England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		Friday 7th November 2003

Mr Justice Moses:

Introduction

1. St Pancras station is being redeveloped to create a terminus for international trains using the Channel Tunnel Rail Link ("CTRL") as well as for domestic services to Kent and the East Midlands. The claimant is the property subsidiary of London and Continental Railways Ltd. That company contracted with the Secretary of State for Transport to design, build and finance and operate the CTRL pursuant to powers under the Channel Tunnel Rail Link Act 1996.
2. London & Continental Stations & Property Ltd ("LCSP") owns and manages St Pancras station and is the "facilities owner" of St Pancras station for the purposes of the Railways Act 1993 ("the 1993 Act"). The defendant is the statutory regulator of the railway industry, appointed under the 1993 Act. The first interested party, Midland Main Line Ltd ("MML") is the train operating company, operating passenger services to and from St Pancras station, serving destinations in the East Midlands. The second interested party, the Strategic Rail Authority ("the SRA") is the statutory authority responsible for setting strategies for the development of the rail network, established under the Transport Act 2000. It has taken no part in these proceedings.
3. In these proceedings LCSP seek to impugn a direction given by the Rail Regulator on 11^th April 2003 pursuant to Section 17 of the 1993 Act. That direction requires LCSP to enter into a station access contract with MML. The station access contract contains provisions for calculating compensation due to MML for damage to its business flowing from disruption and alteration to MML's access to St Pancras during the CTRL construction work. LCSP challenge the legality of the Rail Regulator's decisions as to the appropriate method for calculating compensation.

Facts

4. As owner of St Pancras station LCSP ("the facility owner") may only enter into an access contract allowing another party to use its station in accordance with directions given by the Rail Regulator under Section 17 or 18 of the 1993 Act. Any contract granting MML access to station facilities at St Pancras station has to be made in accordance with directions of the Regulator.
5. On 19^th April 1996, the British Railways Board, the owner of St Pancras station at that time, entered into a Station Access Agreement with MML granting MML permission to use St Pancras station ("the 1996 Access Agreement"). The 1996 Access Agreement set out the facilities to be made available for MML's passengers and staff such as public toilets, ticket machines, signs and access to platforms and forecourts. I shall turn to the terms of the 1996 agreement later but it is worth noting, at this stage, that negotiation of the 1996 agreement was a long drawn-out process which finally led to agreement and subsequent approval by the Regulator pursuant to Section 18 of the 1993 Act. The 1996 Station Access Agreement was due to expire on 28^th April 2003 by which time it was expected that CTRL works would have been completed.
6. On 28^th April 1996 MML was granted a franchise to provide train services into St Pancras. That franchise was due to expire on 30^th April 2006. On 31^st May 1996 the interest of the British Railways Board in St Pancras and in the 1996 Access Agreement was transferred to LCSP.
7. The CTRL works will involve disruption and alteration to MML's access to St Pancras. MML's services will be operated from three locations during the works, firstly in its current location (the Barlow Shed), and in an interim station north east of St Pancras which will be used by MML and Thameslink between 2004 and 2006. When the CTRL works are completed it will form part of the extended St Pancras International Station and it will be used for the new Kent Express domestic services. The third location, the final station, will provide new station facilities in the redeveloped St Pancras. It will be used by MML for some twelve months before completion of the CTRL works.
8. On 2^nd August 2000 MML's franchise was extended to April 2008. Construction did not start until the following year, in August 2001, when the short term car park was closed triggering the first payment of compensation under the 1996 Access Agreement. The first real project works started on 5^th August 2002 with the closure of two platforms. It is intended that MML should move to the interim station in 2004. The construction work is expected to finish late in 2006 or early 2007. Thus, the compensation regime under the 1996 Access Agreement, expected to provide MML with compensation during the whole of the CTRL work, will not be able to achieve that objective because of delay in starting and completing the project.
9. Accordingly, negotiations took place between LCSP and MML during the course of 2002. The parties were unable to agree terms of compensation. LCSP took the view that the amounts payable under the 1996 Access Agreement had been greater than any actual or potential losses to MML's business. It sought a reduction of the amounts of compensation payable. MML sought to maintain the level of compensation.
10. Since the parties were unable to agree, on 15^th October 2002 MML applied to the Regulator pursuant to Section 17 of the 1993 Act for directions requiring LCSP to enter into a Station Access Agreement on the terms which MML advanced. On 16^th October 2002 the Regulator notified LCSP of the Section 17 application and invited it to respond. On 6^th November 2002 LCSP gave a detailed reply to points raised by MML. In December 2002 MML responded and further correspondence took place.
11. The Regulator commissioned MVA, a firm of consultants on transport economics, to advise on the appropriate compensation arrangements and levels. The terms of reference had been agreed in November 2002 with LCSP. A first draft report was forwarded to LCSP and MML on 23^rd December 2002, requesting comments by 8^th January 2003. LCSP commented upon that draft on 13^th January 2003 with the aid of advice from Mr Geoffrey Maynard who is a transport consultant. LCSP also received MML's comments.
12. On 24^th January 2003 the Regulator permitted a full day's hearing, of which I was provided a transcript, at which representatives of the parties were given the opportunity to make representations. MVA set out the methodology it had recommended for the calculation of compensation. LCSP challenged that methodology. On 31^st January 2003 LCSP wrote listing various concerns in relation to the detail of the approach adopted by MVA.
13. MVA's final report was provided to the Regulator on 4^th February 2003 and subsequently forwarded to LCSP and MML on 19^th March 2003 accompanied by the Regulator's draft directions. LCSP again responded on 21^st March 2003 and submitted written comments on 26^th March 2003.
14. On 11^th April 2003 the Regulator issued his directions enclosing the new Station Access Agreement. His reasoning is set out in the document dated April 2003.

Statutory Scheme

15. As I have said, Sections 17 and 18 of the 1993 Act create a system which confers power on the Regulator to direct an owner of railway facilities to enter into an access contract to allow another party to use its facilities. Alternatively he may approve an access contract, the terms of which have been agreed between the facility owner and the other party, as occurred in relation to the 1996 agreement. Pursuant to Section 18(1), the facility owner may only enter into an access contract if directed to do so by the Regulator under Section 17, or if it agrees the terms of access with the other party and the Regulator approves those terms and issues directions under Section 18. The relevant provisions of Sections 17 and 18 are set out in Annex 1 to this judgment.
16. It should be noted that by virtue of the operation of Section 22(1) any amendment or purported amendment of an access contract is itself void unless it falls within the provisions of Section 18(1)(a)-(c), that is, made pursuant to directions given by the Regulator, made under the terms of an approved contract or is the subject of a general approval. The effect of the provisions of Sections17 and 18 is that the Regulator may determine to whom the owner of the railway station may permit access and on what terms.
17. Schedule 4 of the 1993 Act governs the procedure for determining applications for directions. By paragraph 3 of Schedule 4 the Regulator is required to give an opportunity to the facility owner to respond to an application. The applicant is to be given an opportunity to make further representations in response. It can be seen that the opportunity in the instant case afforded to LCSP and MML to make representations was far greater than that required under the statute.
18. Subject to an overriding duty to exercise his functions in such a manner as not to impede the performance of any development agreement under the Channel Tunnel Rail Link Act 1996 (see Sections 21(1) and 56), the Regulator must exercise his functions in a manner which he considers best calculated to achieve certain objectives specified in Section 4 of the 1993 Act. Section 4(1) provides:

(1) The Regulator shall have a duty to exercise the functions assigned or transferred to him under or by virtue of this Part in the manner which he considers best calculated-

(za) to facilitate the furtherance by the Authority of any strategies which it has formulated with respect to its purposes;

(a) to protect the interests of users of railway services;

(b) to promote the use of the railway network in Great Britain for the carriage of passengers and goods, and the development of that railway network, to the greatest extent that he considers economically practicable;

(ba) to contribute to the development of an integrated system of transport of passengers and goods;

(bb) to contribute to the achievement of sustainable development;

(c) to promote efficiency and economy on the part of persons providing railway services;

(d) to promote competition in the provision of railway services (for the benefit of users of railway services);

(e) to promote measures designed to facilitate the making by passengers of journeys which involve use of the services of more than one passenger service operator;

(f) to impose on the operators of railway services the minimum restrictions which are consistent with the performance of his functions under this Part;

(g) to enable persons providing railway services to plan the future of their businesses with a reasonable degree of assurance.

1996 Access Agreement

19. Clause 7 and Schedule 4 provide for MML to be paid compensation by LCSP for the effects of the CTRL works. The compensation fell into three categories:

(1) Facilities compensation to reflect loss of facilities or increases in walking distances to and from facilities for staff and passengers (see Schedule 4 paragraphs 2 to 8);

(2) Compensation for project liaison to cover the cost to MML of liasing with CTRL project (Part 1 paragraph 11.1) and

(3) General Damage Compensation to cover the general effects of the construction works on MML's business (Part 1 paragraph 11.2)

20. The underlying approach to the method for calculating is referred to in Clause 17 as follows:-

"The station facility owner expressly agrees and acknowledges that the compensation payable pursuant to this Schedule 4 represents the parties genuine pre estimates of the loss which the beneficiary may suffer as a result of the events which gave rise to the payment of compensation under this Schedule 4."

It is also important to observe that all the compensation figures were to be increased annually in accordance with the retail price index (see clause 12.1). Sums specified were based on MML's estimated revenues in 1996 calculated by reference to the 1994 timetable. They were not to be increased pro-rata according to any increase in revenue in future years which MML might achieve.

21. The most significant aspect of the method for calculating compensation relates to compensation due to the loss of or dispersal of facilities. The 1996 system included daily sums for the non-availability of facilities or for increases in walking time to them. The daily sum for increased walking distance to different facilities was set out in compensation facility tables applicable to those facilities, by reference to the excess of time over the existing walking time for that facility, multiplied by the amount of that excess (see Clause 6 and Part V which contains schedules showing the various sums).

The 2003 Station Access Agreement: Key Changes and Challenge

22. For the purposes of the instant case one of the key changes made by the Regulator related to a re-calculation of the valuation of walking time. By Clause 6 of the new agreement increased walking time is to be compensated by a sum equal to the amount shown for the particular dispersed facility in the applicable compensation facility table multiplied by each additional minute of walking time, which exceeds the original time for the facility (see 6.2.1 and for example Part V at page D874). LCSP challenges this approach on the basis that it will impose an excessive burden on LCSP over and above that which it would have suffered under the 1996 Access Agreement as interpreted and put into practice by LCSP and MML.
23. The Regulator allowed for a reduction in the level of compensation due to reduced walking time and abandoned the previous system of variable payments and rounding up.
24. The second key change related to the re-basing of compensation on the basis of MML's current revenue data. This, contends LCSP, is unjustified in the context of a Station Access Agreement which only requires LCSP to provide the facilities necessary to meet MML's 1994 timetable.
25. Other provisions recalculated the level of general damage compensation to take into account the interim station to the northeast.
26. I shall turn to the detailed provisions and reasons for making them in respect of the different challenges. But I should observe at this stage that the general thrust of LCSP's challenge seeks to impugn the fundamental basis upon which the Regulator has reached his conclusions. The agreement will result in a significant increase in compensation, even on the basis of the Regulator's own estimates which undervalue the likely increase. There has been considerable dispute as to the correct valuation of the estimates of likely compensation but at the core of LCSP's complaints is the contention that in his attempt to achieve a method of providing full compensation to MML in respect of loss of revenue due to disruption caused by the CTRL work, the Regulator lost sight of the excessive burden which would be imposed upon LCSP. The compensation which it is likely to have to pay will far exceed the access charge it receives. LCSP will, in effect, be paying MML for use of LCSP's facility. It is that effect which leads LCSP to challenge the Regulator's overriding objective of seeking to provide a method which will protect MML's revenues against the disruption caused by the construction work.

Relevant principles in relation to the court's intervention

27. In Winsor v Bloom [2002] EWC Civ 955 [2002] 1WLR 3002 the Court of Appeal set out three important principles. Firstly, the fundamental nature of the Rail Regulator's role is founded on Section 4 of the 1993 Act. The Rail Regulator is required to exercise his powers in a way which furthers the national and public interest in having an efficient and effective railway system (see paragraph 16). The Rail Regulator has a "broader public interest role" (see paragraph 32) and a "supervisory role" relating to the running of the railways as a whole (see paragraph 33).
28. Secondly, having regard to his role as guardian of the public interest, the Regulator is not constrained in the directions he may make by the wishes of the parties. The directions he gives may be different from those which an applicant for the directions sought (see paragraph 20). He may have a separate agenda (see paragraph 21). He is not a judge or arbitrator but performs a broader role than that required of a judicial or quasi judicial decision maker (see paragraph 21 and 34). In those circumstances he is not constrained by the wishes of the parties.
29. Thirdly, he is better placed than a court to make an overall assessment of what is in the interest of the rail network (see paragraph 33). This third principle explains why the court has limited scope for intervention. In relation to the analogous situation of the Director General of Telecommunications Lightman J pointed out in R v Director General of Telecommunications ex parte Cellcom and others [1999] ECC 314 at para 26:-

"Where the Act has conferred the decision making and function on the Director, it is for him, and him alone, to consider the economic arguments, weigh the compelling considerations and arrive at a judgment. The applicants have no right of appeal; in these judicial review proceedings so long as he directs himself correctly in law, his decision may only be challenged on Wedensbury grounds. The court must be astute to avoid the danger of substituting its views for the decision maker and of contradicting (as in this case) a conscientious decision maker acting in good faith and with knowledge of all the facts."

30. In the instant case the Regulator is concerned with determining a method of compensating MML for its loss of business in the future over the anticipated forty four months life of the new Access Agreement. There is no way in which such damage can be measured with any exact precision. It is not possible to determine exactly, even after the event, what the true cost to MML's business will have been. The decision of the Regulator is concerned with a prediction for the future. In those circumstances, as Lightman J pointed out in the paragraph to which I have already referred in Cellcom:-

"If (as I have stated) the court should be very slow to impugn decisions of fact made by an expert and experienced decision maker, it must surely be even slower to impugn his educated prophesises and predictions for the future."

31. Lightman J also referred to Lord Templeman's speech in R v Independent Television Commission ex parte TSW Broadcasting Limited [1996] JR 185. Although Lord Templeman's minatory observations are likely to create feelings of nostalgia in the modern Administrative Court they must surely be borne in mind in a case as complex and technical as this:-

"Of course in judicial review proceedings as in any other proceedings everything depends on the facts. But judicial review should not be allowed to run riot. The practice of delving through documents and conversations to extract a few sentences which enables a skilled advocate to produce doubt and confusion when none exists should not be repeated." (195).

32. The nature of the subject matter with which the Regulator had to deal reinforces the reluctance a court must feel in intervening. Whether the challenges are advanced on traditional public law grounds or, as will be seen later, in the context of Article 1 of the First Protocol of the Convention it must be borne in mind that the Regulator was concerned with issues of economic policy and of economic theory and practice. Whilst references to deference may now be regarded as "vieux jeux" after the observations of Lord Hoffman in R (Pro Life Alliance) v BBC [2003] 2WLR 1403 at paragraphs 74 to 77 the context of this case demonstrates that the role of the courts to constrain the Regulator's exercise of his decision making power is small. Laws LJ's fourth principle in International Transport Roth GmbH v The Home Secretary [2003] QB 728 at paragraph 87 is particularly apt:-

"Greater or lesser deference will be due according to whether the subject matter lies more readily with actual or potential expertise of the democratic powers or the courts."

The width of the Regulator's discretionary area of judgment is easily recognised in relation to a decision as to directions which are concerned with economic policy.

33. It must also be borne in mind that the Regulator obtained expert advice from MVA. This led to some dispute as to whether LCSP was merely seeking to attack MVA's advice. I do not believe this dispute advanced the case of the Regulator. It was the adoption of that advice which formed the focus of LCSP's challenge. In R v Council of Legal Education ex parte Edess [1995] Admin LR 357 the court ruled that when a decision maker has instructed suitable experts and used them in a sensible way, that effectively discharged his duties under Wednesbury. (See 380). But in that case there was no criticism of the experts' approach or advice (see page 380 between e and f).
34. In considering the various challenges advanced to the Regulator's directions I must, accordingly, bear in mind that he was reaching his conclusions in a field in which he was both expert and experienced. He was advised by experts. He gave ample opportunity to LCSP to challenge his provisional conclusions. That opportunity was far greater than that which was afforded by the statute. Further, he was concerned with predictions for the future incapable of any exact measurement. All these factors demonstrate that what Simon Brown LJ described as "the constraining role of the courts" (see Carson and Reynolds v The Secretary of State for Work and Pensions [2003] EWCA Civ 797 at para 73) is indeed modest.

Does the Regulator's approach to compensation lead to the imposition of an excessive and unjustifiable burden on LCSP?

Argument

35. LCSP advances specific arguments in relation to the Regulator's failure to take into account the regime under the existing 1996 Station Access Agreement as in fact operated by the parties. Its second main challenge is to the re-basing of the compensation levels using an estimate of MML's 2003 revenue. But, as I have recorded, underlying these challenges is an attack on the Regulator's fundamental approach to compensation.
36. In seeking to devise a system of compensation for the effects of the CTRL work, the Regulator lost sight of the excessive burden which will be imposed upon LCSP, a burden which will lead to it paying far greater sums for compensation than that which it receives by way of access charges. Because this challenge is so fundamental I shall deal with it first.
37. On any view of the figures, the levels of compensation payable will exceed the access charge which LCSP is permitted to levy upon MML in the 44-month period whilst CTRL works and the access contract are expected to continue. The access charges will amount to £7.9 million. On the Regulator's own estimate the compensation likely to be payable, as a result of re-basing, will exceed that figure by £6.28 million and on LCSP's own estimate, by £13.18 million. Thus, it is contended, that during the 44-month period LCSP and its shareholders are being required to subsidise very substantially the provision of the transport services by MML to St Pancras. This imposes an excessive and disproportionate burden upon LCSP. The Regulator accordingly failed to strike a fair balance between the public interest and LCSP's property rights. Such a failure infringed LCSP's rights enshrined in Article 1 of the First Protocol to the European Convention on Human Rights. The Regulator lost sight of the need to assess the likely outcome and burden imposed on LCSP.
38. The Regulator's approach is summarised at 5.19:-

"The Regulator has concluded, in accordance with his duties, and in particular his duties under Section (4)(1)(a) and 4(1)(g) of the Act that it is appropriate to include in his directions compensation provisions to protect the interests of users of railway services, and to enable both MML and L&C to plan the future of their businesses with a reasonable degree of assurance, on the premise that the regime he is directing will hold MML financially neutral from the effects of the disruption caused by the CTRL works."

This premise, contends LCSP, requires justification in the public interest. The reasons advanced by the Regulator for adopting MVA's methodology are set out at paragraph 5.36. It is said that the methodology will best protect the interests of users of railway services because it will incentivise the parties to make decisions which will minimise the impact of CTRL work (5.36(a)) and promote efficiency and economy by creating an incentive for the efficient implementation of work at St Pancras Station (5.36(b)). Further, it imposes minimum restrictions on the operators of railway services (5.36(c)) and enables the service providers to plan the future of their businesses (5.36(d)).

None of these reasons, focussing as they do upon incentives, provide an explanation as to why it is in the public interest to impose so great a burden upon LCSP stemming, to a significant extent, from the direction to calculate compensation upon the estimate of the 2003 revenue figures.

LCSP contends that the aim of financial neutrality which the Regulator sought to achieve, by adopting the new regime recommended by MVA, was only legitimate if it imposed no disproportionate burden upon LCSP. LCSP had argued before the Regulator that it had no obligation to make good any shortfall on 2003 revenues as a result of the CTRL works. Its primary argument at the hearing of 24^th January 2003 was that the works had not triggered and were unlikely to trigger any loss in revenue. Miss Kelly, on behalf of LCSP, said that LCSP was prepared to compensate Midland Mainline but objected to the amounts payable. It sought substantial reduction in the rates (C/482). She pointed out that under the 1996 regime, once facilities had been moved to the interim station, LCSP's payments would exceed access charges by three quarters of a million pounds a year. At the very least, it contended, compensation should be capped to the access charge.

Article 1 of the First Protocol

39. In support of the contention that the new directed compensation regime imposes an unfair and excessive burden upon LCSP, LCSP relies upon its rights enshrined in Article 1 of the First Protocol. This provides:-

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way, impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

There was, at least by the time of the exchange of skeleton arguments, a dispute between the parties as to whether the Regulator's decision involved any interference by him with LCSP's right to use its land. Such interference, it was contended, stemmed from the Station Access Agreement and not from the imposition of a new compensation regime. The interference with LCSP's right to use its land at St Pancras Station had been agreed between LCSP and MML. It was not in contention.

40. However, the better view, I think, is that LCSP, was deprived of the right to use its property as it saw fit. The compensation regime restricted the free exercise of its right and thus constituted an interference with LCSP's enjoyment of its rights as owners of the property analogous to the obligation of the landowners in the Dordogne who were obliged to tolerate hunting on their land every year (Chassagnou v France 29 EHRR 615 para 74 at page 674). As the court recorded in that case, Article 1 of the First Protocol requires a fair balance to be struck between protection of the right of property and the requirements of the public interest.
41. Further, the terms under which compensation is received in return for the use or expropriation of land are material to the assessment of whether a fair balance is struck between the public interest and the protection of property rights. In particular, compensation terms are relevant to the question of whether a disproportionate burden has been imposed upon a property owner (see Jokela v Finland [2002] ECtHR May 21^st App. No. 28856/95).
42. LCSP do not challenge that a reasonable relationship exists between the means adopted and the objective pursued but rather that no fair balance was struck because an excessive burden was imposed upon LCSP with the result that LCSP is forced to pay MML for the use of LCSP's property. It is implicit in the concept of proportionality that an excessive burden must not be imposed (see Simon Brown L.J. in International Transport Roth GmbH v The Home Secretary [2003] QB 728 at paragraph 52 at page 753 citing James v United Kingdom [1986] 8 EHRR 123 at 144 to 145 paragraph 50:-

"The requisite balance will not be found if the person concerned has had to bear "an individual and excessive burden".

43. Mr Howell QC draws attention to the fact that there is no reference to LCSP's property rights at all within the Regulator's decision. He simply does not refer to Article 1 of the First Protocol. No fair balance was struck between LCSP's property rights and the public interest because the point was never even addressed. The question of proportionality had to be addressed (see Richards J. in The Queen on the Application of Madden v Bury Metropolitan Council [2002] EWHC (Admin) 1882 at paragraph 68-69 (in the context of Article 8). If it was never addressed then the court is under no obligation to afford the decision any deference or, perhaps more accurately, to determine the appropriate allocation of the decision-making responsibilities between the Regulator on the one hand and the court (see Maurice Kay J. in R (D) v The Secretary of State [2003] EWHC 155 (Admin) at paragraph 23).

Was the burden excessive?: Conclusions

44. I should start my consideration of whether the Regulator struck a fair balance between the general interest and the interests of LCSP by outlining the appropriate approach which the court should adopt. Firstly, the question cannot be determined by the failure of the Regulator to refer to Article 1 of the First Protocol. It was not surprising, since no reference was made to the Convention during the course of the extensive argument and representations made to him. The issue is one of substance, not form. If the statutory procedure for the determination of appropriate directions itself requires a balancing exercise between the public interest and LCSP's rights, the Regulator's failure to refer to Article 1 of the First Protocol is of no moment (see E.G. Holder v Law Society [2003] EWCA Civ 39 at paragraph 31 in the context of the Law Society's power to intervene pursuant to the Solicitor's Act 1974). In the instant case, Section 4(1)(f) of the 1993 Act imposes an obligation on the Regulator to exercise his functions in the manner best calculated to impose the minimum of restrictions consistent with the performance of his functions. Compliance with that obligation ensures that he strikes a fair balance. There was no obligation to refer specifically to Article 1 of the First Protocol. The real question is whether, in the approach he adopted, the Regulator struck a fair balance.
45. Secondly, it is the very essence of the function of the Regulator that he is required by Section 4 to exercise his powers in a way which furthers the national public interest in having an efficient and effective railway system (Winsor v Bloom [2002] 1 WLR 3002, paragraph 16, 3008). If the Regulator performs his functions in accordance with the principles identified in Section 4 of the 1993 Act, he fulfils his function as guardian of the public interest.
46. Applying those principles, I can find no basis for concluding that the fundamental approach which the Regulator adopted was other than rational. The fundamental approach was to seek to compensate MML for losses sustained by virtue of the CTRL construction work. LCSP was, in relation to MML, a monopoly owner of a railway facility. The Regulator is empowered to give directions under Sections 17 and 18 of the 1993 Act in order to avoid unfair exploitation of that monopoly position (see paragraph 15 of Winsor q.v. supra). MML, after all, had no choice as to the destination or starting point of its passenger services. The lines which it was bound to use led to and from St Pancras. The general principle of compensation was designed to compensate MML for disruption caused by construction works undertaken for LCSP's benefit. In those circumstances it cannot be said to be irrational or to impose an excessive burden if LCSP was required to compensate for disruption to MML's business caused by the works. Moreover, the fact that the losses due to such disruption exceeded the amount of access charge paid by MML does not lead to the conclusion that an excessive burden was being imposed. It is difficult to see why it would be fair to require only partial compensation for disruption due to the CTRL works. The fact that LCSP is required to pay MML a sum greater than the amount MML pays as access charges merely reflects the fact that the works have caused damage to MML's business by an amount which exceeds the access charges. The greater the disruption the greater the loss and, it follows, the greater the amount LCSP will have to pay to hold MML, to use the Regulator's words, "financially neutral".
47. There is a second factor, which reinforces the rationality of a system pursuant to which LCSP is required to compensate MML for disruption to its business. It stems from the history of the 1996 Station Access Agreement. On 19^th April 1996 the British Railways Board, LCSP's predecessor in title and MML entered into the Station Access Agreement with effect from 19^th April 1996 to 28^th April 2003. During this period it was expected that there would be significant disruption due to the construction programme. Accordingly the 1996 Agreement provided for the compensation scheme. That scheme provided for a system of compensation which reflected the parties' genuine pre-estimates of loss which MML might suffer as a result of the work (see Clause 17). As Miss Kelly points out in her first statement, the expiry date was chosen because it was believed that the CTRL project and the new St Pancras Station would be completed by April 2003. As she says, the compensation system within the 1996 Access Agreement was intended to provide MML with compensation covering the whole of the CTRL works (see paragraph 18 of her first statement). Unfortunately, delays put back the opening date of the new international station to late 2006 or early 2007. It was that delay which made it necessary to put in place arrangements for compensation from 28^th April 2003 until completion of the works (see paragraph 19 of Miss Kelly's first statement). But that delay can afford no justification for providing within the new Station Access Agreement anything other than a genuine pre-estimate of loss caused by disruption as envisaged in Clause 17 of the original 1996 Agreement. The need to safeguard MML's business within the new directed 2003 regime was no less than the need which formed the basis of Clause 17 under the old 1996 Agreement, as MML contended in its application for directions at paragraph 4.4. There was no warrant for a level of compensation lower than that required to compensate MML for its losses merely by virtue of the delay. The history of the 1996 Station Access Agreement demonstrates that both MML and LCSP entered into the Station Access Agreement on the basis that there would be compensation for MML such as to provide a genuine pre-estimate of loss to be suffered as a result of the construction work. The Station Access Agreement entered into on 19^th April 1996 was followed by the grant of the franchise to MML on 28^th April 1996 to last until 30^th April 2006. The British Railways Board's interest in St Pancras and the Station Access Agreement was transferred to LCSP on 31^st May 1996. Thus LCSP agreed the method of compensation representing a genuine pre-estimate of loss due to disruption to MML's business as part of the price for its purchase and development of St Pancras. I cannot see how LCSP can complain reasonably of a system which represents a genuine pre-estimate of MML's losses in the period beyond April 2003 when the need for such compensation in that period arises only because the works have been delayed. It had entered into the original contract on that basis and delay cannot afford a justification for avoiding the consequences of the construction work. Equally MML should not be in a position of suffering uncompensated loss merely because the re-development has been delayed. LCSP's only legitimate expectation can have been an obligation to hold MML financially neutral whilst the construction works continued. That was the basis upon which it acquired St Pancras with the opportunity to develop it and the basis upon which MML acquired the franchise. Thus the only rational basis upon which the Regulator could make directions was on the basis of a system of compensation which genuinely pre-estimated losses caused by disruption.
48. It does not seem to me that the argument has any greater value if one regards the effect of the 2003 directed regime as to deprive LCSP of its monetary assets. The justification for so doing by the method for compensation adopted is no greater nor any less than that to which I have referred in relation to the objective of the compensation regime. As I have said the effect of that regime is merely a consequence of the principle adopted by the Regulator that MML should be held financially neutral against the consequences to its revenue of disruption. That this is likely to lead to a larger figure for compensation to be paid than that which is received in respect of access charges is merely a consequence of the extent of the disruption.
49. For these reasons, it does not seem to me that there was anything irrational in the Regulator operating upon the premise that the regime from 2003 until the completion of the construction works should be anything other than that MML should be compensated for or, as he put it, held "financially neutral" from the effects of the disruption caused by the CTRL works.

The Regulator's failure to take into account the regime under the 1996 Agreement as the parties had operated it.

50. At Part V of his 2003 directions (D874) the Regulator set out figures for compensation in respect of additional minutes walk time to a variety of facilities, significantly to London Underground lines. Compensation was:-

"Payable per day or part day for each additional minutes walk time."

Thus the Regulator required the expressed compensation figure, the multiplicand, to be multiplied by each additional minute walk time. This process of multiplication will cause, submit LCSP, an unjustified increase to the amount of compensation it is likely to have to pay over that which it would have had to pay under the 1996 regime. The decision to allow for multiplication stemmed, so it is contended, from the Regulator's failure to take into account the pre existing compensation regime as operated by LCSP and MML. Previously there had been no multiplication. Two arguments flow: firstly it is contended that all that MML was seeking as a means of providing sufficient compensation was compensation for additional walking time without multiplication. Secondly, in failing to take into account the practice of the parties under the 1996 regime the Regulator failed to take into account a material consideration.

The 1996 regime as drafted.

51. By 6.2 of Schedule 4 "The compensation provisions" of the 1996 Station Access Agreement, the compensation payable in respect of the relevant facility:-

"Shall for each day of that period be a sum equal to the amount shown for that facility in the applicable compensation facility table (by reference to the excess of the time over the existing time for that facility as set out in whichever of the columns under the general heading "Compensation Payable per day or part day for each additional minutes walking time" of that compensation facility table is applicable to such excess) multiplied by the amount of that excess. "

The compensation facility table was headed:-

"Compensation payable per day or part day for each additional minutes walking time."

In respect of each facility outwith the permissible range three different and increased figures were set out for the multiplicand. For example, in relation to short term car parking if the facility was outwith the permissible range by up to two minutes a figure of £188 was fixed. If it was outwith the permissible range by more than two but less than eight minutes the figure was £376 and if the facility was outwith the permissible range by at least eight minutes the figure was £940. Thus within each particular band the figure was the same whether the facility was dispersed by three minutes or seven minutes. Those figures were index linked (see paragraph 12.1).

52. LCSP contend that the Regulator's interpretation of the 1996 Agreement, which required the daily sums to be multiplied by the number of additional minutes walking time, produces absurd results. Based on 2003 revenues it would require LCSP to pay MML more than double that which the Regulator thinks appropriate, even on his own estimates. MVA's own estimates of compensation payable under the directed regime amount to £13,897,080 for facilities compensation and general damage over the life of the agreement. But if the Regulator's approach to the 1996 Station Access Agreement was carried forward, MML would receive almost double the amount of compensation that the Regulator considered appropriate in his direction, namely an amount of £27,689,543 (see the calculations between paragraphs 12 and 13 of Mr Maynard, the transport consultant's second statement). This demonstrates an economic absurdity. Such an absurdity, so it is contended, cannot have been intended. On the contrary both MML and LCSP proceeded under the 1996 regime to pay and receive compensation without any multiplication.
53. There can be no doubt that in fact MML claimed and received compensation on the basis of the compensation band in the 1996 Compensation Facility Tables without multiplication. There is a dispute as to when invoices were raised, LCSP says that it was in May 2002 and MML says it was September 2002. I do not think that matters. It appears that compensation first fell due following the removal of the short term car parking in August 2001. Compensation in respect of increased walking time to an alternative car park was claimed and paid without reference to a later exchange of emails which recorded that both parties agreed that there should be no multiplication.
54. MML contend that the variation to the plain meaning of the original agreement was agreed during the course of negotiation as to the new 2003 Station Access Agreement only in the face of a threat to remove the facilities in question altogether from St Pancras. On the 11^th September 2002 LCSP suggested that unless compensation for displaced facilities was capped LCSP would have an incentive to remove facilities altogether. In response, by email dated 23^rd October 2002, MML reluctantly agreed to the variation. I do not believe that the emails are of any great significance save to confirm that both sides agreed that under the 1996 Agreement there would be no application of a multiplier to the different, stepped, daily figures. The negotiated agreement contained in the emails post-dated the basis upon which MML invoiced and LCSP paid compensation for the facilities which had been displaced at that time.
55. It was in the light of that agreement not to apply the multiplier that LCSP lays particular emphasis upon the approach of MML in its application for directions enclosed with the Regulator's letter dated 16^th October 2002. MML said that it was in the interest of all parties to continue with the terms of the existing agreement:-

"Which were envisaged by all the parties to provide adequate and fair protection for MML… during the ongoing construction work." (4.3)

MML contended that it was entirely appropriate for the terms and conditions of the existing agreement to be carried forward into the new agreement (4.5). It said at 6.6:-

"MML do not consider that there is any rationale to dispense with the compensation levels previously agreed at a time when the CTRL and St Pancras works were about to intensify. MML are firmly of the view that the current values contained within the facility tables and the general business damages need to be carried forward to the new agreement. "

LCSP stressed that they were based upon 1996 revenues.

56. In its response to LCSP's written representations of 6^th November 2002, MML reiterated that the levels of compensation in the new agreement should be the same as those in the existing agreement (see 8.5.1). In response to LCSP's conclusion MML stated that the pre-estimate in the 1996 Access Agreement:-

"Constituted an appropriate level of compensation and therefore the terms of the existing agreement should be contained in the new agreement."

A schedule of proposed amendments sought by LCSP to the existing agreement referred at Item 32 to the fact that MML had agreed to deletion of the words "for each additional minutes walking time multiplied by the amount of that excess". It agreed with LCSP's contention that the title of the column was misleading and that the table should be self-standing with no further multiplication.

57. LCSP contend that the Regulator's error is exposed in the reasons advanced for the new directed regime. At paragraph 5.27 of his reasons the Regulator says:-

"Broadly speaking, the compensation regime contained in the directions is expected to provide overall levels of compensation in the region of those sought by MML, rather than those offered to MML by L&C (LCSP's parent)."

LCSP contend that MML did not seek a regime with multiplication but rather sought continuation of the existing compensation without any multiplication. The regime directed by the Regulator would provide MML with compensation of £14.2 million over 44 months whereas MML's proposal of a continuation of existing compensation without any multiplication would be likely to result in only £10.2 million. The Regulator's error as to how the parties put into operation the existing agreement and as to what MML was seeking led to an increase on his own figures of approximately £4 million (just under 40%). LCSP estimate an even greater increase. Accordingly the Regulator has substantially underestimated the increases his directed regime will cause compared with the provisions for compensation for increased walking time under the old 1996 regime as operated by the parties and which both parties agreed should be followed under the new contract.

Conclusions: MML's approach

58. LCSP's reliance upon MML's agreement, that the 1996 computation for dispersed facilities should not include multiplication, presents only part of the picture. Its application for directions under Section 17 of the Act, enclosed by the Regulator in his letter dated 16^th October 2002, retained the heading "Compensation payable per day or part day for each additional minutes walking time" which had been in the original 1996 directions (see B/161). 6.1(2) of the proposed new contract also made clear that MML sought continuation of multiplication (see B/147). It is true that, in response to LCSP's proposal to remove multiplication, MML agreed. But two aspects of that agreement should be borne in mind. Firstly, LCSP was proposing a reduction in compensation. In its response to the Regulator's letter dated 16^th October 2002, on 6^th November 2002 LCSP contended that the amounts payable were considerably in excess of:-

"The real damage (if any is proved) to MML's position".

MML was thus faced with a proposal to reduce the level of compensation payable under the 1996 Agreement. Its response was to seek, at least, retention of the existing level of compensation payable. In its proposal at A.5.1(c) it pointed out that the existing agreement in 1996 was a genuine pre-estimate of its losses. It continued:-

"MML consider that to the extent that any changes in the level of general damages compensation and facility compensation is appropriate, such changes should reflect an upward adjustment on the basis of MML having successfully built up its business since the current levels were set. This is particularly the case in view of LCSP's failure to show any reason for change. MML's approach, however, is to maintain the levels of general damages compensation and facility compensation at the existing levels on the basis of certainty". (B319).

This approach was repeated in its comments on sub-paragraph 2 of 2.4(d) (B326) and in its response to LCSP's conclusion (335). Thus MML's agreement to the removal of multiplication was made in the context of seeking to maintain an approach which would achieve a genuine pre-estimate of its losses and no reduction in levels of compensation.

59. Secondly, it is noteworthy that at the time of the proposals and counter-proposals neither LCSP nor MML told the Regulator of the practice that had been adopted in 2002. It was never suggested that the plain words of the original 1996 Agreement at 6.2 and in the Schedule did not involve multiplication of the specified sums. Indeed, the very fact that LCSP proposed an alteration to the heading contains an acknowledgment that the original contract did allow for multiplication. Nor was the subsequent evidence of Mr Maynard as to what had been intended (first statement paragraphs 7 – 11) and the consequent error in the final version of the 1996 Access Agreement revealed to the Regulator at that stage, or at the hearing on 24^th January 2003. The first time it was referred to was in response to a request made on behalf of the Regulator on 12^th February 2003. An email on behalf of the Regulator dated 12^th February 2003 records that MML required the title to remain whereas LCSP sought amendment. LCSP was asked what point it was making. It responded on 13^th February to explain that LCSP proposed:-

"Walking distance compensation within each band or step in range is applicable to the whole of the range… The principle of this approach has been agreed by MML for facilities that are sited outwith the permissible range."

The email then referred to a previous email from MML dated 23^rd October 2002. This slight and passing reference to the previous practice could hardly be described as coming at the forefront of LCSP's representations. Nevertheless the Regulator was aware of the previous agreement and took it into account in his reasoning. He said:-

"1.22 Late in the course of the Section 17 process, it emerged that the parties sought to agree an interpretation of the walking time compensation provisions in the existing Access Agreement which provide the instructions on how to calculate this element of compensation. The Regulator does not agree with the interpretation of the agreement which the parties appear, from the evidence they have provided to have adopted. In his directions the Regulator has included provisions which implement a revised compensation regime, and has clarified how this should be interpreted. In future therefore there should no longer be any doubt about how walking time compensation should calculated.

1.23. However, comparisons between the likely financial impact of the new regime contained in the Regulator's directions, and the current compensation arrangements, are complicated by the difference of view over how the current provisions should be interpreted. Where possible, the Regulator has provided comparisons with both what he regards as the proper reading of the current agreement and the interpretation adopted by the parties."

60. The reasoning is then amplified between paragraphs 5.61 to 5.67. The Regulator's reasons demonstrate that he did appreciate the interpretation the parties had in fact adopted of the 1996 Agreement (see paragraph 5.61). Moreover he noted that MML's Section 17 application sought the same drafting as the existing agreement for paragraph 6.2 of Schedule 4 but that MML has subsequently agreed with the proposed variation (5.64). It is plain that his estimates of compensation payable took into account both the 1996 Agreement as drafted and as interpreted by the parties (see paragraph 5.66).
61. In an important paragraph in his reasoning he explained that whatever the interpretation of the 1996 Agreement he was going to adopt a new approach independent of the existing regime. He took the view that:-

"Interpreting the existing regime is relevant only to a comparison of the compensation payments likely to become payable under the existing regime to those which are likely to be payable under MVA's recommended regime."

For the reasons he gave he preferred the methodology adopted by MVA:-

"Which itself is based on standard and accepted rail industry techniques."

Accordingly I reject the contention that the Regulator erred in stating that the compensation regime contained in the new directed regime was expected to provide overall levels of compensation "in the region of those sought by MML" (5.27). The Regulator's reasoning demonstrates to my satisfaction that he was aware of MML's approach to walking time compensation. Far more important, to my mind, is the question whether the Regulator was entitled, whatever the parties' interpretation of the existing 1996 regime, to adopt a new approach. It is clear from his reasoning at 5.67 that the Regulator did not regard comparison of compensation levels under the 1996 regime, as interpreted by the parties, with compensation levels under the new regime as of particular significance. The essential question raised by LCSP's contentions is whether he was entitled to adopt that approach. It is accepted on behalf of the Regulator that the levels of compensation will be considerably higher under the new regime than under the existing regime as interpreted by the parties (see in particular Mr Gooding's table annexed to his third statement at E222 and MVA's calculations at E270). Under the new directed regime, the figures are £20,797 million as opposed to £18,904 million for the 1996 regime as drafted as opposed to 9168 on the parties' interpretation of the 1996 regime. The difference in levels is slight when comparison is made between the directed regime and the 1996 regime on its proper construction. The levels are only dramatically apart in relation to the 1996 regime as adopted in 2002.

62. In my judgment the Regulator was entitled to place little weight upon these comparative figures, which themselves were the subject of detailed, complex and lengthy dispute. He was entitled to focus on whether the new regime, as advised by MVA, was an appropriate method of providing for compensation. Firstly, the interpretation in fact adopted by the parties was, as he pointed out at paragraph 5.61, not the subject of any agreed amendment to the wording under Schedule 4 of the 1996 Agreement. Nor was any amendment submitted for approval to the Regulator pursuant to Section 22 of the 1993 Act. By Section 22(1) any amendment, absent approval of the Regulator, is void.
63. Of greater significance are the merits of the new approach recommended by MVA and adopted by the Regulator. The new method was not dependent on what happened under the old regime. The Regulator modified the 1996 regime by providing, for the first time, credit for reductions in walking distance (5.69). To that extent he agreed with LCSP and rejected MML's objections. "Netting off" provided what he described as "a more accurate assessment of revenue lost to MML" (5.73). Further, he removed what he described as a perverse incentive under the 1996 regime by which additional walking time of less than one minute was rounded up to a whole minute (5.74). Finally, he removed the variable payment rates applied to walking times under the 1996 regime (5.76 to 5.78). These changes were replaced by the new system of a single figure for dispersed facilities "payable per day or part day for each additional minutes walk time".
64. In my view there was no question of the Regulator overlooking the arguments based upon the 1996 regime as interpreted by the parties. He was entitled to consider the new regime recommended by the MVA provided that on its own merits it represented a genuine pre-estimate of loss. He was entitled to take the view that the new regime as directed, did make economic sense, contrary to LCSP's contentions. Support for the economic justification for the change in regime is provided by Mr Gooding in his third statement at paragraph 38. The Regulator took the view that the parties' interpretation of the 1996 regime did not make economic sense. Under that interpretation, compensation for a facility dispersed by between two and eight minutes outwith the permissible range remained the same whether the facility was moved two or eight minutes away. The Regulator was entitled to take the view that the effect on passengers and thus on MML's revenue would be greater the further the facility was moved away. Moreover, there would be no incentive on LCSP to minimise movement within the 1996 bands.
65. LCSP's justification for its interpretation of the 1996 regime was that it created a perverse incentive for facilities to be removed altogether, once walking times increased beyond a certain point (see Miss Kelly's second statement at paragraph 19). However, LCSP was not permitted to remove many of the facilities in question. In those circumstances there would be no incentive to minimise the dispersal of facilities.
66. The justification reveals a difference of opinion as to the propriety of multiplication. The Regulator was entitled to disagree with LCSP's objection. If the new regime provided a fair pre-estimate of loss occasioned to MML by dispersal of facilities, then the Regulator was entitled to adopt the new approach irrespective of the interpretation of the existing regime adopted by the parties. As he said at paragraph 5.67:-

"MVA's proposals are not dependent on obtaining a definitive interpretation of the existing regime. They encompass a new approach independent of the existing regime based on the methodology adopted by MVA which itself is based on standard and accepted rail industry techniques."

The hotly disputed comparative figures played little part in the reasoning of the Regulator. The real question is, as it seems to me, whether the new methodology did provide a genuine pre-estimate of loss. That that was the Regulator's approach is demonstrated in paragraph 1.26 in which he says that the MVA's recommendations:-

"Reflect more accurately MML's revenue loss and strengthens the economic incentives on L&C to minimise the effects of the CTRL construction works on MML, its passengers and staff."

It was that approach which led to the Regulator's decision to calculate compensation on the basis of MML's current revenue data using an estimate of the 2003 revenue figure (the starting year of the new agreement) but thereafter providing for indexation in line with RPI (see paragraph 5.79). It is to the challenge to re-basing that I now turn.

Re-basing using an estimate of the 2003 revenue figure

67. LCSP contends that the Regulator was not entitled to require it to compensate MML for the increase in its business between 1996 and 2003.
68. There can be no doubt but that compensation based upon the 2003 estimated revenue figures will lead to an increase in levels of compensation. LCSP contend that updating the figures specified in the 1996 Agreement in accordance with RPI increases them by less than 20%; using the 2003 estimated revenue the figures are increased by over 100%. There have been very significant increases in the number of trains run by MML to and from St Pancras, but, contends LCSP, it had no obligation to permit such an increase in trains and consequential revenue and it agreed to do so only on the basis that it would not, thereby, suffer any extra cost.
69. The Regulator recorded LCSP's argument that LCSP was only obliged to provide sufficient platform capacity to enable MML to deliver its 1994 timetable. LCSP's approach was summarised in a letter to the Regulator dated 31 January 2003. It argued that any suggestion that compensation should be calculated on the basis of current revenue levels should be rejected because LCSP was only obliged to provide sufficient platform capacity at St Pancras Station as was required to enable MML to deliver its 1994 timetable. It said:-

"We are not attempting to penalise MML for their success; that has never been our intent. We merely sought to quantify actual loss and to link compensation payable to such loss. A number of factors may contribute to a slower growth than was hoped for by MML. St Pancras Station is only one of those factors". (See C/549).

70. Thus LCSP's objections, made at the time, to re-basing the calculation of compensation according to current levels of revenue were based upon the excessive burden it would impose and on the fact that under the CTRL Development Agreement, it was only obliged to provide a sufficient platform capacity at St Pancras Station to enable MML to deliver its 1994 timetable (see as recorded by the Regulator at 5.26 of his reasons). Accordingly MML's current revenue levels should not form the basis of the compensation calculations.
71. It is undoubtedly true that both the 1996 Agreement and the 2003 directed Agreement obliged LCSP only to provide the number of trains identified in the 1994 timetable. By Clause 103.4 of the 1996 Agreement LCSP was obliged to provide to the user essential facilities. Essential facilities were defined as those platforms and facilities and amenities listed in Annex 12. The specified level of services which LCSP was required to provide were those provided for in the 1994 summer timetable (see Annexe A1(b)(4)). This agreement was replicated in the 2003 directions. Thus, LCSP argued that MML had no right to run its services over and above those specified in the 1994 timetable and LCSP was under no obligation to provide access to support such additional services.
72. Accordingly, it is submitted that the Regulator erred in providing for MML to be compensated on the basis of something to which it was not entitled under the Station Access Contract and for which MML was not paying, namely a right to the maintenance of service levels which had been increased from the 1994 timetable.
73. LCSP say that it only agreed to very significant increases in the number of trains run by MML to and from St Pancras on the basis that it would not have adverse financial consequences. In her second statement Miss Kelly says that LCSP only agreed to accommodate an increase in services in the Autumn of 1997 as a gesture of goodwill on the basis that there would be no increase in compensation. A letter dated 2^nd September 1997 on behalf of Union Railways to the Regulator's office stated that Union Railways would be happy to accommodate additional trains, and that following discussions with MML,

"We are content that the granting of the additional track access rights will not have any adverse financial consequences for LCR". (Kelly: second statement para 84).

74. MML responds that the number of train services was not a matter for the Station Access Agreement but rather for the Track Access Agreement (see paragraph 23 of Mr Marshall's second statement). Miss Kelly says that since the Track Access Agreement was made with a sister company, that sister company would not have agreed without seeking LCSP's views and that the Track Access Agreement only permitted service agreements on the understanding that LCSP would not suffer.
75. I do not think it necessary to resolve the dispute between Mr Marshall and Miss Kelly as to how it came about that MML was able to increase the number of its services. It is clear that there was nothing within the Station Access Agreement to prevent MML running more services than those contained within the 1994 timetable. LCSP's obligation was only to provide facilities based upon the 1994 timetable but if those facilities would serve an increase in trains, it does not seem to me that LCSP had any right to prohibit that increase in the number of trains. Mr Howell QC in reply referred to the Track Access Agreement but I was not furnished with any copy of it nor was any detailed analysis possible of the circumstances in which increased services were permitted under the Track Access Agreement. In my view the Regulator was entitled to continue the underlying basis of the compensation regime, namely that MML should be held neutral against the impact of the CTRL station works. In order to hold MML neutral, he was entitled to conclude that it was necessary to recognise the substantial growth in both passenger numbers and revenue since 1996. Such substantial growth would mean that more passengers would be affected by disruption and thus more revenue would be lost (see his reasoning at 5.82). I see no reason why the underlying principle of compensation against loss should not be followed merely because traffic and consequential loss had increased. In particular, I see no reason why MML should suffer the loss occasioned by disruption to its increased business.

Re-basing: MML's approach

76. In support of the argument that re-basing exceeded anything reasonably likely to represent the loss of revenue MML is likely to suffer, LCSP contend that MML itself claimed that the 1996 approach, based as it was on the 1994 timetable, was a fair, appropriate and correct method of assessing MML's loss. LCSP rely upon MML's application for Section 17 directions, particularly at 4.3, which referred to the existing agreement as envisaged by all parties to provide "adequate and fair protection for MML". It also referred to MML's comments on LCSP's written representations of 6^th November 2002 at paragraph 7. MML said that the 1996 pre-estimate constituted "an appropriate level of compensation".
77. I do not think that these references afford any basis for contending that MML had conceded that re-basing was unnecessary in order to afford financial neutrality. At paragraph A5.1(4)(c) of MML's application for Section 17 directions, MML favoured maintenance of the current position but in the event of any change sought:-

"An upward adjustment on the basis of MML having successfully built up its business since the current levels were set".

Moreover MML had originally proposed, in response to LCSP's suggestion that compensation would be reduced from the 1996 levels that it should be increased to reflect the current value of MML's business (see Mr Marshall's, first statement 5.5). Finally, although MML's preferred position was to maintain the status quo, for reasons, it says, of certainty (see A5.1(4)(c) of its application for Section 17 directions), nevertheless finally, MML did argue that levels should be increased on the basis of the increased passenger numbers.

78. In my view, whilst MML's contentions did favour maintenance of the existing position, there was nothing in the argument it advanced before the Regulator to compel the Regulator to take the view that adequate compensation could be achieved on the basis of 1996 figures. He was not, in any event, bound by MML's approach. A fair view of that approach did not compel rejection of re-basing to 2003 figures.

Re-basing: The extension of MML's franchise on 2^nd August 2000

Argument

79. On 2^nd August 2000 MML agreed with the Strategic Rail Authority ("the SRA") a two year extension to its franchise to take the franchise from April 2006 to April 2008. LCSP contend that the extension bid was made by MML on the assumption that compensation from the Station Access Agreement would remain at 1996 levels. In those circumstances, it contends that to provide for compensation on the basis of 2003 levels will confer a windfall. Had MML and the SRA expected levels of compensation to be increased, MML would either have paid more or received less subsidy for its franchise. In the terms of franchise extension, it has already been compensated for any shortfall in compensation which continuing the existing levels of compensation may cause (see e.g. Miss Kelly's second statement at paragraph 72).
80. The starting point for the argument is the Regulator's reasoning at paragraph 5.20 in which he records:-

"MML confirmed at the hearing that its franchise bid and franchise extension bid were made by MML on the assumption that compensation from its access agreement would remain at current levels."

In its report, MVA commented at 4.3.3 when discussing the appropriate base level of revenue:-

"MML's franchise has recently been extended, and in establishing the new subsidy required, an (implicit) assumption would have been made about the level of compensation to be received. We cannot be certain of this assumption, but it is likely to have reflected the existing agreement, one part of which is that compensation levels only increase in line with RPI".

It is contended that this comment demonstrates firstly that MML has already benefited through obtaining an extension to the franchise on the basis of lower levels of compensation. Secondly, it demonstrates that the Regulator failed to acquaint himself with relevant information in order properly to reach a view as to whether to make provision for compensation on the basis of 1994 figures or 2003 figures. To that extent, he failed in his obligation to inform himself of relevant considerations (see Prest & Ors. v Secretary of State for Wales 81 L.G.R. 193 at 200-201).

These points were made by LCSP in its comments dated 26^th March 2003 but, it contends, have never had any adequate answer. The evidence as to what happened remains confused and uncertain. If MML had bid for a franchise extension expecting more than the 1996 levels of compensation, index linked, it would certainly have revealed that to the Regulator and not the accepted deletion of the multiplier.

81. The last point is of some significance because the levels of compensation would undoubtedly have fallen once MML agreed to deletion of the multiplier under the 1996 agreement.
82. In summary, the Regulator took no reasonable steps to acquire the information necessary to resolve this issue and gave no reasons for his rejection of the argument.

Conclusion:

83. Mr Marshall's evidence in his second statement on behalf of MML provides only gloomy illumination. At paragraph 15 he says:-

"LCSP's position appears to be that the terms of the franchise were substantially dependent on the compensation scheme. This is wrong. The franchise extensions were concerned with investment in the route, stations, and infrastructure generally."

At paragraph 17 he says:-

"As far as I am aware, the negotiations with the SRA assumed that the overall levels of compensation would be no lower than those set out in the 1996 agreement."

It is that comment which forms the basis of LCSP's argument.

84. I should note that questions were asked on behalf of the Regulator as to the assumptions made in regards to the franchise and the extension. MML, through Mr Wilson, stated that the assumption was that current compensation levels would continue (see transcript of the hearing of 24^th January 2003, 511 at lines 18-19).
85. However, that answer and, indeed MML's comments on the basis for the bid for an extension to the franchise are ambiguous. At the time of the bid in August 2000 the way in which the 1996 Agreement was to be put into practice or even interpreted by the parties was not a matter for consideration. That reinterpretation or practice only arose once work had started in 2001. At the time of the bid for an extension of franchise, therefore, the levels of compensation were to be determined by the wording of the 1996 Access Agreement. The effect of multiplication would be to achieve levels of compensation in relation to dispersal of facilities not far short of those achieved by compensation based on 2003 revenue. Thus, if any attempt had been made to estimate likely levels of compensation, projection would not have fallen far short of those levels likely to be reached as a result of re-basing.
86. More fundamentally, at the stage of the bid for an extension, no one could say how long CTRL work would last within the extended period. For all anyone knew, the work would be complete before the beginning of the extension period , i.e. before 2006. It would not, as MML contend, have been possible to put forward a case pleading poverty on the basis of under-compensation flowing from the 1996 agreement. It would have been impossible at that stage to do so.
87. Further, the approach of the SRA is of some significance. The SRA would have had no reason to award the extension of franchise on any other basis than the existing 1996 Access Agreement as written, which provided for multiplication of the banded figures in respect of dispersed facilities. Secondly, in fixing the terms for the extension of the franchise, it would have been aware that no assumptions could be made as to the regime for compensation beyond April 2003. That regime would have been a matter for the Rail Regulator. There could be no guarantee that the 1996 agreement would continue beyond that period should the CTRL work be unfinished by then.
88. In fact there were discussions with the SRA as to its approach to continuation of the current compensation regime. In his third statement Mr Gooding on behalf of the Rail Regulator records SRA's views that there were no "particularly strong arguments" for moving away from the 1996 compensation regime. When it was pointed out to it that the compensation regime might contain fresh provisions, SRA's attitude was that MML should continue "to be held harmless" from the effects of disruption. (See paragraph 62).
89. I reject LCSP's submission that re-basing compensation on the basis of 2003 revenue figures will result in a windfall to MML. I do not accept that the Regulator misdirected himself as to the basis of MML's bid for an extension to the franchise. Whilst I have sympathy for LCSP's criticism as to the ambiguities in MML's evidence on the point, I am quite unable to accept that MML are attempting to reap the benefits of a windfall.
90. Firstly, in 2000 no one could have predicted the basis upon which compensation would be calculated after the expiry of the Station Access Agreement in April 2003. No one could even have known whether the CTRL work would have been finished and thus cease to have any effect on MML's revenue. Secondly, the practice of doing away with multiplication of the band figures for dispersal was not an issue in 2000. Thirdly, I cannot accept that SRA either during the course of preparation of this case or indeed at this hearing would have remained silent if in fact it awarded the franchise extension on the basis of compensation levels significantly lower than will now be achieved by virtue of the 2003 re-basing. I am convinced that the franchise extension would not have taken into account compensation at any particular level. Rather, the most that could be assumed was that MML would be compensated in respect of disruption to its business. That seems to be the only sensible basis upon which the franchise extension bid could have been made and accepted. In short, I do not accept that the Regulator misdirected himself in failing to conclude that compensation based on 2003 revenue figures will result in a windfall.
91. Paragraph 5.83(a) records that the Regulator took the view that the franchise extension did not assume an increase in compensation in line with revenue. But that comment was made in the context of rejecting the contention that the new Station Access Agreement should allow for increases in revenue after April 2003. He refers to "future growth". There is no inconsistency between taking account of up to date revenue figures (as he says at 5.8(2)) but avoiding uncertainty by rejecting the argument, recorded at 5.80, that there should be yet further increase.
92. In my view, the decision to update compensation levels based on the estimate of the 2003 revenue figures was rational. If, as I have said, it was rational to adopt the principle of protecting MML against losses to its business due to CTRL work, it seems to me rational and certainly far from irrational to protect MML against losses to its revenue in the context of increased passenger services. I can see no basis for saying that there should be a derogation from the fundamental principle of full compensation for losses due to CTRL, either because MML managed to increase its passenger services and thus its revenue or on the basis that it was able to achieve an extension of the franchise by contending that it would be under compensated in the future against losses.

Planning the future of LCSP's business

93. LCSP contend that by imposing a method of compensation for the future, which will lead to a substantial increase in levels of compensation, the Regulator has upset LCSP's reasonable expectations for the future. In so doing, he has acted in breach of his obligation to enable persons providing railway services to plan the future of their businesses with a reasonable degree of assurance (Section 4(1)(g).
94. This was an argument advanced at the hearing on 24^th January 2003 (see C/537 lines 28-30 and in its letter dated 26^th March 2003 (third paragraph)).
95. At paragraph 5.18 the Regulator recorded that the CTRL concession had been priced on the basis of the existing regime. But he said it was known that the existing regime would expire in 2003.
96. The Regulator's duty to exercise his functions in a manner best calculated to enable providers of the railway services to plan for the future with a reasonable degree of assurance is only one of a number of obligations which, as Lightman J. recognised in ex parte Cellcom, (see paragraph 25) pull in different directions. It was, for the reasons I have already advanced, open to the Regulator to regard the central principle as being one which will protect MML against disruption to his business. The change in method of compensation was due to the expiry of the 1996 Access Agreement before the CTRL work had been completed. There is no basis for saying that the Regulator was bound to continue the existing regime should he reach the view that the existing regime would not provide adequate compensation for disruption to MML's business. LCSP's only reasonable expectation was that it would have to compensate MML for disruption to MML's business due to construction work. Unless LCSP can establish that that underlying principle was itself flawed or contrary to the Regulator's obligations under Section 4(1), it does not seem to me that the fact that the method for calculating compensation changed in a manner which LCSP did not anticipate, is a consideration which the Regulator was bound to regard as predominant. Once it is accepted, as I have accepted, that the underlying principle was one which the Regulator was entitled to pursue, he was equally entitled to focus upon what he regarded, with the aid of the expertise of MVA, as the best method for achieving that objective.

The Regulator's errors of calculation: underestimating walking time

97. LCSP contend that the Regulator has significantly underestimated the effect of his directions because he has underestimated the distance to dispersed facilities. The estimate of walking time was described by the Regulator as a key change (see 1.29(c) of his reasoning). Modifications suggested by MVA were intended to ensure that the regime more accurately reflected lost revenue and provided incentives for LCSP to reduce walking times (see paragraph 5.58(a) and (b)).
98. LCSP argued at the hearing on 24^th January 2003 that the measurements of the walking distances to the London Underground and other modes of transport were much greater than MVA had assumed (see C/483). MVA in its presentation of its proposed method said that it did not know what the distances were and had not sought to measure them "with any level of accuracy whatsoever". LCSP responded that MVA had underestimated the walking distance compensation even though detailed layout plans were handed to them (comments of 26 March 2003).
99. LCSP complains now that no attempt had been made correctly to check the figures. They were important because walking time to London Underground stations forms a very large proportion of all compensation, as the appendix to MVA's report reveals (see Appendix D, Table D1.1 and C/624). Even without detailed measurements, LCSP point out, it is plain that the distance has been underestimated because the route to the London Underground ticket halls will now involve crossing a road which inevitably incurs a time penalty of 30 seconds (see paragraph 6 of the document concerning errors in walking times at F/181).
100. It seems to me that the Regulator did make his directions without any detailed scrutiny of the increase in walking distance demonstrated by the detailed layout plans. The difference for which LCSP contended was set out at Table D.2.1 of its response showing MVA's estimate as £0.9million as opposed to LCSP's estimate at £2.7 million. The Regulator was not concerned with precise figures. In my judgment he was entitled to focus upon a sound formula for calculating compensation rather than attempting any more detailed analysis of what, in any event, could only be an estimate as to the actual level of compensation payable in the future. It was for him to decide what weight to attach to the argument based upon precise walking times. It was open to him to give priority to a compensation regime designed to compensate MML against financial losses caused by the construction work. Should such an objective be achieved at greater cost to LCSP than estimated that provides no warrant for attacking the method. The method adopted would only be unsound if it provided greater compensation than that which was merited by MML's losses. Merely establishing that the walking distances were greater than estimated provides no basis for contending that the directed method of compensation overcompensated MML. In those circumstances I take the view that it was open to the Regulator to attach little weight to LCSP's argument as to the actual increase in walking time to London Underground caused by the positioning of the interim and final station.

Erroneous method for estimating the effect on passenger demand of increased walking time

101. As I have noted, the most significant element of the compensation for which LCSP will be liable relates to increased walking time to certain facilities. LCSP challenges the method advised by MVA and adopted by the Regulator for estimating the effect on passengers of the increased walking time. The Passenger Demand Forecasting Handbook (known to railway cognoscenti as ("PDFH")) sets out a method for estimating the effect on passenger demand of generalised journey time (GJT). Once a change in GJT has been calculated the expected change in passenger demand can be calculated according to the elasticity of passenger demand. It is obvious that some passengers have more choice as to whether to go to St Pancras despite the construction work, than others. GJT elasticity is calculated using MOIRA software.
102. This led to a detailed and fascinating dispute between on the one hand Mr Maynard, the expert advising LCSP and Mr Gooding on behalf of the Regulator. Mr Maynard says that the effect of increased station walking times on passenger demand cannot be assessed by merely adding those times to the GJT equation for the purpose of estimating the recommended elasticity. He refers to the warning contained in the PDFH at B3.4.4 to that effect.
103. Mr Gooding denies that MVA fell into such error. He says MVA converted additional walking time into the equivalent GJT and then determined the revenue effect of that change using MOIRA data. He says that approach is endorsed elsewhere (B6.4.3) within the PDFH booklet. MVA had originally used a factor of two but the factor was reduced to 1.6 after submissions made at the hearing on 24^th January 2003.
104. LCSP respond by contending that it was never, despite requests, given a breakdown of the formula.
105. A transcript of the hearing makes it clear that Mr Maynard did question MVA's methodology at the hearing (see in particular C/507) and questions were raised about it subsequently. It seems to me impossible for LCSP to mount any reasonable challenge on the basis of rival contentions as to the way MVA applied the PDFH to calculate the effect on passenger demand of increased walking time. This was a matter of expert and complex advice and evidence which the Regulator had to resolve. He did resolve it by reducing the estimated effect from that which was advised by MVA to the figure he was persuaded to adopt as a result of LCSP's representations (see Gooding's second statement, paragraphs 127 to 128). I fear that the vials of Lord Templeman's wrath would indeed overflow if the process of judicial review was to lead to a resolution by this court of the rival arguments as to the appropriate method of calculating elasticities in relation to increased walking time. Arguments were raised at the time as to this issue and were a matter for the Regulator. They were resolved by the Regulator. There is no basis for any interference by this court.

Benefits of the interim and final station

106. It will be recalled that the interim station is to the north east of St Pancras and may be used by MML and Thameslink Services between 2004 and 2006. LCSP had argued that it should receive credit under the compensation arrangements in respect of the new facilities, isolated from the construction site, at the interim location (see 5.50 of the Regulator's reasons). It now contends that the Regulator was inconsistent and irrational. He rejected the argument because it involved an assessment of passengers' perceptions at the interim station, which would be subjective (see reasoning at 5.53). This, contends LCSP, was inconsistent with the Regulator taking into account the detrimental effects of adjacent construction activities due to noise, dust and visual intrusion. These effects were taken into account as part of the assessment of general damage (see paragraphs 5.54 to 5.57 of the reasoning). It was inconsistent and irrational to take into account the detrimental effects which themselves required subjective assessment rather than beneficial effects which required no greater subjective assessment.
107. As MVA recorded in its report, LCSP's argument for credit under the compensation arrangements stemmed from its belief that provision of "an improved station environment should be included in the regime as a benefit which offsets in part the negative impacts of the works at St Pancras" (3.8.1 of MVA's report at C/589). MVA's report recorded the rival argument that the interim station would not constitute a better environment (3.8.5).
108. So far as the interim station is concerned, it does not appear that MVA resolved that issue; rather, it dealt as a separate issue with the effect on passengers of noise, dust and visual intrusion, for which compensation was to be given by way of general damages. It advised that general damages should be reduced because it believed that the building site effects of noise, dust and visual intrusion would be reduced at the interim station (3.8.6).
109. So far as superior environment is concerned, it advised that this issue should be addressed through the long-term charge rather than treated as a compensation issue. (See 3.8.7).
110. The assessment of noise, dust and visual intrusion at the interim station was dealt with in a separate part of MVA's report at 4.10 under the heading "General Damage"'. It advised that there would be a reduced impact at the interim station in terms of dust, noise and visual intrusion (4.10.7) and no impact at the final location. It therefore recommended small general damage payments of .1% in the temporary location reduced from .2% in the existing train shed and 0% in the final location increased to 0.1% if fitting out at the final location was not complete. These recommendations were accepted by the Regulator at 5.57.
111. I can detect no inconsistency. The separate and general question of improved environment was the subject of rival contentions which the Regulator was entitled to consider cancelled each other out and was incapable of resolution since they depended upon subjective assessment. The question of noise, dust and visual intrusion was treated as distinct from the subjective assessment of passenger perceptions. MVA had advised as to the proper approach in relation to the effect on passenger demand of noise, dust and visual intrusion. (C/4.10.5). It was open to the Regulator to have accepted that advice.
112. I accept that the sentence in 5.53:-

"MVA has advised that, in view of the subjective nature of this assessment, general damages should be limited during an assessment of the impact of noise, dust and visual intrusion alone."

does not do proper justice to MVA's report. He was guilty of some elision in summarising MVA's advice which was made available to LCSP (although I should record its protests that there was only a short opportunity for comment). MVA clearly drew a distinction between noise, dust and visual intrusion, described by MVA as "building site effects" at 3.8.6 and passenger perception of the environment of the interim station at 3.8.7. It was open to the Regulator to adopt this distinction.

113. The effect of the benefit of the environment of a new station formed the subject of a further debate before me. MVA had recommended that that could be taken account through the long-term charge (3.8.7). LCSP denied that such benefits could be taken into account. Firstly, the benefits of the interim station could not be taken into account retrospectively and secondly, as Miss Kelly points out, benefits cannot be reflected in long term charges pursuant to the Regulator's own guidelines (to which she refers at paragraphs 110 to 114 of her second witness statement).
114. The Regulator asserts that such changes can be taken into account. Since the foundation of the dispute is his own guidelines, I am unable to conclude that he has misdirected himself or misled LCSP by adopting an approach, which will allow for any enhancement in environment once the move is made to the final station. Whilst passengers use the facilities at the interim station, it was open to him to conclude that the benefits of the environment (as opposed to the effects of the construction work) were not such as to entitle LCSP to any greater credit than that reflected in the reduction in general damages compensation. The argument before me seemed to be no more than a reiteration of the argument before the Regulator. Its rejection discloses no error of law.

Incentives

115. LCSP attacks the Regulator's reliance on the incentive afforded by the method of compensation he directed. He said that his directions:-

"Best protect the interests of users of railway services (Section 4(1)(a)), because the regime will incentivise the parties to make decisions which, overall, will minimise the impact of CTRL work on passengers and MML operations" (See 5.36(a) of his reasons).

116. It was argued on behalf of LCSP that this was an irrational approach. Since the work had already been let, there was no possibility now of change. In my judgment the Regulator was entitled to rely upon the fact that compensation would provide an incentive to minimise disruption. Notwithstanding that the construction works had been let, the prospect of compensation may well encourage contractors to work more quickly, avoid delays and minimise disruption. At the very least the Regulator was entitled to take that view.

I conclude:-

(1) the Regulator was entitled to direct that the compensation regime should hold MML "financially neutral" from the effects of the disruption caused by the CTRL work. This approach did not infringe Article 1 of the First Protocol of the European Convention on Human Rights; [Paragraphs 44-49]

(2) the Regulator was entitled to reject the existing 1996 Agreement, as interpreted by the parties, in respect of additional walking time to dispersed facilities as a basis for the new directed regime; [Paragraphs 58-66]

(3) the Regulator was entitled to direct a method of compensation based upon an estimate of MML's 2003 revenues; [Paragraphs 75-78 and 83-92]

(4) the Regulator's directions did not infringe his obligations under Section 4(1)(g) in relation of the ability to LCSP to plan the future of its business; [Paragraphs 93-96]

(5) the Regulator was entitled not to rely upon any accurate estimate of increased walking distances; [Paragraph 100]

(6) the Regulator did not err in law in adopting MVA's advice as to the calculation of elasticities in respect of increased walking time; [Paragraph 105]

(7) the Regulator was entitled to leave out of account any environmental benefit derived from the interim and final stations; [Paragraphs 111-112 and 114]

(8) the Regulator was entitled to reach the conclusion that his regime provided an incentive to minimise the impact of CTRL work [Paragraphs 115-116]

117. For these reasons this application fails.

Annex 1

Section 17 of the 1993 Act provides that:

"(1) The Regulator may, on the application of any person, give directions to a facility owner requiring him to enter into an access contract with the applicant for the purpose specified in subsection (2) below;....

(2) The purpose for which directions may be given is that of enabling the beneficiary to obtain (whether for himself alone or for himself and, so far as may be applicable, associates of his) -

... .....

(b) from a facility owner whose railway facility is a station, permission to use that station for or in connection with the operation of trains by the beneficiary;

... ...

but this subsection is subject to the limitations imposed by subsection (3) below.

(3) In subsection (2) above -

... .....

(b) paragraph (b) does not extend to obtaining permission to use a station for the purpose of operating the station;..

(6) In this Part -

"access contract" means -

(a) a contract under which -

(i) a person (whether or not the applicant), and

(ii) so far as may be appropriate, any associate of that person

obtains permission from a facility owner to use the facility owner's railway facility; or

(b) ......

"facility owner" means any person -

(a) who has an estate or interest in, or right over, a railway facility and

(b) whose permission to use that facility is needed by another before that other may use it;.....

(7) In this section -

"the applicant" means the person making the application for directions;

....

"the beneficiary" means the person mentioned in paragraph (a)(i)...of the definition of "access contract" in subsection (6) above...

(10) Schedule 4 to this Act shall have effect with respect to applications for directions."

Section 18 Access agreements: contracts requiring the approval of the Regulator

(1) A facility owner shall not enter into an access contract to which this section applies unless—

(a) he does so pursuant to directions under section 17 above;...

b) the Regulator has approved the terms of the access contract and the facility owner enters into the contract pursuant to directions under this section; [or

(c) the access contract is of a class or description specified in a general approval given by the Regulator;]

and any access contract to which this section applies [shall be void unless of the conditions in paragraphs (a) to (c) above is satisfied].

MR JUSTICE MOSES: For the reasons I have given in the judgment that has been handed down these applications are dismissed. The order made by Ouseley J will, however, continue until the hearing that will be arranged of any consequential matters, and there should be liberty to apply. But, as I say, for the reasons I have given, this application is dismissed.