EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Carloway Lord Hardie Lord Mackay of Drumadoon

[2011] CSIH 05 XA52/10 OPINION OF THE COURT delivered by LORD MACKAY OF DRUMADOON in the Appeal by JAMES & CATHERINE COSGROVE t/a FISHERS TOURS Appellants; against an Order of the Upper Tribunal dated 9th October 2010 and intimated to the appellants on 12th April 2010, upholding a Decision of the Transport Commissioner dated 21st December 2009 Respondents: under the Transport Act 1985, sec 117(2) and Schedule 4(14) _______

Act: Dewar, Q.C., Lindhorst; Halliday Campbell W.S.

18 January 2011

Introduction

[1] This is an appeal under section 117(2) and paragraph 14 of schedule 4 of the Transport Act 1985 ("the 1985 Act") against an order of the Upper Tribunal dated 9 April 2010 upholding a decision, dated 21 December 2009, of the Traffic Commissioner for the Scottish Traffic Area ("the Traffic Commissioner"). In her decision, the Traffic Commissioner ordered that the appellants pay a penalty of £12,650 under section 39 of the Transport (Scotland) Act 2001 ("the 2001 Act"). In terms of her powers under section 26 of the 1985 Act, the Traffic Commissioner also placed conditions on the appellants' public service vehicle licence preventing them from (a) registering any new local services serving areas outwith the areas of Angus and Dundee City Council and (b) operating six specified local registrations with effect from 31 January 2010, with those services being treated as cancelled from that date.

[2] The appellants are the partnership of James and Catherine Cosgrove, which trades as Fishers Tours. They run a bus company from premises in Dundee. Mr Cosgrove is the appellants' transport manager. In March 2000 the appellants' were granted a public service vehicle operator's licence under the provisions of the Public Passenger Vehicles Act 1981 ("the 1981 Act"), with authority for 23 vehicles. The appellants have 49 local services registered with the Transport Commissioner in Scotland under the provisions of section 6 of the 1985 Act.

[3] Sections 2 and 6 of the 1985 Act provide as follows:-

"2. (1) In this Act "local service" means a service, using one or more public service vehicles, for the carriage of passengers by road at separate fares other than one -

(a) which is excluded by subsection (4) below; or

(b) in relation to which (except in an emergency) one or both of the conditions mentioned in subsection (2) below are met with respect to every passenger using the service.

(2) The conditions are that -

(a) the place where he is set down is fifteen miles or more, measured in a straight line, from the place where he was taken up;

(b) some point on the route between those places is fifteen miles or more, measured in a straight line, from either of those places.

.....

6. (1) In this section "service" means a local service which is neither a London local service nor a service provided under an agreement entered into, where a railway service has been temporarily interrupted, with the Secretary of State, the Scottish Ministers or the National Assembly for Wales under section 40 of the Railways Act 2005 (substitution services provided for interrupted or discontinued railway services).

(2) Subject to regulations under this section, no service shall be provided in any traffic area in which there is a stopping place for the service unless -

(a) the prescribed particulars of the service have been registered with the traffic commissioner for that area by the operator of the service;

(b) the period of notice in relation to the registration has expired; and

(c) the service is operated in accordance with the registered particulars.

..... "

[4] Section 17(2) of the 1981 Act provides that the traffic commissioner by whom a public services operator's licence was granted may, on any of the grounds specified in section 17(3) of that Act, vary any condition attached under subsection 16 of the 1981 Act to the licence, or attach to the licence any such condition as is mentioned in that subsection. Section 17(4) provides that a traffic commissioner shall not take any action under section 17(2) in respect of any licence without first holding an inquiry if the holder of the licence requests him to do so.

[5] Section 26 of the 1985 Act provides that where it appears to a traffic commissioner that a local service has been operated in contravention of section 6 of the 1985 Act the traffic commissioner may attach to the operator's public service vehicle licence either a condition prohibiting the operator from using vehicles under the licence to provide a local service of a description specified in the condition or one prohibiting him from so using vehicles to provide local services of any description.

[6] Section 39 of the Transport (Scotland) Act 2001 authorises a traffic commissioner to impose a financial penalty on an operator of a local service when that local operator has, without reasonable cause, failed to operate a local service registered under section 6 of the 1985 Act or has operated a local service in contravention of that section.

[7] Following a public inquiry, which she held at Edinburgh on 14 October 2009, in terms of her statutory powers under section 54 of the 1981 Act, the Transport Commissioner issued a written decision dated 21 December 2009. The summary of the Traffic Commissioner's decision was in the following terms:

"1. The operator is ordered to pay a penalty of Twelve thousand six hundred and fifty pounds to Scottish Ministers (£12,650 i.e. 23 x £550) by 31 January 2010.

2. There will be a condition put on the licence preventing the operator from registering any new local services serving places outwith the areas of Angus and Dundee City Council, and this with immediate effect.

3. There will be a condition put on the licence preventing the operator from operating local services registrations PM2937/21; 25; 33; 34; 39; 46 with effect from 23:59 on 31 January 2010 and these services will be treated as cancelled from that date."

[8] The appellants appealed against the decision of the Traffic Commissioner dated 21 December 2009 to the Upper Tribunal. By the order dated 9 April 2010, the Upper Tribunal upheld the decision of the Traffic Commissioner. The appellants then applied to the Upper Tribunal for leave to appeal to the Court of Session. On 23 April 2010 the Upper Tribunal refused leave to appeal. The appellants then lodged an application for leave to appeal with this court and leave was granted on 15 June 2010. The Appeal, which has been attached to the Application for Leave to Appeal, was then served on the Secretary of State for Transport as the respondent. No answers were lodged.

[9] By letter dated 21 July 2010 the Department of Transport advised this court that the Secretary of State did not intend to lodge answers to this appeal or to be represented at any hearing of the appeal. The letter explained that the Secretary of State's decision had been taken on the basis that the points of law raised in the grounds of appeal did not raise any important issues of principle or practice affecting the core interests of the Department of Transport, nor did they raise any significant road safety concerns. The letter stated that the Secretary of State's decision not to intervene did not mean that he considered that any or all of the grounds of appeal set out in the Appeal were well founded or had merit. The court was also advised by solicitors acting for the Traffic Commissioner that having regard to the decision of this court in Coakley v Secretary of State for Transport 2003 SLT 1367 the Traffic Commissioner had reached the view that she had no locus to appear as a respondent in this appeal and did not intend to seek to do so. In the event, when this appeal was heard, the appellants were the only party who appeared. They were represented by senior and junior counsel.

Proceedings before the Traffic Commissioner and Upper Tribunal

[10] The factual background to the hearing before the Traffic Commissioner is summarised very succinctly in the Upper Tribunal's Reasons for Decision:

"2(i) On 27 March 2000, the Appellants were granted a standard international PSV licence authorising 23 vehicles with 23 discs issued. The Appellants operate 49 registered bus services, 19 of which are school contracts.

(ii) Between 13 May and 1 June 2009, Carol Riley, Bus Compliance Officer ("BCO") along with Tom Coyle (BCO) monitored six of the Appellants registered bus services and found as follows:

a) Service 245, Brechin to Largs, scheduled to run fortnightly on Fridays: this service was monitored on 15 and 29 May 2009 at Glasgow Airport, Wemyss Bay, Greenloaning Little Chef A9, Stirling Services, Castlecary Road, Muirhead and Glasgow SECC. On 15 May 2009, the bus was due at Glasgow Airport at 10:58. In fact it did not leave the M8 in order to do so and proceeded past the junction that serves the airport. The service therefore failed to operate. On 29 May 2009, the service was followed from Greenloaning Little Chef A9. The service was 13 minutes late as it passed Greenloaning and the driver failed to go into Muirhead as per its registration. The driver then failed to go to the bus stop at SECC in Glasgow and then failed to go to Glasgow Airport as per its registration. It was noted that the major road works in Castlecary did not adversely affect the running of the bus service.

b) Service 229, Arbroath to Largs, scheduled to run fortnightly on Fridays: this service was monitored on 22 May 2009 at Largs, Wemyss Bay, Glasgow Airport, Glasgow SECC and Muirhead. From Largs, the bus failed to enter or stop at Glasgow Airport, Glasgow SECC and Muirhead.

c) Service 225, Arbroath to Ayr, scheduled to run fortnightly on Mondays: this service was monitored on 1 June 2009 from Greenloaning Little Chef A9 to Ayr. The timing point at Bothwell Services on the M74 could only be accessed on the outward journey, not the inward journey. At Loudon Castle, the bus was scheduled to stop at the coach park which was half a mile from the A71 but the driver failed to stop either there or on the A71 itself. At the Bellfield Interchange, another timing point, there were no bus stops. According to Mr Cosgrove when interviewed, the bus should have entered the BP garage and then on to the Travelodge and then should have exited onto the A71 which the driver failed to do. Another timing point was stated to be "Stonehouse bus stop on by pass" where there were three bus stops with no indication on the time table as to which one was the relevant stop and the same issue applied to the Strathaven bus stop where there were two bus stops on the stretch of road. Finally, the bus was scheduled to leave at 15.30 from Carrick Street, Ayr from outside the Gaiety Theatre but instead left from Boswell House, Boswell Park (which is around the corner and some distance away).

d) Service 233, Brechin South Esk to Leith Ocean Terminal, scheduled to run fortnightly on Wednesdays: this service was monitored on 20 May 2009 at Kinross High Street, Edinburgh Leith, Edinburgh Waterloo Place and Edinburgh Queensferry Road. It was noted that the tram works in Edinburgh did not hold the bus up as there were dedicated bus lanes. At Ocean Terminal, the driver picked his passengers up in the car park and did not use the bus lane or the bus stop at the Terminal.

e) Service 238, Arbroath Railway Station to Leith Ocean terminal, scheduled to run fortnightly on Wednesdays: this service was monitored on 13 May 2009 at Kinross High Street, Forth Bridge Tolls, Edinburgh Queensferry Road, Edinburgh Waterloo Place and Edinburgh Leith. The bus was followed from the Forth Bridge at 10.15 heading towards Barnton Junction where it was timed at 10.22. The bus then took 17 minutes to reach Waterloo Place when the timetable allowed 10 minutes. On the return journey, the bus arrived at Waterloo Place from Ocean terminal, 16 minutes late. By the time that it had reached Barnton Junction, it was 31 minutes late.

f) Service 232, Brechin South Esk Street to Stirling Bus Stop outside the Bus Station, scheduled to run fortnightly on Tuesdays: this service was monitored on 19 May 2009 at Gleneagles A9 Station Road End, Greenloaning Little Chef A9 and Stirling. The bus was due at Gleneagles Station at 09:50 but passed the timing point at 10.01, 11 minutes late. It was also 11 minutes late passing Greenloaning Little Chef A9.

(iii) Of the 42 journeys monitored, 35 were seen. Of those seen, two were observed to be more than 1 minute early, representing a 4% non-compliance rate. 22 journeys were more than 5 minutes late, representing a non-compliance rate of 52%. The percentage of non-compliant journeys outside the accepted window of tolerance of less than one minute early and no more than 5 minutes late was 57%. The BCO's view was that the remaining 7 failed to operate. The overall rate of non-compliance including those services that failed to operate was 73%."

[11] Following the preparation of their report the Bus Compliance Officers invited the appellants to comment on its terms. The appellants did so in a number of documents which were submitted initially to the Bus Compliance Officers. In those documents the appellants attributed the failure of drivers of the 6 services monitored to keep to their registered timetables to a variety of factors, including ongoing road works, the problems drivers had experienced in making up lost time and traffic congestion. The documents also provided details of the steps the appellants had been taking with a view to ensuring that their drivers complied with the registered timetables and stopped at the various stops scheduled for the individual services. On 18 June 2009, Ms Riley visited the appellants' operating centre and discussed the report with them.

[12] Following upon her receipt of the Bus Compliance Officers' report, the Transport Commissioner convened a Public Inquiry under her statutory powers. By letter dated 9 September 2009, the appellants were called to a Public Inquiry scheduled to take place on 14 October 2009 ("the call up letter"). The letter explained to the appellants that the Traffic Commissioner had been advised in a report by the Bus Compliance Officers of the Vehicle and Operators Services Agency of alleged irregularities of local services registered by their company. The letter explained this followed bus monitoring exercises carried out on six of the local services operated over a period of 7 days between 13 May 2009 and 1 June 2009, when it had appeared that the appellants had failed to operate local services in accordance with the registered particulars. The letter stated that it appeared that the appellants had contravened section 6 of the Transport Act 1985. The letter also indicated that the Traffic Commissioner was aware of drivers hours convictions recorded against one of the appellants' bus drivers at Solihull Court on 18 March 2009 and that she would raise this matter at the Inquiry.

[13] The letter went onto state:-

"The Traffic Commissioner will also consider whether she should revoke, suspend or vary conditions attached to the licence or attach to the licence any additional conditions under Section 17(2) of the Public Passengers Vehicles Act 1981, as amended. Her grounds for doing so relate to Section 17(3)(aa) of the 1981 Act in that the company has failed to adhere to the undertakings given by James Cosgrove (Partner) on PSV 421 application form dated 17 January 2000 (copy attached) that:

'I will make proper arrangements to ensure that the laws relating to the driving and operation of vehicles to be used under this licence are observed.' "

The call up letter went on to summarise the Traffic Commissioner's powers under section 26 of the 1985 Act and section 39 of the 2001 Act, in the event that it appeared to her that a local service had been operated in contravention of section 6 of the 1985 Act.

[14] The Inquiry took place on 14 October 2009. Both Mr & Mrs Cosgrove were present. The appellants were not represented by a solicitor. The Bus Compliance Officers who had compiled the report were in attendance. Ms Riley gave evidence to the Traffic Commissioner.

[15] It is clear from the terms of the Traffic Commissioner's decision of 21 December 2009 that during the Inquiry the driving convictions of one of the appellants' bus drivers was mentioned during the evidence. Ms Riley spoke to the report which she and her colleague, Mr Boyle, had prepared. It is also clear from paragraph 20 of the Traffic Commissioner's decision (and from paragraphs 2(x) and (xiii) of the decision of the Upper Tribunal) that the Traffic Commissioner asked Ms Riley a number of questions about the contents of the report. Importantly, the Traffic Commissioner also asked Ms Riley whether she thought that the registration of one of the local services of the appellants, which she and her colleague had monitored, was "a sham". In the transcript of the Public Inquiry, Ms Riley's is noted as saying " I don't think it was a local registration".

[16] Mr Cosgrove also gave evidence. He was asked a number of questions by the Traffic Commissioner, who had before her copies of the written responses which the appellants had submitted to Ms Riley. Mr Cosgrove explained the background to the appellants' seeking registration of the local services which were the subject of the report. The applications for registration had followed on the decision of the Scottish Government that there should be free travel for over 60s and the disabled; with the consequent facility for eligible people to travel free of charge from one end of Scotland to another. Mr Cosgrove explained that, following the introduction of such free travel, the appellants had looked at the market and decided that they would register as local services journeys they already operated. They had done so. The local services they registered were designed to comply with the statutory provisions of the 1985 Act and with the law. Registrations were in place and the appellants had done what they could to ensure that the conditions of the registrations had been complied with. Mr Cosgrove amplified upon those steps, which had been outlined in the documents which were before the Traffic Commissioner. He denied that there had been any failure to operate the services and explained that any alleged failures to operate journeys had occurred because drivers had passed the stops to make up time. He blamed that on road works and traffic congestion. Whilst he accepted that the drivers had not been going to places they should have been, those drivers had let him down. He had now taken steps to resolve the problem, including the purchase of tracker systems for the buses.

[17] During the course of questioning Mr Cosgrove, the Traffic Commissioner raised with him the issue of whether the contents of the report suggested that the registration of the 6 local services was a sham. Indeed, on more than one occasion, she put to Mr Cosgrove, as a cross-examiner would, that the whole arrangement was a sham and that it was only when the appellants were monitored that he said something different. Mr Cosgrove disagreed.

[18] The Traffic Commissioner's consideration of the evidence in her written decision includes the following paragraphs:

"33. Section 6 of the Transport Act 1985 provides for the registration of local services and for the making of regulations and for excluding from the application of that section services which are (i) excursions or tours and (ii) excursions or tours falling within a prescribed class. The applicable regulations in Scotland are the Public Service Vehicles (Registration of Local Services) (Scotland) Regulations 2001. These provide for the registration process, notifications and particulars. Regulation 11 provides that section 6 of the Act shall not apply to services which are excursions or tours except any services operated at least once a week for the period of at least 6 consecutive weeks.

34. Regulation 14 provides that (i) subject to paragraph (II), the operator shall, during such time as a vehicle is being used to provide a service, cause - (a)............................... (b) to be displayed a notice clearly legible from the exterior of the vehicle, indicating the destination and the route number. (2) this Regulation shall not apply to a vehicle being used to provide an excursion or tour.

35. Schedule 1 sets out the prescribed particulars under Section 6 of the 1985 Act.

36. This operator has a history of running coach tours and also of doing school transport work and private hire work. The school contracts were registered as local services, then in May 2006 the operator registered a range of services to operate from either Arbroath or Dundee or Brechin with services ranging from numbers 221 to 251 and with destinations in further parts of Scotland and return the same day. That is one outward and one inward journey once per fortnight. These journeys would be fortnightly and all year. (List of registrations within the Public Inquiry brief) 6 of such registrations were monitored by VOSA Bus Compliance Officers between 13 May 2009 and 1 June 2009. Their report casts doubt not only on the punctuality of the said services but also on whether the services were being operated as local services. The local service registrations were copied into the public Inquiry brief and I have had regard to them. I do not see the need to rehearse the detail of timetables and routes in this decision.

37. In order for these services to have been registered by my office, the 15 miles provision had to be met. On the face of it, the registration particulars satisfied that criterion. The operator structured the timetable and description such that on the face of it, these appeared to be bona fide registrations.

38. What the monitoring disclosed was prevalent behaviour by drivers in missing out sections of the routes. I find as fact that these services were not being operated according to the registered particulars and that such failure to operate was prevalent and could have been eradicated by the operator if the operator had so chosen. I am in no doubt having heard the evidence of the Bus Compliance officers and that what they saw at the various locations was not the compliant or expected operation of a local service.

39. I am not satisfied that the requirement in relation to display of a destination such that persons at a bus stop would know that a local service was approaching was satisfied.

.....

48. It is possible to register and operate compliantly long distance local service registrations. Such registrations are not unknown in Scotland - for example as operated under the City Link brand. Other operators know that they cannot run long distance services as local services because to incorporate the local would be to delay unacceptably the longer journey. I am thinking of the coach services which run between the main cities such as operated by Stagecoach, City Link and National Express.

49. This operator has tried to take advantage of the concessionary scheme, the availability of BSOG and the facility within section 2 and section 6 and the Regulations to allow for long distance service regulations. However, the operator has blatantly failed to operate compliantly. I am in no doubt that the inclusion of places such as Muirhead, Glasgow Airport, SECC and so on was simply a device to qualify for concessionary travel and that there was not ever a commitment to serve passengers from those locations.

50. It may be asked how can I justify extrapolating from these monitorings to such a broad conclusion. My starting position is that it is for the operator to register particulars which are accurate and capable of being performed. It is not for me to send someone out to check that. Obviously, from time to time, there will be some glaring matters which can be spotted by administrators in my office or which may be highlighted by local councils. However, the onus is on the operator to register a service which can be operated. What came out of this case was that whilst on paper it looked as if these services could be operated, in practice they cannot be. I give as examples of this that there were not bus stops where there should have been bus stops and that the running times were not possible in some instances. I have to be able to trust an operator and to trust that the operator is running compliantly. It is not surprising that I did not receive any complaints about these services for many of the travellers would be delighted to have what effectively are free coach runs to most agreeable destinations. Thus, what was being operated was lovely for the operator in terms of increased business, income generation, less need to advertise or work hard for business, and excellent for the passengers in terms of free travel for a great number. I myself when considering these registrations when they first came in did not find them without merit for it can be difficult to get from some of the smaller towns of Scotland to other smaller towns of Scotland and thus as an option within the public transport menu such registrations and the creativity behind them received a positive wind from my office. However, that was on the premise that the services can be run compliantly and are compliant. Bus Compliance Officer evidence is very valuable to me for I often say in Public Inquiries that the Bus Compliance Officers stand in place of the public. Thus, they are not bus operators and they are not the Traffic Commissioner, they are individuals who go out to locations to get buses or to see if buses turn up at bus stops. They stand in place of the person who, for example, has picked up a leaflet or who has consulted Traveline or who has looked at the information at a bus stop and stands there expectantly. That person in terms of the regime for bus operation in this country is entitled to have an expectation that the bus will turn up other than in circumstances of reasonable excuse. That person would also have to be able to recognise the service. This is a difficulty in this case because anyone at the road side seeing the vehicles which I was able to see in the photographs would think this was a coach trip and would not think that this was a bus that they could hail and get on. I make this point because it demonstrates that whilst the registration on the fact (sic) of it might be saying to the world that there is a bus service available to you on this route at these times, all the behaviours of the operator were such that there was no expectation of any passengers en route other than those who had telephoned in advance and there was no active encouragement or drawing in to encourage local use. It is interesting that no one got off the bus other than at the terminus.

51. I have come to the conclusion that these registrations are not local services for the purposes of section 2 and the Regulations. I gave this operator a chance to show that it was possible to do what they claimed they wished to do, but in practice it does not work.

52. I find that the operator is in breach of section 6. I find that the services have not been run and therefore I am entitled to impose a penalty under section 39 of the Transport (Scotland) Act 2001.

53. This case was not called up on repute so I am not considering the operator's repute. It was called up in relation to the licence undertakings, in particular, that undertaking to make proper arrangements to ensure that the laws relating to the driving and operation of vehicles to be used under this licence are observed. I am also looking at section 26 of the Transport Act 1985.

54. I consider that the appropriate course of action in this case is for me to direct that the 6 local service registrations will be treated as cancelled. This I do by imposing a condition on the licence that these services will be not operated after a date. I have considered what date to chose and I am mindful that there may be some pre-bookings. I consider that a period of the whole of January should give the operator time to indicate to the public that the services will no longer be available from that date. I will also impose a further condition preventing the registration of any further local services other than school contract services or services which serve places within the areas of Angus Council and Dundee Council."

[19] When the appellants appealed to the Upper Tribunal, the grounds of appeal advanced on their behalf included that the Traffic Commissioner had acted in breach of natural justice. The principal argument was that the contention that the registration of the local services by the appellants had been a sham had not been raised prior to the Public Inquiry, either in the monitoring report or, more importantly, in the call up letter dated 9 September 2009. In such circumstances, the appellants had not anticipated they would require to deal with such a contention during the Public Inquiry. That breach of natural justice had been exacerbated by the failure of the Transport Commissioner to offer the appellants an adjournment. Even if the appellants had not asked for such an adjournment, it had been her duty to offer one to them. Reference was made to Transport Tribunal Appeals 72/2001 Allan R Brooks and 5/2000 Marylyn Williams t/a Cled Williams Coaches.

[20] It was also argued that no reference to the inadequacy of the signage on the appellants' buses had been in either the monitoring report or the call up letter. That was a further issue which the appellants had not anticipated having to deal with during the Public Inquiry.

[21] The Upper Tribunal's Reasons for Decision include the following paragraphs:

"6. We agree that had the Traffic Commissioner suspected that the Appellants' registrations were a "sham" prior to the public inquiry taking place, then that should have been raised in the call up letter in the absence of any reference to such a suspicion being held by Ms Riley or Mr Coyle in the monitoring report. Further, the issue of bus signage should also have been raised in the call up letter for the same reasons. However, it is often the case that issues such as these do not arise until the evidence is probed by the Traffic Commissioner during a hearing. It is clear that the issue of signage was something that Ms Riley had noted but had failed to deal with in her monitoring report; likewise the irresistible conclusion that the Appellants' registrations were a sham was not something she had dealt with. Therefore the absence of reference to both of these issues in the call up letter may be understandable in the circumstances. However, once an allegation of sham registrations was made, then the operator should have been given an opportunity to decide whether they required an adjournment or not. We do not consider that the failure to mention signage in the call up letter to be as important as the nature of the registrations because the Traffic Commissioner concentrated on the failure of the Appellants to run registrations according to their time tables in making the orders that she made. Furthermore we do not accept that the call up letter was defective because of the absence of any reference to s.2 of the Transport Act 1985 which simply contains the definition of "local service", something which was very much in the mind of Mr Cosgrove when giving his evidence.

7. But what are the consequences of the breach of natural justice that we have accepted? If the Traffic Commissioner had adjourned, we are of the view, that in all likelihood, a fresh call up letter would have been issued which would have mentioned "sham registrations" and inadequate signage; it would have raised good repute as an issue; it would have brought into consideration the Appellants' other registrations for long distance services, particularly in view of the fact that the complaint concerning the partially sighted passenger who was left waiting in Perth for a service to Forfar was in fact waiting for service 242, which was one of the long distance services that had not been monitored by Ms Riley. Even if only "sham registrations" and signage issues had been raised in the fresh call up letter, we fail to see, against the background of overwhelming evidence of a failure to operate registered services, that the outcome of the public inquiry would have been any different. Non-compliance of 73% warranted the highest penalty (and it was accepted by Mr Lyndhurst (sic) that the maximum was within the range of penalty available to the Traffic Commissioner in this case) and it was inevitable. Even if "sham registrations" were not proved at the end of day, the Traffic Commissioner would still have been left with an operator who had failed to register services that were capable of being complied with; who was well aware of that and was aware that their drivers were failing to service each part of the registered routes (as evidenced by the letters of 13 March 2009, the incident of 19 April 2009 and the letter to drivers of 23 April following that incident); who had acknowledged that their registrations no longer reflected the traffic situation four years after the registrations had been lodged and had asserted to Ms Riley that they were going to vary the registration of routes, which had not been undertaken by the time of the public inquiry, five months later (or indeed by the date of the appeal hearing). We are satisfied that it was an act of mercy on the part of the Traffic Commissioner not to adjourn in the circumstances of this case. At the very least, the good repute of the Appellants must be significantly tarnished. We have come to the conclusion that the acknowledged breach of natural justice, does not in this case, justify a finding by this tribunal that the appeal should be allowed."

The Upper Tribunal's Reasons for Decision also dealt with the other grounds of appeal on behalf of the appellants, which they rejected and which formed no part of the present appeal. For the reasons they gave the Upper Tribunal refused the appeal.

Submissions on behalf of appellants

[22] In their grounds of appeal to this court, the appellants sought to found on a number of errors in law on the part of the Upper Tribunal in accepting and upholding in toto the decision of the Traffic Commissioner. These included:-

"2. The Tribunal misdirected itself in law:

i) As to the meaning and effect of The Public Service Vehicles (Operators Licences) Regulations 1995 (SI 1995/2908 as amended) and in particular Regulation 9(1)(a) and 9(2)(b) thereof, by holding that the Commissioner having given notice to the Appellants under Regulation 9 of certain matters was thereafter entitled to consider other matters raised by her ex proprio motu in the course of the hearing and base her decision upon them without having either given prior notice or allowing an adjournment to the unrepresented appellants to consider the new matters (contrary to the tribunal's own jurisprudence (Brooks Appeal 72/2001; Williams Appeal 5/2000));

ii) by holding that the Commissioner was entitled to reach the conclusion that the registered services were bona fide services in terms of section 2 of the Transport Act 1985 whilst simultaneously reaching the contradictory conclusions that the Appellants as a matter of fact could have compliantly operated the services and that the services were a "sham" (which proposition the Appellants would have refuted, had they received proper notification and been afforded opportunity to do so) et separatim that both the Tribunal and the Commissioner were entitled to reach these conclusions without hearing evidence;

iii) By holding that the Commissioner was entitled to conclude that Regulation 14 of The Public Service Vehicles (Registration of Local Services) (Scotland) Regulations 2001 required "display of a destination such that persons at a bus stop would know that a local service was approaching" (which words do not appear in the Regulations) et separatim that the signage in use by the Appellants at the material time did not comply with the actual requirements of Regulation 14;

iv) Having held that a breach of natural justice had occurred in the proceedings before the Commissioner by thereafter failing to uphold the appeal before it and remit the matter to another commissioner to reconsider the Appellants' case. "

[23] Senior counsel's submissions before us were couched in more general terms. They focused on the approach the Upper Tribunal had taken when dealing with the consequence of the breach of natural justice that occurred during the Public Inquiry. Senior counsel outlined the evidence that had been before the Traffic Commissioner as to the various steps the appellants had taken to ensure that the conditions applicable to the registered local services were being complied with. A satellite tracking system had been installed to monitor whether the bus drivers were stopping where they were scheduled to stop. It was also stressed that all 6 of the local services were still operating. The issue of the signage on the buses had also been dealt with. We were invited to allow the appeal and to exercise the powers open to this court.

[24] Under paragraph 14(4) of schedule 4 to the 1985 Act, this court can make such order as the Upper Tribunal could itself have made and also such further order or orders as may be just. The Upper Tribunal, for its part, had full jurisdiction to hear and determine all matters whether of law or fact; and power to make such order as they thought fit or to remit the matter to the traffic commissioner for rehearing and determination (paragraphs 8 and 9 of schedule 4 to the 1985 Act.). Against that statutory background senior counsel invited us to allow the appeal and to quash the order made by the Transport Commissioner to the extent of setting aside the second and third parts of the order she had made. We were also invited to reduce the financial penalty imposed by the Traffic Commissioner in terms of section 39 of the 2001 Act, on the grounds that the fine had been excessive and having regard to the expenditure on legal fees, which the appellants had incurred as a consequence of the Transport Commissioner's conduct of the Public Inquiry. A figure of £12,000 for such expenditure was mentioned. It was submitted that expenditure on legal fees was of relevance because the appellants were not entitled to seek any award of expenses, either against the Secretary of State for Transport or the Transport Commissioner. In such circumstances, reduction of the financial penalty along the lines proposed would be equitable. Senior counsel submitted that were this court to proceed in the manner he proposed the Transport Commissioner would not, when exercising her statutory powers in the future, be able rely upon how the 6 local services may have been operated in the past.

Discussion

[25] We agree with the Upper Tribunal that the manner in which the Transport Commissioner conducted the Public Inquiry gave rise to a breach of natural justice. We consider that breach to have been of a material nature. It occurred because prior to the start of the Public Inquiry the appellants were unaware, and had no reason to anticipate, that the grounds on which the Traffic Commissioner was considering exercising her statutory powers in respect of their business might include two grounds which had not been mentioned in the call up letter. The first of those grounds, and by far the more significant, was that the appellants' registration of the 6 local services, which were to be the subject of consideration during the Inquiry, had been a "sham". That particular ground was not only raised as an issue during the Inquiry by the Traffic Commissioner, she questioned Mr Cosgrove about it in a manner a cross-examiner might have adopted. Furthermore the Traffic Commissioner's conclusions on that issue formed an important element in her reasoning for the order she pronounced. As the Traffic Commissioner put in paragraph 49 of her Decision "I am in no doubt that the inclusion of places such as Muirhead, Glasgow Airport, SECC and so on was simply a device to qualify for concessionary travel and that there was not ever a commitment to serve passengers from those locations." In paragraph 51 of her Decision she went on to state that she had come to the conclusion that the registrations were not local services for the purposes of section 2 of the 1985 Act.

[26] The other ground the appellants had no notice of, namely the alleged inadequacy of the signage displayed on the appellants' buses, which the Traffic Commissioner dealt with in paragraphs 39 - 41 of her Decision, constituted part of the background to the breach of natural justice which occurred. However, it was clearly of less significance to the outcome of the Inquiry.

[27] If, as the Upper Tribunal assert in paragraph 6 of their own Decision, it is an "irresistible conclusion that the appellants' registrations were a sham" we find ourselves unable to agree with the Upper Tribunal that the absence of any reference to the first of these issues in the call up letter may be understandable. Prior to the call up letter being sent to the appellants, the Traffic Commissioner had available the documents that the appellants had lodged with her office when they applied for registration of the 6 local services; the report prepared by the Bus Compliance Officers; and the documents the appellants submitted to the Bus Compliance Officers, when they were invited to comment on the report. Having regard to the fact that it was the Traffic Commissioner herself who first raised this issue during the course of Ms Riley's evidence, and the terms in which she chose to do so, we are unable to identify any good explanation why this potential ground for taking action against the appellants was not raised in advance of the Inquiry getting underway.

[28] Once the issue of whether the registration of the 6 local services had been a sham emerged at the Inquiry, it was imperative (a) that it was explained to the appellants that the Traffic Commissioner had identified further grounds on which she might take action against the appellants and (b) that the appellants were offered the opportunity of an adjournment to consider these further grounds. In our opinion, such action was necessary, having regard to the terms of Regulation 9 (2) of The Public Service Vehicles (Operators' Licences) Regulations 1995 ("the 1995 Regulations"). They provide that before exercising one or more of his statutory powers under section 17(10) or (2), section 26 and section 28(1) of the 1985 Act, a Traffic Commissioner shall give notice to the licence holder of the grounds on which he is considering action.

[29] In the circumstances of this case, however, we would go further. Standing the terms in which the Traffic Commissioner raised the issue with Ms Riley, the Traffic Commissioner could and should have taken the initiative and adjourned the Public Inquiry to allow for the service of a further call up letter. On any view, the service of a further call up notice was required. In her Decision the Traffic Commissioner speaks of having giving the appellants "a chance to show that it was possible to do what they claimed they wished to do, but in practice it does not work" (paragraph 51). When she does so, it is unclear whether she is referring to the appellants having been given a chance when their applications to register the 6 local services were granted or whether that chance arose during the Public Inquiry Having read the transcript of the hearing before the Traffic Commissioner, we are unable to agree that the appellants were given a proper opportunity to respond on the first of the additional issues that were raised. An adjournment of the hearing would also have allowed time to consider the possibility of re-opening the Public Inquiry before a different traffic commissioner. In our opinion, the need to consider re-opening the Inquiry before another traffic commissioner existed for a number of reasons, including that the Traffic Commissioner had herself been involved in the process of considering, and subsequently granting, the appellants' applications to register the 6 bus routes as local services (paragraphs 36 - 37 of the Traffic Commissioner's Decision). If the purpose of the applications had been to achieve the "sham registration" of local services, the Traffic Commissioner herself could be viewed as having been the victim of such conduct on the part of the appellants. As we have indicated, the alleged inadequacies of the signage on the buses were a less serious matter, not least of all because it was much easier for the appellants to offer some response to that issue without prior notice. Nevertheless, because it was an issue that could have had some bearing on the much more important and complex issue of sham registration, its unheralded emergence reinforced the need to adjourn the Inquiry.

[30] We regret to say that we consider the Upper Tribunal erred in law in concluding that the outcome of an adjourned Public Inquiry would have been exactly the same, if not worse for the appellants, than the outcome of the Public Inquiry before the Traffic Commissioner. In expressing that view, we recognise that there are cases in which a court is prepared to withhold a remedy from a party, who has been the victim of some procedural error on the part of a decision maker during the exercise of his statutory powers. The court may take the view that the breach of procedure was too insignificant as to warrant relief or that the public official or authority would have made the same decision even if the flaw in procedure had not occurred. We are not persuaded that this is such a case. That is primarily because the conclusion the Traffic Commissioner reached that the registration of the 6 local services had been a sham clearly played a material part in the ultimate outcome of the Inquiry.

[31] In the circumstances of this case, our concern is two-fold. In the first place we do not consider it was possible for members of a tribunal to be as certain, as the members of the Upper Tribunal state they were, that the appellants would have been unable to mount a successful defence to the contentions of sham registration and inadequate signage. It can readily be envisaged that had the issue of sham registration been raised in advance, the appellants would have explored, with their legal advisers, whether that issue gave rise to the need for the appellants to be legally represented at the Inquiry and what evidence should be led in respect of that issue. Evidence relating to the applications for registering the 6 local services with the Traffic Commissioner's office and from drivers employed to operate the local services, following their registration, may have been possibilities. Lodging applications to vary the registrations of the 6 local services so that they are capable of being complied with would be another. We also take the view that the issue of whether the registration of the 6 local services were "sham registrations" is one which would involve questions of fact and questions of law of some complexity.

[32] Secondly, we are concerned that when the Upper Tribunal were addressing what the outcome of any further Public Inquiry would be, they erred in law by having regard to two further issues that were not competently before the Traffic Commissioner during the Inquiry. Those two issues were the appellants' "good repute" and the appellants' other registrations for long distance services (paragraph 7 of the Decision). Whilst we accept that those issues could competently be raised during a further inquiry, neither of these issues had been raised prior to or during the hearing before the Traffic Commissioner. In these circumstances, the appellants were not given any opportunity, either before the Traffic Commissioner or before the Upper Tribunal, of presenting evidence to challenge such additional grounds as constituting a possible foundation for rulings of potentially greater consequence for them than those actually made by the Traffic Commissioner. Whilst we do not dispute that members of the Upper Tribunal are entitled to draw on their collective knowledge and experience of commercial traffic regulation, in our opinion the Upper Tribunal erred in law in the present case by drawing on that experience to determine questions of fact which had not been raised at any previous stage in the present proceedings and in relation to which the appellants had not been afforded any opportunity to lead evidence. Furthermore the Upper Tribunal's discussion of the additional grounds and the evidence that might be before an adjourned inquiry concludes with the observation that it was "an act of mercy on the part of the Traffic Commissioner not to adjourn in the circumstances of this case". With the greatest of respect to the members of the Upper Tribunal, we have some difficulty with the relevance of that particular observation. The Traffic Commissioner does not appear to have given any consideration at all to the question of whether she should adjourn the Public Inquiry. In such circumstances it may not be appropriate to attribute to her such an act of mercy.

[33] In conclusion, therefore, we find the approach adopted by the Upper Tribunal when considering what consequences should flow from the breach of the rules of natural justice to have been in conflict with the importance normally attached to the need to respect and comply with the rules of natural justice. We consider the Upper Tribunal erred in law in the approach it adopted when considering the outcome of any adjourned Inquiry. In our opinion, the Upper Tribunal also erred in law in reaching the conclusion that the outcome of any adjourned inquiry would inevitably have been as bad, if not worse, from the appellants' point of view. In the whole circumstances of this case, we consider that the Upper Tribunal erred in law in failing to remit the matter to another Traffic Commissioner to determine. For these reasons, we intend to allow the appeal. That renders it unnecessary for us to comment upon the other grounds of appeal set out in the Appeal, which in any event were not addressed in detail during senior counsel's submissions.

[34] Before parting from this appeal, we should make clear that we are not persuaded that it would have been appropriate to have disposed of the appeal in the manner suggested by senior counsel for the appellants. We have held that the procedure followed by the Traffic Commissioner was materially flawed. In these circumstances we consider that it would have been quite inappropriate for us to vary, by reducing it, the financial penalty imposed by the Traffic Commissioner following on a Public Inquiry that was tainted by a material error in procedure of the nature that occurred. We are also far from satisfied that it would be appropriate to reduce a financial penalty imposed on a licence holder by a Traffic Commissioner on account of the legal expenses the licence holder has incurred and which he attributes to the acts or omissions of the Traffic Commissioner.

[35] What we intend to do is to allow the appeal, recall the order of the Upper Tribunal dated 9 April 2010, recall the decision of the Traffic Commissioner dated 21 December 2009 and send the case back to the Traffic Commissioner to be considered of new. We intend that a traffic commissioner other than Miss Aitken should conduct any future inquiry. That can obviously be arranged. We see no reason why another traffic commissioner coming fresh to this case would not be in a position to afford the appellant a fair hearing, held in accordance with the principles of natural justice and the relevant statutory provisions. It will be for the new traffic commissioner to decide how he or she intends to proceed and the terms of any call up letter which is deemed to be necessary.