the reduction in revenue of the undertaking if the whole or the relevant part of the obligation in question were terminated for the period of time under consideration. ……. Article 11 Article 2 Article 4 Article 5 Article 10 1. The amount of the compensation provided for in Article 6 and in Article 9 (1) shall, in the case of a tariff obligation, be equal to the difference between the two amounts as follows: (a). The first amount shall be equal to the difference between, on the one hand, the product of the anticipated number of units of measure of transport and: - either the most favourable existing rate which might be claimed by users if the obligation in question did not exist; or, - where there is no such rate, the rate which the undertaking, operating on a commercial basis and taking into account both the costs of the operation in question and the state of the market, would have applied; and, on the other hand, the product of the actual number of units of measure of transport and the rate imposed for the period under consideration. (b). The second amount shall be equal to the difference between the costs which would be incurred applying either the most favourable existing rate or the rate which the undertaking would have applied if operating on a commercial basis and the costs actually incurred under the obligatory rate. 2. Where, by reason of the state of the market, compensation calculated in accordance with the provisions of paragraph 1 is not sufficient to cover the total costs of the traffic affected by the tariff obligation in question, the amount of the compensation provided for in Article 9 (1) shall be equal to the difference between such costs and the revenue from such traffic. Any compensation already made under Article 10 shall be taken into consideration when making this calculation. Article 12 21. Costs resulting from the maintenance of obligations shall be calculated on the basis of efficient management of the undertaking and the provision of transport services of an adequate quality. 22. Interest relating to own capital may be deducted from the interest taken into account in the calculation of costs. “[16]In their approach to interpreting the Regulation, both sides proffer a detailed exegesis of the language of the Regulation itself, alongside a caution as to the approach to interpreting European delegated legislation. In addition, the operators lay stress on the fact that the Regulation was passed by the Council Article 89 (now Article 109 EU) of the Treaty, the Article concerned with “aids” granted by States. Put shortly, the argument is that, unless the Regulation is capable of giving rise to an “aid”, the reference to Article 89 is meaningless. The Secretary of State and the TCAs stress the history of the interpretation of the Regulation: for more than 20 years it has been interpreted in the way they advance, with no challenge from the operators, something they say speaks to the proper interpretation of the Regulation, as well as to the exercise of discretion. It is helpful to consider all these points in turn before coming to a conclusion.[17]I am reminded that, in interpreting such a Regulation, although the words used are the starting point, the approach to European law may require a more liberal and purposive approach than does the interpretation of English law. As the learned editors of Vaughan and Robertson: The Law of the European Union 2009put it, at page 3.209:
“…literal analysis of the text is not always appropriate in view of the nature and scheme of the measure in question or the circumstances in which the provision was adopted. The literal meaning of a provision must be discarded if it is inconsistent with the purpose, general scheme and the context in which it is to be applied…In consequence, even if the wording used seems to be clear, it is still necessary to refer to the spirit, general scheme and context of the provision, or the practicalities of operating the provision, in order to support the interpretation that flows from the words used (a fortiori if the wording is unclear.)”
[18]I begin with the words used, and with a number of points of interpretation of language.[19]Article 11 paragraph 1 stipulates three computations of amounts. In paragraph 1(a), the “first amount” is to be “equal to the difference between, on the one hand, the product of the anticipated number of units of transport and [a rate]” and “on the other hand, the product of the actual number of units of measure of transport and the rate imposed…” The Secretary of State and the TCAs both submit that the Regulation distinguishes in clear terms between the “anticipated” and the “actual” volumes of traffic, the contrast being emphasised by the phrases “on the one hand” and “on the other hand”. The meaning, they say, is to begin the computation by distinguishing the “generated” traffic from the traffic which would have arisen anyway, but for the existence of the tariff obligation. The “actual” traffic is the sum of the “anticipated” traffic and the “generated” traffic. This fits they say with the overall meaning of the Regulation (and with the policy at play) since the purpose is to preserve the operators’ commercial profit for the “anticipated” traffic, whilst compensating for the burden and cost of the “generated” traffic. The Secretary of State and the TCAs say that no other interpretation is consistent with the distinctions being made in clear language within the Article.[20]Mr Howell QC for the operators suggests, for other reasons, that these volumes of traffic must in fact both be the “actual” volume of traffic, including the traffic generated as a consequence of the concessions. He freely acknowledges that he can ascribe no meaning to the term “anticipated”, and by implication that acknowledgement must also apply to the phrases “on the one hand… on the other hand”. He suggests that the alternative analysis requires the phrase “which would have been carried in any event in the absence of the obligation” to be inserted after the phrase “anticipated number of units”. The other parties essentially say that phrase is implied perfectly clearly.

Article 12

[21]The rate stipulated in the First Amount of paragraph 1(a) is “either the most favourable existing rate…if the obligation did not exist” or “where there is no such rate, the rate which the undertaking, operating on a commercial basis and taking into account both the costs of the operation in question and the state of the market, would have applied”. For convenience, we can call that “the commercial rate”, although the full meaning must be considered later. Thus the First Amount, say the Secretary of State and TCAs, begins with the multiplication of the volume of traffic to be anticipated if the concession scheme did not exist, by the commercial rate which did exist or would exist if it was calculated. That they say is a logical connection, and the nature of the rate stipulated in this half of this computation underpins the meaning of “anticipated” in describing the volume of traffic. It is the calculation of the revenue which would be paid, by those categories of passenger now eligible for concessionary fares, if there was no scheme.[22]The rate stipulated in the second part of paragraph 1(a) is “the rate imposed”, which is uncontroversial. The “rate imposed” will vary in time and place, but for our purposes will sometimes be 50% or 25% of the commercial fare, and will often be nil.[23]The interpretation of the Secretary of State and TCAs thus means that the “first amount” in paragraph 1(a) is the difference between, in the first place, the amount of revenue which would have been produced by the volume of traffic to be anticipated if the concession scheme did not exist, and in the second place, the amount of revenue produced by the actual volume of traffic, including that generated by the scheme, at the rates imposed under the scheme. The operators’ interpretation would mean that the “First Amount” would be simply the difference in revenue between the commercial rate and the imposed rate, produced by the actual volume of traffic carried after the scheme was in place.[24]As a matter of construction, the interpretation offered by the Secretary of State and TCAs is in my judgment very much easier to fit to the language of paragraph 1(a) than that advanced by the operators.[25]Article 11 paragraph 1(b) contains the second computation. The “Second Amount shall be equal to the difference between the costs which would be incurred applying [the commercial rate] and the costs actually incurred under the obligatory rate”. On the interpretation of the Secretary of State and TCAs, the phrase “would be incurred applying [the commercial rate]” implies the situation where the scheme did not exist, the predicate for the application of the commercial rate: hence these costs are to be calculated by reference to the “anticipated” volume of traffic. The operators attack this interpretation by saying that it requires words to be inserted such as “in carrying any traffic to which the obligation applies which would have been carried in any event had the obligation not existed”. The Secretary of State and TCAs again say this is simply a natural implication of the meaning of the existing words. They say that the meaning of paragraph 1(b) is to capture the difference between the costs derived from the different volumes of traffic at the different charging rates.[26]The operators’ interpretation, consistent with their interpretation of paragraph 1(a), is that this computation is exclusively concerned with the actual volume of traffic generated with the scheme in place, and merely establishes the difference in costs across that volume of traffic, between operating on a commercial basis and the costs actually incurred with the scheme in place.[27]In considering this sub-paragraph, it is necessary to take one step further in looking at the language. If one assumes that there will be added cost as a result of a scheme, because of the added generated traffic, then the computation would mean establishing the “difference” between £x (lower cost associated with lower volume and no scheme) and £x+y (higher cost associated with higher volume, part generated by the scheme). If one treats the word “difference” in context as meaning a subtraction of the second sum from the first, the result would be to subtract the larger sum from the smaller, producing a minus number or amount. This seems odd, since one would intuitively expect to have a positive sum of additional cost to add to the lost revenue under the first computation.[28]Mr Swift and Mr Straker QC, for the Secretary of State and the TCAs respectively, simply say that a negative amount is the result of the computation, and they say that fits with the form of the final computation under paragraph 1, which is to calculate the “difference” between, the First Amount (lost revenue) and the Second Amount (added cost), consistently meaning subtraction of the latter from the former. It would be illogical to reduce the compensation for lost revenue by the amount of added cost, which is why they say the Regulation is drafted as it is, meaning that added cost produces a ‘negative amount’ to be subtracted from the lost revenue: in effect an addition of any extra cost to the lost revenue.[29]Mr Howell submits one cannot have a ‘negative amount’. He says an amount is a positive. He goes on to suggest that the true function of Paragraph 1(b), consistent with his interpretation of Paragraph 1(a), is as follows. “The reason why the actual costs are deducted from the costs which would be incurred if the traffic to which the obligation applies was dealt with on a commercial basis is that an operator may save costs if he does not have to operate on a commercial basis in respect of the traffic to which the obligation applies. Accordingly the revenue which would have been obtained from that traffic if it had been charged for on a commercial basis (for which article 11.1(a) provides) is not required to meet such avoided costs.” Claimants’ skeleton paragraph 26[30]In my judgment, this proposition from the operators, once carefully examined, gives some support to the position of the Secretary of State and the TCAs on the interpretation of paragraph 1(b). If the Regulation must accommodate the possibility of both added and reduced costs as a result of a concessionary fare scheme, then the “second amount” under Paragraph 1(b) will necessarily sometimes be positive and sometimes negative. If costs are saved as a result of the scheme, it makes sense for such saved costs to be a contra-credit to lost revenue. But if there are sometimes saved costs and sometimes added costs (the latter intuitively would seem more likely, or at least more frequently so) then both outcomes can be accommodated in a single formulation only by language such as this.[31]Moreover, the more hypothetical, but reasonable, situations which are considered, the more this approach seems appropriate. It will be remembered that the Secretary of State and TCA interpretation means that the “first amount” in paragraph 1(a) is the difference between(1) the amount of fare income which would have been generated by the volume of traffic to be anticipated if the concession scheme did not exist, and(2) the amount of money actually produced by the actual volume of traffic, including that generated by the scheme, at the rates imposed under the scheme. In the case of free travel concessions, where no revenue is produced by those who travel under the concession, this difference will be simply the total lost revenues in respect of those who travel under the concession but who would have travelled in any event.[32]However, in the case of partial concessions, it might be that this “first amount” too would be a “negative amount”. If the concession (“the rate imposed”) was a modest reduction, say 20%, and the increase in volume of concession traffic were more than 25%, the revenue from the traffic subject to the tariff obligation would be greater than the revenue traffic from the “anticipated” number of units in the absence of the scheme. If the increase in cost was modest, the growth in traffic beyond 25% would reduce and might even extinguish the added cost. All of these contingencies might perfectly logically have been within the contemplation of the drafters of the Regulation. If so, the drafting would need to accommodate ‘positive’ and ‘negative’ amounts at many points in the computations to which the Regulation might apply. This analysis also favours the interpretation of the Secretary of State and TCAs.[33]Mr Howell attacks the Secretary of State’s interpretation as being inconsistent with Article 5.2 of the Regulation quoted above. He formulates this as follows: “The operator remains under an economic disadvantage if the difference between(a) the revenue which would be produced by the traffic to which the obligation applies (which is all the traffic taking advantage of it), and(b) the financial burden of such traffic, if working on a commercial basis (ie the profit which the operator would have obtained if he had been able to charge that traffic on a commercial basis) is less than his net revenue from it. The Secretary of State’s case would leave the operator suffering an economic disadvantage even taking into account the compensation the Secretary of State contends is payable. Whilst it is true that Member States are not obliged to terminate public service obligations under the European Regulation which entail economic disadvantages for an operator when its continuation is necessary to ensure the provision of adequate transport services, the quid pro quo for decisions to maintain them to the disadvantage of the operator is compensation for the financial burden imposed on the operator. That is not achieved on the Secretary of State’s case. “ Claimants’ skeleton argument, paragraph 34.[34]Within Article 5.2, the ordinary meaning of the phrase “financial burden” seems to me to be “cost”. The Article starts with the difference between the “revenue from the traffic to which the [tariff] obligation applies” and the cost of such traffic: in effect, the gross profit or loss on the traffic subject to the tariff obligation while operating the concession. That falls to be compared with the “difference between the revenue which would be produced by that traffic [emphasis added] and the financial burden [cost] thereof if working were on a commercial basis…”: that is to say, the gross profit or loss once more, and on the face of the language here, in respect of the generated traffic, as well as the traffic to be anticipated in the absence of a scheme. The Claimants’ point is that if “economic disadvantage” is measured by reference to the gross profit (or loss) of a commercial operation over the generated as well as the anticipated traffic, the Secretary of State’s interpretation of Article 11.1 will not achieve recompense of that, and thus will leave the operator with an “economic disadvantage”.[35]Late in the hearing it was suggested that the phrase “produced by that traffic” in the English version of Article 5 of the Regulation might be a translation error, but that has not been pursued in front of me, and I set the possibility aside for the purpose of this judgment.[36]On the basis of the existing wording, there is some tension between Article 5.2 and the Secretary of State’s interpretation of Article 11. If the scheme of the Regulation is to identify economic disadvantage, so as to permit an operator to apply for termination of the tariff obligation from which it arises, and to permit the competent authorities to refuse to terminate, but only on the basis that they provide compensation for the financial burden entailed by the obligation, why should not the measure of compensation be such as to abolish, rather than diminish, the “economic disadvantage” as defined?[37]However in the case of a tariff obligation, the Regulation does not link the measure of compensation to the definition of economic disadvantage, in that direct way. It may be helpful to the exercise of construction to look at Article 10 and the computation of compensation in the case of an obligation to operate or an obligation to carry. It is not necessary to repeat the words, but in those cases dealt with in Article 10, the calculation of compensation is expressly linked to the calculation of economic disadvantage, at least in specified circumstances, in a way that is not the case under Article 11. As a matter of construction, this makes it easier to see how the Regulation should be interpreted to mean that, in the case of a tariff obligation at least, the obligation may not be terminated in the face of an economic disadvantage as defined, and although compensation is to be paid, that compensation may not fully abolish the economic disadvantage as defined, for the undertaking concerned.[38]The operators also attack the Secretary of State’s interpretation of Article 11.1 as giving no intelligible meaning to Article 11.2. The operators ask the rhetorical question: if the Secretary of State is correct, when would the compensation calculated in accordance with Article 11.1 ever be insufficient to cover the total costs of the traffic affected by the tariff obligation?[39]Article 11.2 starts from the ‘total costs of the traffic affected by the tariff obligation in question’. The operators have asserted or assumed that means the ‘traffic which is subject to the tariff obligation in question’. Assuming that to be correct, could it arise that 11.1 would not cover the costs of the traffic subject to the tariff obligation? One would say not, if the ‘first amount’ under paragraph 1(a) is the product of a “rate which the undertaking, operating on a commercial basis and taking into account both the costs of the operation in question and the state of the market, would have applied” (ie a market rate) and the “anticipated traffic”, ie the traffic which would have arisen in the absence of any tariff obligation. Under those circumstances, the traffic which was subject to the obligation would produce an economic return.[40]However, it is at this point necessary to remember that the convenient shorthand “the commercial rate” may be misleading. It is instructive to consider the result if the calculations under paragraph 1(a) and paragraph 1(b) were not able to be made at a market rate, but at the “most favourable existing rate which might be claimed by users if the obligation in question did not exist”, which by definition might be an uneconomic rate, perhaps particularly so in the early years of the application of the Regulation, as the transport sector was beginning its journey towards the marketplace. Under those circumstances, the computation under paragraph 11.1 becomes the following: [1] take the difference between the revenue from “anticipated” traffic at the uneconomic existing rate and the revenue from the “actual” or generated traffic at the imposed rate – (which might also be uneconomic, perhaps often more so); [2] take the difference between the costs which would be incurred applying the “most favourable existing” (but on this basis still uneconomic) rate, and the costs actually incurred under the obligatory rate (which might often mean added cost), and for reasons already set out, may be a ‘negative amount’ and to be treated as additional cost and then [3] compensate the operator by the difference between the two.[41]The result would still be to bring the operator back to square one, that is to say balancing revenue and cost, the financial position which they would have faced, had the tariff obligation not been imposed. But if that financial position was uneconomic in the first place, presumably often because the operation was dependent on a direct state subsidy in one form or another, then the operation of paragraph 1 will not render it more favourable, and the subsidy will have gone. The operation would be loss-making, and the losses would not be made good. The difference now will be that the operator will be under an obligation to maintain the service, will be under the tariff obligation and will not have another subsidy. Unless a fall-back means of compensation is provided, the operator will be compelled to operate a loss-making service, or apply to cease the service, or apply to be relieved of the tariff obligation on the grounds of continuing loss which would not otherwise be compensated under the Regulation.[42]In that context paragraph 11.2 has meaning as a floor, to be resorted to precisely when “by reason of the state of the market” further compensation is needed “to cover the total costs of the traffic affected by the tariff obligation in question”.[43]This is the analysis advanced by the Secretary of State, and by the TCAs as set out in their written submissions at paragraph 46. In their analysis, “cost” means what it says in plain language: the net additional cost of the obligation, not including profit. In my judgment this approach makes sense, particularly in the context in which this Regulation was drafted. It will be recalled that the underlying policy purposes which the drafters had in mind were those touched on in the preamble to the Regulation: by means of the common transport policy “to eliminate disparities causing distortions [in the market]; to terminate public service obligations [in transport]; to assess the adequacy of transport services in the light of the state of supply and demand … and of the needs of the community.” All this was to be done against a backdrop where transport across the Community was widely provided as a public service obligation, and thus provided at existing rates which had never been tested by any market.[44]The operators agree that Article 11.2 provides a “floor”, although in their analysis “cost” includes a reasonable profit. In his written submissions, Mr Howell formulated it as follows:
“The reason why a “floor” is required for the amount of compensation under article 11.2 is that the state of the market may mean the revenue which would be obtained from the traffic to which the obligation applies on the relevant commercial basis may not meet even the efficient costs of the operator, taking account of a reasonable profit for discharging the obligation. Article 11.2 accordingly provides for such a floor.”
Claimants’Submissions para 31[45]This is consistent with Mr Howell’s overall analysis in one way, in that he says any increased costs of the larger traffic cannot be recovered under Article 11.1(b), which is there to deal only with reduced costs. Thus, the extended traffic may add to the costs, on his analysis irrecoverable under 11.1(b), which if “cost” is taken to include reasonable profit, may leave the operator with a net loss, despite the compensation for lost revenue over the whole volume of the traffic subject to the tariff obligation. Or in other words, if costs include reasonable profit, and costs cannot be recovered under Article 11.1(b), there is more likely to be a need for a floor or safety net.[46]His analysis however has this problem. He suggests that the “anticipated” and the “actual” number of units of measure of transport in Article 11.1(a) are the same. It follows that in order to be consistent, the calculation of the “commercial” rate would have to take into account the costs of the operation across the larger volume of traffic stimulated by the fare concession. Thus the additional costs of the larger volume of traffic would already be factored in, and with a reasonable profit included. This makes it much less likely that a fallback or “floor” would be necessary. I accept that the “state of the market” might mean that the commercial rate so defined would leave an operator in need of a “floor”, but it would seem clearly to be much less likely than in applying the analysis of the Secretary of State and TCAs.[47]However, the degree of probability of a need for a “floor” may be immaterial. Under either analysis, the need for a “floor” may sometimes arise, and therefore the presence of Article 11.2 in the Regulation does not seem to me to determine which analysis is correct.[48]One difficulty this interpretation of Article 11.2 might be thought to produce is this: if the traffic which is now subject to the tariff obligation was previously, or would otherwise be, uneconomic, then how would that arise, save where the traffic which remains unaffected by the tariff obligation is also uneconomic? Thus compelling an operator to continue to carry, even if the losses engendered by the traffic subject to the tariff obligation are abolished, means compelling the operator to carry uneconomic traffic not subject to the tariff obligation without compensation. That difficulty would be abolished if the meaning of ‘the total costs of the traffic affected by the tariff obligation in question’ is broader than the ‘traffic which is subject to the tariff obligation in question’. That point was not argued before me and I do no more than raise the possibility of a distinction. It may provide the answer to this possible difficulty.[49]It may also be simply that the drafters of the Regulation considered that any transport service which remained uneconomic in relation to the traffic subject to the tariff obligation after the operation of the “floor” provision in Paragraph 11.2, would have to be dealt with under the complementary provisions under Articles 6 and 10 of the Regulation, affecting compensation for obligations to operate or to carry. However that may be, since this point was not argued in front of me, and certainly was not said to arise as a live issue in respect of any service subject to a tariff obligation under consideration in this litigation, it does not deflect me from the analysis set out above.[50]I turn to Article 12. Little or no argument was addressed to the first part of this Article, and I treat the meaning of this as obvious, enabling the TCAs to circumvent claims for compensation based on inflated cost or inadequate service. However a certain amount of argument was addressed to the second paragraph of Article 12:
“Interest relating to own capital may [emphasis added] be deducted from the interest taken into account in the calculation of costs.”
[51]The operators argue that this part of Article 12 supports their interpretation of the scheme of the Regulation and of Article 11. It will be remembered they say that Article 11.1 (a) provides for the calculation of lost revenue comparing the pre-existing rate, or the commercial rate, with the imposed rate, across the whole volume of traffic subject to the tariff obligation, and they say Article 11.1(b) provides for a contra-credit against compensation for that lost revenue, in relation to any reduced (rather than increased) costs associated with the imposition of the tariff obligation over all the traffic subject to it. I have just dealt with their interpretation of Article 11.2. The operators go on to say that:
“the reason why the second paragraph of article 12 provides that interest relating to own capital, as distinct from any interest actually payable, may be deducted from the interest taken into account in the calculation of costs is to avoid the possibility of double recovery under article 11.2 if the cost of the operator’s own capital is taken into account as well as a reasonable profit for discharging the obligation.”
Claimants’ Submissions paragraph 31[52]I accept that this interpretation is internally consistent with the rest of the Claimants’ analysis. However it seems to me the second part of Article 12 may have a simpler meaning. A key word is “may”. It seems to me likely that the drafters simply wished to preserve the capacity for those national governments drafting their own legislation to ensure that no excessive “return on own capital” was included in a claim for the cost of capital spend necessary, for example, for expanding a fleet of buses. In effect, this is the interpretation offered by the Secretary of State and perhaps particularly by Mr Straker QC for the TCAs, who sought to emphasise the broad terms in which Article 12 was drafted, and suggested that this part of the provision was present merely to ensure that appropriate investment was made and relied on when calculating cost, whether of own capital or commercial loan.[53]My preliminary conclusions, therefore, from a reasonably close analysis of the language of the European Regulation, is that the interpretation advanced by the Secretary of State and the TCAs is coherent and sits well with the language of the Regulation. There is nothing within the Regulation itself which conflicts with it. On the other hand, the interpretation of Mr Howell cannot explain some of the language used and is in my judgment a strained interpretation in other places, as I have indicated above.

Worked Examples

[54]A different test of the coherence of the competing interpretations of the Regulation is to consider how different, hypothetical but reasonable, examples emerge. I do not intend to introduce specific examples into this judgment, although a number were given to me, and I have myself considered others. However, the outcome is clear. Adopting the approach of the Secretary of State and the TCAs, whatever reasonable, hypothetical figures are introduced into the computations in Regulation 11, the result is to bring the operators back to the financial position they would be in, absent the existence of the tariff obligation. In that way, the results of their interpretation are consistent. Whereas, the result of the same reasonable, hypothetical figures, sieved through the operators’ mesh, is a very varied and indeed inconsistent scatter of outcomes. It appears to me that is powerful support for the approach taken by the Secretary of State and the TCAs.

The Problem of an “Aid”

[55]As Mr Howell points out, the basic rule as to aids is set out in Article 87.1 (now Article 107.1 EU) of the Treaty which provides that:
“Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.”
As he also points out, there are exceptions to that basic principle, one of which is contained in Article 73 (now Article 93 EU) of the Treaty which states that:
“Aids shall be compatible with this Treaty if they meet the needs of coordination of transport or if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service.”
[56]Mr Howell goes on to say that since the European Regulation was enacted under Article 89, which empowers the Council to make regulations governing the application of Article 87.1, this pre-supposes that there was a need to invoke the power under Article 89. This would only arise, he says, if the European Regulation creates or maintains(1) an aid or aids(2) which are not rendered permissible otherwise than by the application of the power under Article 89. Thus, if an arrangement constitutes an aid, but is yet compatible with the Treaty because it falls within Article 73, no invocation of the power under Article 89 is required. By that route, he says, it is necessary to find an interpretation of the European Regulation which could give rise to an aid falling outside Article 73. He then suggests that the interpretation offered by the Secretary of State and the TCAs is incapable of doing so, whereas the operators’ interpretation is capable of doing so, perhaps precisely because it rewards the operators more highly.[57]This argument falls away if any provision of the European Regulation, not merely those parts which have passed under the microscope in this case, is capable of producing such an aid, or indeed if those who commissioned the drafters (and perhaps the drafters themselves) considered there might be a risk of such an outcome. The risk otherwise run by the drafters would be that any arrangement created in pursuance of the Regulation might be held to be based on an illegality, unless it could be supported under Article 73.[58]The question of how an aid may arise was considered in the context of this European Regulation by the European Court of Justice in Case C-280/00 Altmark Transport GmbH and another v Nahverkehrsgesellschaft Altmark GmbH. The Treaty lays down four conditions before an aid may arise. There must be an intervention by the State or through the State’s resources; intervention must be liable to affect trade between Member States; the aid must confer an advantage on the recipient and the arrangement must distort or threaten to distort competition. In the Altmark case, the national court was concerned as to whether subsidies to urban, suburban or regional public transport services might or might not fulfil the second condition. The European Court confirmed that subsidies to such local services were capable of affecting trade between Member States, since there was no minimum threshold of effect below which a subsidy would be regarded as not affecting trade between states. Any reduction of cost base within a Member State could be relevant.[59]The Court went on to stress that, in order to constitute an aid, the arrangements had to be capable of conferring an economic advantage on the relevant undertaking. There would not be such an advantage provided the payment made as compensation for the performance of a public service obligation “did not exceed the annual uncovered costs actually recorded by the undertakings taking into account a reasonable profit”. The Court went on to stipulate that in order to escape classification as State aid in a particular case, a number of conditions must be satisfied. The recipient undertaking must actually have public service obligations to discharge, and the obligations must be clearly defined (paragraph 89); the “parameters on the basis of which the compensation is calculated” must be established in advance in an objective and transparent manner (paragraph 90); the compensation “cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account receipts and a reasonable profit for discharging those obligations” (paragraph 92) and fourthly, where the undertaking to discharge the public service obligation is not chosen pursuant to a public procurement procedure, the compensation must be determined by reference to the costs which would arise from a “ typical undertaking” well run and able to meet the obligations, taking into account “ a reasonable profit for discharging the obligations” (paragraph 93).[60]It should be stressed that in setting out those principles, the Court was looking explicitly at a situation where, for reasons that are not relevant to this case, the payments in question were not or might not be subject to Regulation 1191/69. This is made clear in paragraph 103 of the judgment. The Court said that “to the extent that the German legislature has not excluded the application of [the European Regulation] to commercial operations…the provisions of that regulation will apply to the subsidies at issue…and the national court will not have to consider whether they are consistent with the provisions of primary law.” Thus, although the European Regulation was formulated under Article 89, and thus may be taken to be addressing, at least potentially, aids which fail the test of serving public service obligations, the European Court had no difficulty with the ambit of the Regulation. Moreover, they reached no specific interpretation of the Regulation because it represented an exercise of the power under Article 89 of the Treaty. Rather, the Court treated the Regulation as a separate code under which a given subsidy either did or did not fall for consideration. If it did fall within 1191/69, the German court had no need to consider the provisions of primary law, and vice versa.[61]This approach is entirely consistent with the treatment of Regulation 1191/69 by the European Court in Case T-157/01 Danske Busvognmaend v Commission of the EC. The most relevant passages are in paragraphs 85 and 86. In old-fashioned English terms, the Regulation might be described as a “compendious code”. Regulation 1191/69 constitutes a “particularly favourable authorisation scheme [which] must therefore be limited to those aids which are directly and exclusively necessary for the performance of the public transport service per se..”[62]In the Antrop case C-504/07 of May 2009, the court looked at the application of the European Regulation to Portuguese transport services and concluded that compensation payments paid to undertakings not granted in accordance with the Regulation were “not compatible with community law and it is therefore unnecessary to examine them in the light of the Treaty provisions relating to State aid, in particular Article 87(1) EC…” see paragraph 28. Thus the Regulation was deployed as a “compendious code” defining whether there was any aid. This is also consistent with the Commission decision in United Kingdom Grant for Long-Distance Coaches N 588/02, see in particular the conclusion at paragraph 96.[63]A rather different approach was followed by the Commission in its decision in the Denmark – Compensation to Long Distance Bus Operators case N 322/08, where the Commission did look outside the Regulation. In paragraph (53) they concluded “As Article 14 of the Regulation 1191/69 does not contain any precise conditions for declaring State aid inherent in the price paid for a public service contract compatible with the common market, the Commission considers that the general principles derived from the Treaty, the jurisprudence of the community courts and the Commission’s decision practice in areas other than public transport shall be applied for deciding whether such State aid can be declared compatible with the common market.”[64]So far as the Court in Altmark was directly concerned, in applying the first principles it derived from the Treaty, the “costs” to be taken into account when making payments which yet did not constitute an “aid” could include a ‘reasonable profit’, an outcome at odds with the interpretation of the Regulation advanced by the Secretary of State and the TCAs, but consistent with the interpretation suggested by the operators. Mr Howell understandably seeks support from this. If on first principles, “costs” may include a reasonable profit for an operator, then he says his interpretation of the Regulation is fortified.[65]The other parties respond that the Altmark decision was quite explicitly not interpreting the European Regulation with which we are concerned. Rather the opposite: as we have seen, the suggestion to the German national court was that it should resolve matters either by the application of 1191/69, or if that regulation does not apply, the matter falls to be decided by reference to the principles set out in Altmark. By that means it may fall out that the meaning of “costs” under the European Regulation may be narrower than a meaning which would nevertheless avoid amounting to an “aid” under the principle set out in Altmark.[66]The Regulation seems to me capable of producing aids, and doing so in the compensation for tariff obligations. Perhaps most graphic might be the use of the “floor” provided by Article 12 as analysed above, so that uneconomic services are maintained by compensation beyond the normal calculations set out in Article 11, to a level beyond “cost”, even including a reasonable profit, potentially in relation to a service which was uneconomic before the tariff obligation was imposed. Not every hypothetical case can be anticipated. It is certainly outside the scope of this judgment to examine in detail how aids might be produced by the arrangements for obligations to carry and to operate.[67]However, in none of these cases is it suggested that the Regulation has to be interpreted in a particular way by reference to the fact that it was promulgated under two Articles of the Treaty. In my judgment, there is no support, directly expressed or necessarily implied, in the Altmark case, or elsewhere in the European cases to which reference was made during the hearing, for the suggestion that the fact the European Regulation was drafted in part proceeding from the Council’s power under Article 89 of the Treaty has any significance as to the meaning of the Regulation.[68]In the end, it seems to me very likely that the intent of the commissioners and drafters of this Regulation, in promulgating the Regulation in reliance on the power under Article 89 of the Treaty, was simply that not every consequence or circumstance can be anticipated in advance. There might be a risk of a challenge to a national law or regulation, drafted in an attempt at conformity with the European Regulation, if the Regulation itself did not rest upon the powers under Article 89 as well the power under Article 73. The prudent approach no doubt was to make reference to both.[69]There is an irony in the fact that, although all parties in this case invoked a broad, purposive approach to the interpretation of European Regulation, so much of this case has turned on a really detailed interpretation of the language. In my judgment, the outcome of that process favours the interpretation advanced by the Secretary of State and TCAs.[70]That conclusion is supported at least to some degree by two historical points. First, those who drafted the domestic statutes clearly shared the same interpretation of the Regulation, since the two English statutes are consistent with that meaning. Second, that interpretation, carrying the outcome of “no added cost” rather than that of “reasonable profit on the generated traffic”, has gone unchallenged by the operators for decades. This second point is relied on by the Secretary of State both as showing his interpretation is correct, and as a basis for suggesting that the discretion of the Court should be exercised against the operators on the basis of delay. I return to the latter argument below. For present purposes, the fact that the legal meaning of the European Regulation has gone unchallenged for so long is of some, albeit limited, help in interpreting the Regulation. The wording of the domestic legislation is absolutely clear and may possibly simply have inhibited any operator from making the challenge which is now being mounted. On the other hand, it has always been understood that the domestic legislation must conform to the European, and the two have been in place side by side for a very long time. In the end, these points are no more than makeweight. My decision rests principally on a consideration of the Regulation itself.[71]I have stood back and asked the question whether the approach advanced by the Secretary of State and the TCAs makes overall good sense, and if the overall reading of the Regulation represents a coherent and consistent approach to the problem addressed. It seems to me that it does. The proposition that operators should be compensated for the additional costs of concessionary schemes, whilst preserving the commercial gains which would arise from the enterprise without the schemes, has a clear logic. The Regulation as interpreted by the Secretary of State and TCAs will achieve that. The alternative approach not only rests on some quite strained interpretation, but produces erratic financial outcomes.

ECHR Article 1 Protocol 1

[72]The operators argue that the scheme as interpreted by the Secretary of State constitutes an unjust deprivation of property in breach of Article 1 of Protocol No1 of the European Convention, in that the requirement to carry concessionary passengers without being paid the commercial fare for the journey made, constitutes an unlawful use of the operators’ possessions. This is based on two arguments. Firstly, they say the requirement to carry concessionary passengers could only be proportionate if the operators were paid “a reasonable profit” and that while “it is no doubt the case that some controls of use...may not require payment of any compensation for the loss of profit that person might otherwise have obtained from them in the absence of the restriction”, this is not such a case because they are required to discharge an obligation. Secondly, they contend that “there is no reason why a public authority should be able to pay less to secure such services if it imposes such an obligation, rather than reaches an agreement with an operator to perform it.”: paragraph 35 Claimants’ skeleton argument.[73]The Secretary of State and TCAs both contend these submissions are flawed. Firstly, the operators are indeed paid in respect of the profit lost from those customers who would otherwise have been carried, and secondly because a local authority would not be entitled to pay more under a public service contract, because that would itself be subject to Article 14 of the European Regulation, and the prohibition against state aid, for which proposition the Secretary of State relies on Czech Republic No C3/2008 (ex NN 102/2005 and State aid decision N 322/08 Denmark. The Secretary of State further suggests that there is no requirement for compensation save where the interference with property amounts to a deprivation, see Hentrich v France (1994) 18 EHRR 440 and Sporrong and Lonroth v Sweden (1982) 5 EHRR 35.[74]The operators seek to rely on the approach of the European Court in Gauci v Malta App No 47045/06, judgment of 15 September 2009. In that case, Maltese legislation effectively deprived the owner of a house of his property. He could not terminate the lease or otherwise obtain possession, the lease was inheritable, the rent was fixed at a small fraction of the market value and there was no reasonable prospect of his ever getting his property back. The Court did hold there that there was a breach of the Protocol, as there was an effective deprivation of property without compensation, which required the Court to interfere, despite the wide margin of appreciation to be afforded in this area.[75]The Secretary of State and the TCAs suggest the reliance on Gauci misfires, as the facts in that case are so far from the instant facts: there is no deprivation of property here, and there is compensation at a reasonable level, not merely for cost but for lost profit on the pre-concessionary level. Mr Straker put this succinctly for the TCAs, by suggesting the historic interpretation of the Regulation is “light years from an Article 1 point”. In my judgment, he is right. The operators’ contention here is highly overstrained, and taking the matter shortly, I reject it.

ECHR Article 6

[76]The Claimants argue that the provisions of the domestic statutes and regulation constitute a breach of the operators’ rights under Article 6 of the ECHR. They seek a declaration (Declaration 6) to that effect. Although the statutory position altered over time, the determination of the schemes, and the remuneration under the schemes, is essentially for the local authority or TCA in question. It is this point which is the focus of challenge from the operators under Article 6, since they suggest in essence that the TCAs were and are able to make a final determination in relation to any dispute on those matters, although the TCA in question is an interested party. The operators say that:
“The determination of the amount of reimbursement to which an operator is entitled under section 149(1) of the Transport Act 2000 and section 96(3) of the Transport Act 1985 involves a determination of that operator’s civil rights for the purpose of Article 6(1) of the European Convention of Human Rights. Such a determination is one required to be made by an independent and impartial tribunal. The relevant authority liable to reimburse the operator is interested financially in that determination and consequently lacks objective impartiality. It is thus incompatible with the operator’s Convention rights for any arrangements for reimbursement to be made (without that operator’s agreement) that provide for the final determination of the amount payable by way of reimbursement (or elements thereof) to be made by the authority itself as explained above.”
Claimants’ skeleton paragraph 95[77]Under the older provisions, arising from the 1985 Act, but still the governing legislation for a number of schemes, a local authority may establish a travel concession scheme under s93 of the Act. By s97, a local authority may serve a notice on “any operator or prospective operator of an eligible service…imposing an obligation to provide travel concessions in accordance with the scheme”.[78]Section 98 provides: “(2) Subject to the following provisions of this section, a person on whom a participation notice has been served may apply to the Secretary of State for cancellation or variation of that notice on either or both of the following grounds, that is to say-(a) that there are special reasons why his participation in the scheme in question or any of the services to which the notice applies would be inappropriate; and(b) that any provision of the scheme or of any such arrangements as are mentioned in subsection (1)(b) above are inappropriate for application in relation to operators other than operators voluntarily participating in the scheme … (5) Where on any such application the Secretary of State finds the ground mentioned in subsection (2)(a) above established, he may cancel the participation notice or (as the case may require) vary it by excluding from it any service operated by the applicant in respect of which he considers the applicant’s participation in the scheme would be inappropriate. (6) Where on any such application the Secretary of State finds the ground mentioned in subsection (2)(b) above established, he shall cancel the participation notice unless he considers that a direction under subsection (7) below would meet the case. (7) Where on any such application the Secretary of State does not cancel the participation notice, he may direct that the current arrangements for reimbursement of eligible service operators participating in the scheme shall apply in the case of the applicant or (as the case may require) in the case of any service operated by the applicant to which the participation notice applies with such modifications as may be specified in the direction.” (a) that there are special reasons why his participation in the scheme in question or any of the services to which the notice applies would be inappropriate; and (b) that any provision of the scheme or of any such arrangements as are mentioned in subsection (1)(b) above are inappropriate for application in relation to operators other than operators voluntarily participating in the scheme[79]The relevant regulations are the Travel Concession Schemes Regulations 1986. Regulation 4 reads: “It shall be an objective (but not a duty) of an authority when formulating reimbursement arrangements to provide that operators both individually and in the aggregate are financially no better and no worse off as a result of their participation in the scheme to which the arrangements relate”.[80]Regulation 5(1) provides that:
“…reimbursement arrangements adopted by an authority shall be so formulated that the costs to operators of providing concessions are met by the payments made by the authority to operators pursuant to section 93(6) of the Act.”
[81]These Regulations stipulate that the TCA must adopt standard schemes for remuneration, and they provide for the relevant mechanisms including information provision, notice periods and so forth. Under Part V of the Regulations, operators may apply to the Secretary of State for cancellation or variation of a participation notice, or for release from an obligation to provide travel concessions. The Secretary of State may arrange for submissions from one or more of the parties and a hearing, leading to a decision or determination, with reasons. The detail of these provisions is not material to the argument. Under this statutory regime therefore, there is a route for an appeal to the Secretary of State for an operator who wishes to take issue with a participation notice served on them by the local authority concerned, on the two grounds specified in section 98(2). It will be noted that the second ground may affect other operators than the applicant operator.[82]Under the later provisions, arising from the 2000 Act, the situation is to some degree different. By s145A of the Act in relation to England, or s145B in Wales, travel concession authorities are obliged to institute free travel schemes for elderly or disabled persons living in the local authority area. The reimbursement of operators is an obligation of the TCA under s149. By s149(2)(b), the arrangement for reimbursement of the TCA is “in the absence of agreement, such as may be determined by the authority…”.[83]By s150(3) of the 2000 Act: “An operator who considers that he may be prejudicially affected by the proposals may apply to-(a) the Secretary of State (in the case of arrangements [in England]…)(b) the National Assembly of Wales (in the case of arrangements [in Wales] …) for a modification of the proposed arrangements, or proposed variations, on the grounds that there are special reasons [emphasis added] why they would be inappropriate with respect to one or more local services provided by him.” (a) the Secretary of State (in the case of arrangements [in England]…) (b) the National Assembly of Wales (in the case of arrangements [in Wales] …)[84]None of the parties cited any later regulations to me in the course of the hearing, and no point turns on that. It will be noted that the grounds for modification under the 2000 Act would seem to permit modifications only in respect of the applicant operator.[85]The argument of the operators is that under both regimes the TCA is judge in its own cause, that the right of appeal to the Secretary of State is insufficient safeguard; that the need to show “special reasons” why the arrangements are inappropriate in relation to the particular service in question, narrows the ambit of the appeal, and thus Article 6 rights are infringed.[86]The operators rely on Tsfayo v the UK (2009) 48 EHRR 18 and Kingsley v the UK (2001) 33 EHRR, 35 EHRR 177. In Tsfayo the question at issue was the determination of disputes concerning housing benefit. A housing benefit scheme is administered by a local authority. Payments of benefit are subsidised by central government, normally to the extent of 95%, but to 50% only, where the claimant establishes “good cause” for a late claim. At the relevant time, a claim was first considered by officials working in the local authority housing department, then by a Housing Benefit Review Board (“an HBRB”) comprising five councillors from the local authority. The only challenge to their decision was judicial review. The Applicant claimed that there was no “independent and impartial tribunal” to examine her claim, and thus her Article 6 rights were breached.[87]It is important to understand the nature of a hearing before an HBRB. It was a fact-finding tribunal, assessing the credibility of evidence including that of the benefit claimant, and then deciding a question of individual entitlement, all in relation to a dispute in which the relevant local authority had a financial interest. There was no appeal arrangement permitting review of the facts, apart from judicial review.[88]It seems to me that there is a considerable distinction between that situation and the arrangements under scrutiny here. Firstly, we are not concerned here with a court or tribunal-like function, an examination of written and oral evidence, including assessment of the credibility of witnesses. Here the process is more like a commercial negotiation.[89]Next, although there are limits to the basis on which the Secretary of State or Welsh Assembly can intervene in response to complaint by an operator, that step does exist under both statutory regimes. I was given no evidence or indeed concrete examples rooted in reasonable hypothetical fact to show that specific legitimate complaints could not be addressed by reason of the limitation on the basis of intervention by the Secretary of State or Assembly. Under either domestic statutory regime, an aggrieved operator may have the additional remedy in specific circumstances of asking the Secretary of State to intervene in such a case, and of judicial review on that ground if he wrongly fails to do so. Neither the Secretary of State nor the Assembly can constitute a formal tribunal, but it was not suggested by the Claimants that those bodies are not to be regarded as independent or impartial in respect of a specific grievance between operator and TCA arising from a proposed scheme. It seems to me right therefore to place some reliance on this as a potential remedy for an aggrieved operator, when considering his rights under Article 6.[90]Another factor is the content of the European Regulation and the domestic legislation itself. Subject to the debate as to the proper interpretation of the Regulation, and the domestic Acts and regulations, the objects to be achieved by any scheme proposed by a TCA are clear. The provisions as to information and advance notice of a proposed scheme are not complained of. Under our legal system, the natural approach to any suggestion that a proposed scheme is unlawful or fails to comply with the Regulation or the legislation, failing a negotiated solution, is an application for judicial review.[91]I was told that many, but not all, of the schemes actually promulgated have arbitration arrangements built into them. That is of limited help, since such arrangements are not universal.[92]The Secretary of State and TCAs also rely on the potential for “proceedings before a court (equivalent in substance to an action on the ‘contract’ comprised by the reimbursement arrangements that exist)”, where the dispute in question is the determination of the amounts payable under an arrangement. It seems to me it would depend on the facts whether such a dispute would have to be issued as a conventional “private law” action or in the form of judicial review, but it is hard to envisage a dispute as to amount owing under a scheme which could not be entertained as one or the other. Again, I heard no evidence or reasonable hypothetical examples of such a dispute.[93]I also agree with the argument advanced by the Secretary of State that Article 6 does not accord a right to have administrative decisions, even those affecting civil rights and obligations, taken by an independent and impartial tribunal; rather the right is to have disputes as to those rights so determined: see Lithgow v UK (1986) 8 EHRR 329, at paragraph 192.[94]For all these reasons, I am not persuaded that the statutory provisions here, or the Schemes promulgated under them, infringe the rights of operators under Article 6 of the ECHR.

The extent of the jurisdiction of the Secretary of State or Assembly

[95]Declaration 7 sought by the Claimants suggests that the jurisdictions under s 98 of the Transport Act 1985 and/or 150(3) of the 2000 Act permit the Secretary of State (or Assembly) to determine an appeal on the basis that there has been an error of law of general application. The Secretary of State rejects this. So do the TCAs.[96]It seems to me there is a short answer to this. I begin with the slightly more restricted regime under the 2000 Act. In order to invoke the appeal or reference to the Secretary of State under the later Act, an operator must show “special reasons” affecting the specific scheme. One cannot envisage all hypothetical circumstances in which this might legitimately arise. It is conceivable that the particular effect of a specific scheme could be held unlawful, and that such a point might at least potentially affect other operators and other schemes. In that situation, even under the 2000 Act, I cannot see that the Secretary of State is precluded from saying so, and from saying so in such a way that the implications for others are clearly set out. In such circumstances, one would expect that the Secretary of State would take steps to ensure the decision was known, even though a formal modification under the Act would be binding only in the instant case and on the applicant operator.[97]However, it is right to say that the statutory formulation in the 2000 Act is not apt to make the Secretary of State the necessary or correct first port of call in a legal challenge to some point of general application to all such schemes, or even to a whole category of schemes. The need for “special reasons” would seem to me to make that clear.[98]As I have observed, the 1985 Act, is a little broader. By the provisions set out in s98, it enabled the Secretary of State to vary a scheme on the application of a single operator, even where the effect of the variation bites on all operators compulsorily participating in the scheme. Those provisions were not re-enacted in the 2000 Act.[99]Thus if an application properly made under the 1985 Act threw up an illegality, it is open to the Secretary of State to cure it by modification of the arrangements, even if that affects others compulsorily operating under that scheme. He will of course have to be very careful in doing so. It would be wise for him to invite representations from others affected, and no doubt consider them very carefully, before a conclusion. However, none of that makes application to the Secretary of State the proper approach for any general legal problem thought to arise, even where the relevant scheme is governed by the 1985 legislation.[100]The powers of modification, even on the basis of illegality, are highly restricted under both legislative schemes. Points of broader legal import are for the Courts. This is consistent with the Article 6 rights of the operators concerned.

Delay

[101]I am invited by the Secretary of State and TCAs to say this is a case where a discretionary remedy should in any event be withheld, since the arrangements under challenge in this case are of very long-standing. Mr Gordon QC for the operators, who dealt with this area of the case, suggests that time must run from specific determinations or decisions at to specific schemes. He relies on the remarks by Lord Steyn in R v Hammersmith and Fulham LBC exp Burkett [2002] UKHL 23 at paragraphs 38/50. Given my findings above, this question is academic, and I reach no decision on the point.[102]I should perhaps add that since the remedy sought is a series of declarations as to the law, it would seem a little odd to withhold that remedy even if other remedies might be withheld, were my conclusions to the opposite effect. That would produce the perverse (or at least unusual) outcome: a declaration that the historic view of the law, law which had governed relations between all these parties, was in error, would be denied because of delay in addressing the question by those who have been operators of concessionary schemes in the past.

Declarations (1) to (iv), (vi) and (vii)

[103]It would seem to me to follow from my conclusions set out above that I must decline to make declarations (i), (ii), (iii), (iv), (vi) and (vii) set out above.

Article 13 and Declaration (v)

[104]The question addressed by declaration (v) has been the subject of further discussion between the parties, and there will be a consent order quashing the relevant determinations of the Secretary of State and (if necessary) providing for the full re-determination of the relevant applications. Although written submissions and oral argument were addressed to the question underlying Declaration (v), at the time of drafting this judgment, it was not clear to me whether, or to what extent, that agreement rendered a decision in relation to Declaration (v) academic. All parties have confirmed in writing that the agreement does not or will not have that effect. I therefore now turn to this question.[105]Article 13 of the European Regulation provides that: “1. Decisions taken under Articles 6 and 9 shall fix in advance the amount of compensation for a period of at least one year. At the same time they shall determine the factors which might warrant an adjustment of that amount. 2. Adjustment of the amount referred to in paragraph 1 shall be made each year, after closure of the annual accounts of the undertaking in question. 3. Payment of compensation fixed in advance shall be made by instalments. The payment of any sums due by reason of the adjustment provided for in paragraph 2 shall be made immediately after the amount of the adjustment has been determined. “[106]The central contention by the Claimant operators is that, in order to conform with the Regulation, the arrangements under any scheme must permit: “any element …relevant to the computation under article11.1 or to the floor created by article11.2 that may change or be corrected by further information during the period for which the compensation is fixed”. to lead to an adjustment. They say it is not in accordance with the Regulation: “to specify in arrangements for reimbursement [under either Act] values that are not open to subsequent revision in the light of the facts, whether at all or on the application of the operator”.[107]The Claimants also submit that the wording of Article 13 means that any compliant scheme must specify “the amount” of compensation, in the strict sense of an amount of money, to be paid over a period of at least a year ahead. Mr Howell says that the arrangements may not simply specify how the amount of compensation is to be calculated, since the method is specified in the Regulation: what has to be determined in advance is the amount of compensation payable. I make it clear straight away that I reject this submission. It does not seem to me that is a necessary reading of the Regulation, particularly if one approaches the question with a purposive construction or indeed practical considerations in mind. I see no reason why the word “amount” cannot be construed to mean a detailed and transparent pricing formula designed to achieve proper compensation within the meaning of the Regulation, which if things go as they are expected to go, will produce an “amount” of compensation. No doubt the requirement to make payments in instalments means that there should be an assumed outcome of the pricing formula. No doubt also an irrational or disingenuous assumption which led to depressed instalment payments, with the effect of boosting the cashflow of a TCA at the expense of an operator, would be likely to be capable of challenge. In any event, this contention on the part of the operators is not central to the question raised by Declaration (v).[108]“In written submissions, the TCAs suggested that:
“all parties appear to agree that values to be used in the reimbursement calculation may not be specified in arrangements or in decisions by the Secretary of State upon applications by bus operating companies, so that they are not open to revision in the light of the facts as they later emerge”
. In oral argument, Mr Straker amplified his submissions, giving some graphic examples of unexpected events which might affect the accuracy of compensation based on projections, such as floods in Tewkesbury or Cumbria, or swine flu affecting travel by the elderly. He questioned the need for the declaration sought, but emphasised the broad principle that if the outcome is affected by facts, the facts must be taken into account in any reconciling mechanism.[109]The Secretary of State resists the declaration for a number of reasons. It is accepted that the schemes should and do provide for “reconciling payments” at year end “by reference to data concerning the actual operation of the concession scheme…and the actual costs incurred by the operator..” Mr Swift goes on to submit that the adjustment can be made at year end “by reference to the application of terms which, by reference to objective criteria (set out in the arrangements made at the beginning of the year) seek to establish the lost fare revenue, and any costs incurred by the operator by reason of the existence of the..scheme.”[110]In oral argument, Mr Swift augmented those submissions by saying that the declaration sought was abstract or hypothetical, not addressed to an identified dispute or particular parties, and I should decline to make such a declaration in the absence of a real dispute and without having evidence.[111]A number of examples of specific schemes are included in the bundles for this case, and were very briefly touched on in the course of the hearing. No attempt was made (or could have been made within the constraints of this hearing) to go into the specifics of how the schemes are said to operate, or more particularly how the application of “objective criteria” as the basis of the approach to reconciling payments might be unfair or unlawful. The debate between the parties therefore remained at a level of generality. Mr Swift is correct to imply that it is only possible to consider whether there has been a failure to comply with the relevant domestic legislation, or the European Regulation, with a specific case in mind. He is also right to urge caution in making any declaration which may be too general, or not well rooted in specific facts set out in evidence.[112]It also seems obvious that neither the European Regulation nor the domestic legislation could preclude the imposition, under a scheme, of discipline on the process of calculating revising or reimbursing payments. That must be so both as to orderly process, and in the sense of precluding arguments based on insignificant variations of the assumptions built into the pricing of any scheme.[113]Having said all that, it does seem to me right to consider whether there are necessary implications of the way in which I have construed the European Regulation in the earlier passages of this judgment, which bear on the question raised by Declaration (v). The operators are compelled to carry, and to do so for no additional profit, but must be compensated for additional cost. The European Regulation and the domestic legislation both require adjustment after the end of the relevant year, in order to achieve proper compensation. It must follow, in general terms and subject to insignificant alterations, that the process of adjustment must reflect the facts. It must follow, in general terms, that both the operators and the TCAs should be able to invoke a reconciliation which reflects the facts, unless the changes are insignificant. Where operators are compelled to deal with additional business without gaining additional profit, it would seem unfair in terms of common sense, and unlikely to comply with the requirement for compensation, if the operator was asked to carry any significant risk of additional costs which could not be accommodated in the process of reconciliation and reimbursement at the end of the year. The situation might be different if the operators were entitled to make a profit from additional compulsory traffic: a scheme which placed an operator at some risk as to unanticipated costs at a more than insignificant level might then be consistent with Articles 11 and 12 of the European Regulation. However, in my judgment that does not arise. I stress the generality of those indications, but they also seem to me to be rather obvious.[114]I do not propose to go farther, given my concern at doing so in the absence of a more specific dispute, a proper consideration of a particular scheme or schemes, and some basis for judging whether the “facts” and the “values” under consideration are significant or insignificant.