It is Friday, your final lecture of the week ends at 1pm, leaving just enough time to make the 2pm train home for the weekend. You settle into your second-class seat with a copy of Lawyer 2B, ready for the four-hour ‘fast’ train back home. Then, 20 minutes from your destination, the train grinds to a halt and there you wait… and wait. But, before venting your anger at the conductor, it may be helpful to understand a bit more about the legal complexities and contractual arrangements behind the UK’s national rail network.
The mid-1990s ushered in the privatisation of British Rail, previously a monopoly supplier of national rail infrastructure. Broadly speaking, this involved the separation of ownership of the track and rolling stock and set the scene for the way in which the railway industry is structured and regulated today.So, who are the industry players? What roles do they fulfil? And how do they fit into the contractual matrix that is UK Rail plc?
Network Rail is the owner of the national rail network. It has safety and other regulatory obligations to maintain the railway and to permit train and freight operators to use it on a nondiscriminatory basis. Its main source of income is derived from track access charges, which it obtains from selling access rights to train and freight operators. These charges are set by the Office of Rail Regulation, in its role as an independent economic regulator, by reference to the amount of income an efficient network operator would require to carry out Network Rail’s regulatory and contractual obligations. Network Rail is accordingly incentivised to manage its expenditure within these parameters.
Passenger train operators purchase franchises from the Secretary of State, under which they are entitled, usually for periods of between five and seven years, to operate train services between predetermined locations in accordance with detailed specifications as to departure times, calling patterns and journey times. Franchisees, in turn, enter into track access contracts with Network Rail under which they purchase rights to operate train services, which are intended to mirror closely the service descriptions specified in their franchise agreements. As regards rolling stock, this is not owned by the train operators directly, but rather leased to them by special purpose rolling stock leasing companies, known as the Roscos, for the duration of their franchises.
Punctual performance of train services is vital to train operators as this impacts materially on their ability to attract punters and collect ticket revenue. Train operators are accordingly afforded a level of income protection from the consequences of delay to or the cancellation of their services caused by Network Rail and/or other operators. This is achieved by Network Rail paying liquidated damages to affected operators in relation to each delayed or cancelled service, with severe delays and cancellations attracting higher levels of compensation. On the other hand, if a train operator causes delay to or the cancellation of another operator’s service, then it becomes liable for payment of the relevant compensation. As regards delays and cancellations caused by a train operator to its own services, in addition to potential loss of revenue from ticket sales, it may incur financial penalties to the Department for Transport under its franchise agreement, and potentially risks the termination of its franchise agreement if performance is particularly poor. So when your train starts moving again after a 20-minute delay, be heartened to know that at least one of the rail industry players is being incentivised to ensure that it does not happen again, even if the cause is attributed to the “wrong kind of rain”.
Stewart Simpson, projects lawyer, Simmons & Simmons
With the cost of a flight sometimes cheaper than the cost of a train fare and with the ease of e-booking, it is no wonder so many people choose to fly. But the last time you booked a flight, did you think about the choice of flights you had? Or which airline to choose? We all know a bargain can be had, with a flight to Italy sometimes costing less than a couple of aperitivi, even if getting a seat can be tantamount to the rush for last orders. But have you wondered why these low-cost airlines do not fly further afield? Why can a flight to New York not be bagged for less than the price of a pair of Manolo Blahniks?
These are questions which have been considered in the ‘Open Skies’ cases, which concern the bilateral aircraft carrier agreements between the US and eight different EU member states. Under the Open Skies agreements, only certain carriers, for example British Airways, are allowed to fly out of the UK to the US, so our low-cost friends rarely get a look-in. However, after considering these bilateral agreements, the European Court of Justice (ECJ) has concluded that they breach European law due to the ownership and control clauses they contain. These ‘nationality’ clauses restrict the benefits of the agreement to the national airlines and are in breach of European law and contrary to the right of establishment. Let us take the example of our New York flight. If, for example, the low-cost airline ‘German Wings’ wanted to operate flights from the UK to New York, under the Open Skies agreements they would be prevented from doing so, as German Wings does not have ‘British nationality’. The agreement allows only British carriers to operate these flights. German Wings would therefore be discriminated against as it is unable to exercise its right of establishment and provide the service it wants.
However, following the judgment of the ECJ and a number of proposals from the European Commission, in June 2003 the Council of the European Union adopted a mandate to negotiate EU-wide aviation agreements with the US. The rationale was to prevent EU countries from being discriminated against, while promoting the idea of Europe being treated as one country and the creation of an Open Aviation Area between the two continents. Negotiations between European and US representatives began in Brussels on 17 October and a second session was scheduled to take place in Washington DC during November 2005.
The mandate, and the subsequent negotiations, have far-reaching consequences not just for the airline carriers, who would be able to expand their operations by opening a line to the US from any airport in the EU, but also for customers, who should be offered greater choice of service and lower fares. So maybe it will not be long before a bargain flight to New York can be snapped up – and the money saved can be put towards a real pair of Manolos.
Sarah Long, EU and competition lawyer, Simmons & Simmons
Over the past months you have probably seen a great deal of comment in the press about PPPs, not least in connection with the Northern Line debacle on the London Underground. If you have been sat there wondering what PPP is, then read on.
PPP stands for public private partnership and is exactly what it says on the tin – it is a partnership between the public sector and the private sector for the purpose of delivering a project or service traditionally provided by the public sector. The focus is on the private sector providing a long-term service to the public sector rather than simply building assets which the public sector then purchases. The PPP process started in 1992 and has been widely used in a variety of sectors, particularly transport. Recent examples of PPPs in the transport sector include the London Underground PPP, the Channel Tunnel Rail Link and the Manchester Metrolink PPP. The chances are that the bus, train, tube or tram you use to get around involves an element of PPP. The contractual framework of a PPP project is complex and includes a number of key players and documents. Typically, the public sector authority will contract with a contractor who then appoints subcontractors. Normal contractual rules, such as offer and acceptance, and the need for consideration, apply. As has been the general trend in recent years, the Government has tried to standardise PPP contracts, although there is still no rigid legal structure to adhere to. The Government’s guidance for PPP contracts is known as SOPC3 and, while this is not law, PPP contracts will not receive Treasury approval unless this guidance is complied with. PPP contracts have to comply with ‘procurement legislation’ introduced by the EU. This legislation provides for three possible tendering processes, each of which must begin with the placing of an advert for the project in the Official Journal of the European Union (formerly known as the OJEC).
PPP contracts contain a number of unique contractual features, the most important of which are:
- A mechanism for variation of the services. This is required due to the long-term nature of most PPP projects – between 25 and 90 years.
- A payment mechanism. This is one of the primary methods of allocating risk between the public sector and the private sector. If well structured, it will give the private sector contractor an incentive to meet or exceed the performance standards specified and will give the contracting authority specific remedies in the event that the contractor fails to meet its obligations.
- A clause providing for liquidated damages. This is particularly important to protect the public sector body against any delay in the commencement of the services. Liquidated damages are a fixed amount payable on the occurrence of a specified breach.
Anne-Marie Reddish, projects lawyer, Simmons & Simmons
If you have been unlucky enough to drive around the streets of the UK recently, or even taken a bus, you may have noticed that we suffer from some of the worst congestion in Europe. And unfortunately it is not getting any better.
Hot on the heels of the success of the London congestion charging scheme, the Government has recently announced a radical proposal to tackle the gridlock with the concept of national ‘road pricing’. The idea is to revamp the current road tax system with an innovative new ‘pay-as-you-go’ scheme under which you pay a variable amount depending on how many miles you drive, on which roads and at what time of day. The system is likely to employ satellite navigation technology to track the movement of vehicles.
From a legal perspective, this idea throws up a number of interesting issues. The use of Big Brother-style satellite tracking means that the Government will have access to a vast database of information on each driver’s movements around the UK. Civil liberty groups have expressed concern over its effect on our right to privacy, enshrined under Article 8 of the European Convention on Human Rights, and protection of personal data under the Data Protection Act 1998. In particular, any information gathered under the scheme will need to be used strictly for the purpose of enforcing and administering the system and should not be passed on to third parties outside the scheme.
The Government will also need to find a balance between encouraging more prudent road use on the one hand, and avoiding a negative impact on UK businesses on the other. UK road hauliers already pay higher transport taxes (including fuel duty) than those in many other EU countries and any move to increase this burden is likely to be controversial. None of us, after all, wants to see a repeat of recent fuel protests. However, two recent European initiatives on road-user charging should, despite our natural suspicion of EU policies, actually help to restrain the Government’s tax-grabbing instincts – for example, the so-called ‘Eurovignette Directive’ limits the extent to which EU governments can impose tolls on the use of trans-European network roads.
The national system is currently envisaged to be implemented within the next 10 to 15 years, but could be coming to a town near you in the very near future. Suppress your road rage for a little while longer.
Rosemary Shurlock, projects lawyer, Simmons & Simmons