Neutral citation [2012] CAT 19
IN THE COMPETITION
APPEAL TRIBUNAL
Case Number: 1178/5/7/11
Victoria House
Bloomsbury Place
London WC1A 2EB
5 July 2012
BETWEEN:
Claimant
Defendant
Mr. Michael Bowsher Q.C. and Miss Anneliese Blackwood (instructed by Addleshaw Goddard LLP) appeared for the Claimant.
Mr. James Flynn Q.C. and Mr. Colin West (instructed by Burges Salmon LLP) appeared for the Defendant.
I. INTRODUCTION | 1 |
(1) The parties and the OFT Decision | 1 |
(2) The scope of the OFT Decision and the Tribunal's jurisdiction | 1 |
(3) 2 Travel's claim | 3 |
(4) Overview of our approach to the facts | 6 |
(5) Exemplary damages | 9 |
(6) Evidence | 10 |
(7) Causation | 10 |
II. THE INFRINGEMENT DECISION AND CARDIFF BUS'S STRIKE-OUT APPLICATION | 10 |
(1) Section 47A of the 1998 Act | 10 |
(2) Cardiff Bus's strike-out application | 12 |
(3) The scope of the Infringement as found in the OFT Decision | 13 |
III. EVIDENCE | 14 |
(1) Sources of factual findings | 14 |
(2) Witness evidence | 16 |
(3) The documentary evidence | 22 |
(4) Section 58 of the 1998 Act | 25 |
(5) Findings of fact that the OFT might have made had Cardiff Bus been more forthcoming | 30 |
IV. CAUSATION | 31 |
V. THE FACTS: THE PERIOD PRIOR TO THE INFRINGEMENT (TO 19 APRIL 2004) | 33 |
VI. THE FACTS: EVENTS SUBSEQUENT TO 19 APRIL 2004 | 68 |
VII. THE "COUNTER-FACTUAL" SCENARIO: WHAT WOULD HAVE HAPPENED BUT FOR THE INFRINGEMENT | 104 |
VIII. DRIVER SHORTAGES AND THE EFFECT OF DRIVER SHORTAGES | 107 |
(1) Approach | 107 |
(2) Driver shortages suffered by 2 Travel prior to 19 April 2004 | 108 |
(3) Driver shortages in the period April to December 2004 | 110 |
IX. MANAGEMENT TIME WOULD NOT HAVE BEEN DIVERTED | 121 |
X. DIVERSION OF PASSENGERS, LOSS OF PASSENGER REVENUE AND 2 TRAVEL'S CLAIM 1: LOSS OF PROFITS | 123 |
(1) Introduction | 123 |
(2) The scope of 2 Travel's loss of profits claim | 125 |
(3) Lost revenue in the period to end 2004, on the basis of four operated services | 126 |
(4) Duration and expansion of services by 2 Travel | 149 |
(5) Costs | 151 |
(6) Cardiff Bus's contention that additional losses caused by Cardiff Bus are irrecoverable by 2 Travel | 151 |
XI. CLAIM 2: LOSS OF A CAPITAL ASSET (THE BUSINESS OF 2 TRAVEL AS A GOING CONCERN) | 152 |
(1) Introduction | 152 |
(2) The February 2004 PwC Report | 153 |
(3) Inherent characteristics of 2 Travel | 156 |
(4) What drove the company into insolvency? | 159 |
(5) Could the company have been saved? | 160 |
XII. CLAIM 3: LOSS OF A COMMERCIAL OPPORTUNITY (THE SWANSEA DEPOT DEVELOPMENT) | 162 |
XIII. CLAIM 4: WASTED STAFF AND MANAGEMENT TIME | 163 |
XIV. CLAIM 5: LIQUIDATION COSTS | 163 |
XV. CLAIM 6: EXEMPLARY DAMAGES | 163 |
(1) Introduction | 163 |
(2) Oppressive, arbitrary or unconstitutional conduct by servants of the government | 164 |
(3) Conduct calculated to make a profit which may well exceed the compensation payable | 168 |
XVI. CONCLUSIONS | 217 |
ANNEX 1: GLOSSARY OF DEFINED TERMS IN THE JUDGMENT | 219 |
I. INTRODUCTION
(1) The parties and the OFT Decision
(2) The scope of the OFT Decision and the Tribunal's jurisdiction
(1) The relevant market (for the purposes of assessing whether there had been an infringement of the Chapter II prohibition) was the provision of no-frills and normal bus services as part of the Cardiff Bus network, together with urban bus services, and also interurban bus services and urban rail services (to the extent that these served the same flows) into and out of Cardiff city centre.
(2) Cardiff Bus held a dominant position in this market.
(3) Cardiff Bus abused its dominant position (and so breached the Chapter II prohibition) by launching and operating its so-called "white services" with exclusionary intent. We shall refer to these services as the "Cardiff Bus White Service" or the "White Service". The OFT found Cardiff Bus's conduct to be "predatory" (paragraph 1.17 of the OFT Decision) and that it had "abused its dominant position by engaging in predation" (paragraph 8.2 of the OFT Decision).
(4) This abuse of a dominant position occurred between 19 April 2004 (when the Cardiff Bus White Service began) and 18 February 2005 (when the Cardiff Bus White Service ended).
(5) This abuse of a dominant position affected trade within the United Kingdom.
(3) 2 Travel's claim
(1) First, 2 Travel claimed a loss of profits, either to the date of 2 Travel's liquidation (in the amount of £340,259) or alternatively to 30 September 2011 (which was the date to which Mr Good, 2 Travel's expert, performed his calculations, in the amount of £3,828,121). We shall refer to this as "Claim 1: Loss of Profits".
(2) Secondly, 2 Travel had been driven into liquidation on 20 May 2005. Absent the Infringement, 2 Travel would have grown into a successful bus company. Thus, 2 Travel, by its liquidator, claimed for the loss of a capital asset, namely the business of 2 Travel as a going concern ("Claim 2: Loss of a Capital Asset"). 2 Travel originally claimed also for the loss of a commercial opportunity in the form of the growth of a successful bus company, but – by the time of its written opening submissions – had quite correctly accepted that this claim duplicated Claim 2: Loss of a Capital Asset and involved double-counting: this separate head of loss was not, therefore, pursued. 2 Travel contended that the value of 2 Travel as at the date of liquidation was at least £6,800,000.
(3) Thirdly, 2 Travel lost the value of a commercial opportunity, namely the ability to benefit from the increase in value and development potential of some land (the "Swansea Depot") that was purchased by it, and that it was obliged to divest as a result of the Infringement ("Claim 3: Loss of a Commercial Opportunity"). 2 Travel put this loss at £10,000,000.
(4) Fourthly, 2 Travel expended wasted staff and management time during the period when the business was operating (i.e. prior to its liquidation) ("Claim 4: Wasted Staff and Management Time"). 2 Travel claimed £152,635 in respect of this head of loss.
(5) Fifthly, 2 Travel incurred avoidable costs relating to its liquidation ("Claim 5: Costs of the Liquidation"). These costs, which were dealt with in the evidence of Mr Conway (as to which, see below) were substantial.
(6) Sixthly, 2 Travel was in any event entitled to exemplary damages ("Claim 6: Exemplary Damages").
The amount of damages claimed by 2 Travel was thus, on any view, substantial. In addition, 2 Travel claimed interest on these damages.
(1) First, although Cardiff Bus, by virtue of section 47A of the OFT Decision, had to (and did) accept liability to 2 Travel in respect of the Infringement, the parties' positions diverged widely as to the loss and damage flowing from the Infringement. 2 Travel contended that the Infringement had caused it significant damage, in the various respects we have identified, and that this was a case where an award of exemplary damages was appropriate. Cardiff Bus disputed both of these contentions. It was Cardiff Bus's case that even if the Infringement had never occurred, 2 Travel would nevertheless have gone into liquidation when and as it did, and that Cardiff Bus's infringement could not be seen as a factor causing loss to 2 Travel at all. Even if the Infringement was a factor, Cardiff Bus disputed the quantum of 2 Travel's claim and contended that the claim, as articulated, was grossly excessive. Cardiff Bus also denied that this was a case where exemplary damages could, or should, be awarded.
(2) Secondly, although there was some difference between the parties on questions of law – notably on causation and on the circumstances in which exemplary damages could be awarded – which we resolve in the course of this Judgment, the fundamental reason for the parties' divergence lay in their differing submissions as to what would have happened, had the Infringement not taken place. In this Judgment, we refer to this hypothetical case by the phrase used by the parties, the "counter-factual scenario". Counter-factual scenarios fall to be considered whenever courts have to determine what would have happened had a particular wrong not occurred. Inevitably, the inquiry is fact-based, but in this case the factual history is both long and complex. Large portions of this Judgment are devoted to a chronological narrative of the business of 2 Travel. Similarly, it will be necessary to consider, in some detail, Cardiff Bus's conduct for the purposes of Claim 6: Exemplary Damages.
(3) Thirdly, there is, unsurprisingly, considerable inter-relationship between the various heads of loss claimed by 2 Travel. As 2 Travel itself acknowledged, unless Claim 1: Loss of Profits was confined to the profits lost up to the date of 2 Travel's liquidation, there would be an overlap between this head of loss and Claim 2: Loss of a Capital Asset, which would have to be taken into account in order to avoid over-recovery. Equally, the extent of recovery under Claim 3: Loss of a Commercial Opportunity and Claim 5: Costs of the Liquidation, depends very much on our findings in respect of Claims 1 and 2.
(4) Overview of our approach to the facts
(i) Introduction
(1) Stage 1: an assessment of the period prior to the Infringement i.e. up to 19 April 2004.
(2) Stage 2: an assessment of the period subsequent to 19 April 2004, when the Infringement was taking place.
(3) Stage 3: an assessment of the counter-factual scenario i.e. what would have happened had the Cardiff Bus White Service not operated at all or (to put the identical point more shortly) had the Infringement not taken place.
(ii) Stage 1: The period prior to the Infringement
(iii) Stage 2: The period subsequent to 19 April 2004
(iv) Stage 3: The counter-factual scenario
(1) 2 Travel would not have suffered from the severe driver shortages that (so it claims) it did suffer from.
(2) Management time would not have been diverted from normal (i.e. revenue generating) duties, as the Infringement would not have disrupted 2 Travel's operations both in Cardiff and elsewhere.
(3) Passengers who in fact travelled on the Cardiff Bus White Service would have travelled on the 2 Travel In-Fill Service, resulting in increased revenues to 2 Travel. In other words, the Cardiff Bus White Service diverted passengers, and hence revenue, away from 2 Travel.
(1) Section XI considers Claim 2: Loss of a Capital Asset.
(2) Section XII considers Claim 3: Loss of a Commercial Opportunity.
(3) Section XIII considers Claim 4: Wasted Staff and Management Time.
(4) Section XIV considers Claim 5: Costs of the Liquidation.
All of these heads of loss are said by 2 Travel to flow causally from the Infringement as longer term effects.
(5) Exemplary damages
(6) Evidence
(7) Causation
II. THE INFRINGEMENT DECISION AND CARDIFF BUS'S STRIKE-OUT APPLICATION
(1) Section 47A of the 1998 Act
"(1) This section applies to –
(a) any claim for damages, or
(b) any other claim for a sum of money,
which a person who has suffered loss or damage as a result of the infringement of a relevant provision may make in civil proceedings brought in any part of the United Kingdom.
(2) In this section 'relevant prohibition' means any of the following:
...
(b) the Chapter II prohibition;
...
(6) The decisions which may be relied on for the purposes of proceedings under this section are –
(a) a decision of the OFT that the Chapter I prohibition or the Chapter II prohibition has been infringed;
...
(9) In determining a claim to which this section applies the Tribunal is bound by any decision mentioned in subsection (6) which establishes that the prohibition in question has been infringed."
"30. The jurisdiction of the Tribunal is therefore limited to determining what are commonly referred to as follow-on claims for damages based on a finding of infringement of the Chapter II prohibition or Article 82 which has been made by the OFT or one of the sectoral regulators such as the ORR who enjoy concurrent powers of enforcement in respect of the Chapter II prohibitions: see CA 1998 s.54 and Schedule 10. The existence of such a finding is not only a pre-condition to the making of a claim under s.47A(1). It also operates to determine and define the limits of that claim and the Tribunal's jurisdiction in respect of it.
31. For there to be such a claim (and, with it, the jurisdiction of the Tribunal to adjudicate upon it) the regulator must have made a decision of the kind described in s.47A(6). The use of the word "decision" makes it clear that s.47A is differentiating between findings of fact as to the conduct of the defendant made as part of the overall decision and a determination by the regulator that particular conduct amounts to an infringement of the Chapter II prohibition. It is not open to a claimant … to seek to recover damages through the medium of s.47A simply by identifying findings of fact which could arguably amount to such an infringement. No right of action exists unless the regulator has actually decided that such conduct constitutes an infringement of the relevant prohibition as defined. The corollary to this is that the Tribunal (whose jurisdiction depends upon the existence of such a decision) must satisfy itself that the regulator has made a relevant and definitive finding of infringement. The purpose of s.47A is to obviate the necessity for a trial of the question of infringement only where the regulator has in fact ruled on that very issue. We were not referred to any procedure for seeking clarification of any points of uncertainty from the decision-maker. The Tribunal ought therefore, in my judgment, to be astute to recognise and reject cases where there is no clearly identifiable finding of infringement and where they are in effect being asked to make their own judgment on that issue."
(2) Cardiff Bus's strike-out application
"160. ...the Claimant's claim can only be founded on the OFT's Decision and it is idle to attempt to pad it out by way of what the Claimant calls "causation narrative" as to matters on which the OFT made no findings. Accordingly, the claims that 2 Travel was caused loss by alleged intimidation of its drivers; by dangerous driving on the part of Cardiff Bus's drivers; or by them 'sandwiching' 2 Travel's buses; or why Cardiff Bus's white services operating in breach of their registrations have no part to play in the present proceedings. The attention of the Tribunal and the energies of the parties in this case should not be directed to debating the accuracy or otherwise of 2 Travel's factual assertions as to these matters or their claims about the consequential impact on 2 Travel. 2 Travel is attempting to have a third bite at the cherry, having failed to convince the OFT..."
(3) The scope of the Infringement as found in the OFT Decision
(1) The relevant market (for the purposes of assessing whether there had been an infringement of the Chapter II prohibition) was the provision of no-frills and normal bus services as part of the Cardiff Bus network, together with urban bus services, and also interurban bus services and urban rail services (to the extent that these served the same flows) into and out of Cardiff city centre (paragraph 4.130 of the Decision).
(2) Cardiff Bus held a dominant position in this market (paragraph 6.101 of the Decision).
(3) Cardiff Bus abused its dominant position (and so breached the Chapter II prohibition) by launching and operating its White Service with an exclusionary and predatory intent (paragraphs 1.14, 1.16 to 1.17, 7.224 to 7.227 and 8.2 of the Decision).
(4) This abuse of a dominant position occurred between 19 April 2004 and 18 February 2005 (paragraph 1.17 of the Decision).
(5) This abuse of a dominant position affected trade within the United Kingdom (paragraph 3.20 of the Decision).
"In all the circumstances, the OFT concludes that the evidence is sufficient to demonstrate that Cardiff Bus was reacting to 2 Travel's entry by attempting to force the entrant to retreat from the market. Cardiff Bus' white services were not, therefore, launched as a market test but were launched and operated simply for the purpose of driving out 2 Travel, rather than making profits for Cardiff Bus or fulfilling any other legitimate commercial strategy."
III. EVIDENCE
(1) Sources of factual findings
(1) First, we consider the witness evidence heard by the Tribunal: Section III(2) below.
(2) Secondly, we consider the documentary evidence seen by the Tribunal: Section III(3) below.
(3) Thirdly, we consider the effect of section 58 of the 1998 Act: Section III(4) below.
(2) Witness evidence
(i) 2 Travel's witnesses of fact
(1) Mr Clayton Jones, the director of Heart of Wales Bus & Coach Company Limited. As there were two "Mr Jones" giving factual evidence before us, we shall refer to this Mr Jones as "Mr Clayton Jones". Mr Clayton Jones provided one statement to the Tribunal, dated 22 September 2011, and gave evidence on 12 March 2012. Mr Clayton Jones was obviously expert in the bus industry, and showed an appreciation of how the industry worked and how to run a bus company. As such, his evidence was entitled to respect. However, in our judgement he exhibited a fixed predisposition against public regulators and companies, like Cardiff Bus. He had, in the past, been criticised for advancing colourful views in court proceedings, and we found his evidence before us similarly coloured. Whilst we have no doubt that he was doing his best to assist the Tribunal, for these reasons we treat his evidence with some caution. Ostensibly, Mr Clayton Jones was called by 2 Travel to lend weight to the contention that 2 Travel's business plan of operating in-fill services was a good one that, absent the Infringement, would have succeeded. Although Mr Clayton Jones did give evidence along these lines, he very fairly accepted that he knew little of 2 Travel's affairs and that he was unable to comment in detail on – for example – 2 Travel's financial position or operations. Given this, the extent to which he could assist the Tribunal on how 2 Travel would have fared, had the White Service never operated, was limited.
(2) Mr David Beverley ("Bev") Fowles, the former managing director of 2 Travel. Mr Fowles provided two statements to the Tribunal, dated 23 September 2011 and 26 January 2012, and gave evidence on 12 March 2012. Mr Fowles was an honest and straightforward witness. He answered questions frankly, even when the answer was against his interests, and we believed his evidence. Unsurprisingly, because he was giving his evidence some seven years after the events he was describing, his recollection on matters of detail was patchy. In his answers to us, he was careful to identify those cases where (for perfectly understandable reasons) his memory failed and he was unable – for that reason – to assist the Tribunal.
(3) Mr David Huw Francis, the former company secretary of 2 Travel and a former director of and investor in 2 Travel. Mr Francis provided two statements to the Tribunal, dated 23 September 2011 and 30 January 2012, and gave evidence on 14 and 15 March 2012. Mr Francis was combative as a witness when defending what he perceived to be his own interests. At times, he went beyond the giving of evidence, tending to advocate, and to take positions on points on which he could actually give no evidence. This, combined with the fact that he had quite a poor recollection on points of fact where he had actually been involved (he was, for instance, utterly unable to provide us with a clear picture of how 2 Travel had been funded), rendered him a less helpful witness than he otherwise might have been. Whilst we have no doubt he was doing his best to assist the Tribunal, for these reasons we have treated his evidence with care in order to determine what weight should be attached to it.
(4) Mr Nigel Vernon Short, a former non-executive director of 2 Travel and a former investor in 2 Travel. Mr Short provided one statement to the Tribunal, dated 23 September 2011, and gave evidence on 15 March 2012. Mr Short gave clear, precise, evidence to the Tribunal. He was swift to indicate what he did not know (and fairly acknowledged that, as a non-executive director of 2 Travel, he was not involved in the daily affairs of the company), but when he did have evidence to give this evidence was clearly and precisely given. We believed what he said.
(5) Mr Stephen William Harrison, formerly a partner in the firm of PricewaterhouseCoopers ("PwC") and now an ordinary member of the Tribunal. Mr Harrison's role in this latter regard gave rise to an application by Cardiff Bus in relation to Mr Harrison's evidence, which was dealt with in the Tribunal's ruling of 20 December 2011 ([2011] CAT 44). Mr Harrison provided two statements to the Tribunal, dated 26 October 2011 and 29 January 2012, and gave evidence on 15 and 16 March 2012. Mr Harrison sought to assist the Tribunal to the best of his ability, but he accepted that his ability to assist the Tribunal was qualified in three respects. First, he was particularly careful to emphasise that the events on which he gave evidence had occurred a long time ago, and that his recollection was imperfect. Secondly, his ability to refresh his memory by reference to documents was hampered by an absence of contemporary documents. Thus, although copies of the various reports and letters written by PwC were before the Tribunal, and clearly had been carefully considered by Mr Harrison (no doubt both at the time they were produced, and when he was preparing to give evidence), the working documents that underlay these reports and letters were neither before the Tribunal nor there to assist Mr Harrison when giving his evidence. Thirdly – and, again, Mr Harrison was careful to point this out – PwC's letters and reports (in particular, the crucial February 2004 PwC report considered in detail below) tended to be produced by subordinates in PwC under Mr Harrison's supervision. Thus, to take the February 2004 PwC report as an example, Mr Harrison told us that this was the product of about three weeks work of a Mr Farrand of PwC, combined with about three days work by Mr Harrison himself. Inevitably, this hampered Mr Harrison when asked to explain some of the detail in the reports. In short, Mr Harrison was an honest and straightforward witness, who did his very best to assist the Tribunal, but who himself recognised – largely because of qualifications which he himself identified to us – that his evidence could not descend to the level of detail that the case at times required.
(6) Mr Christopher James Sutton, the director in charge of the Cardiff office of property consultants Jones Lang LaSalle. Mr Sutton provided one statement to the Tribunal, dated 23 September 2011, and gave evidence on 16 March 2012. Mr Sutton was a knowledgeable, objective and careful witness. We believed what he said.
(7) Mr Graham Donald Cartwright, the former operations manager (initially as a consultant, then as an employee) of 2 Travel. Mr Cartwright provided one statement to the Tribunal, dated 23 September 2011, and gave evidence on 16 March 2012. He was an honest witness and we believed what he said.
(8) Mr David Rhys Fowles, the former operations director of 2 Travel. Mr Fowles is the son of Mr David Beverley Fowles, and we shall refer to him as "Mr Fowles Jnr" in order to distinguish him from his father. Mr Fowles Jnr provided one statement to the Tribunal, dated 23 September 2011, and gave evidence on 16 and 19 March 2012. Mr Fowles Jnr was an unimpressive witness. He obviously had little recollection of contemporary facts; but, even so, was inclined to seek to gloss or mitigate failings within 2 Travel which were reflected in the contemporary documents. Indeed, he sought to re-write history by downplaying his own contemporaneous complaints to 2 Travel's management regarding the set-up of operations in Cardiff in early 2004 (see for example paragraphs 197 to 200 below). We consider that his evidence needs to be treated with care.
(9) Mr Charles Hugh Jones, formerly 2 Travel's Operations Manager West. Mr Jones provided two statements to the Tribunal, dated 16 September 2011 and 27 January 2012, and gave evidence on 19 March 2012. He was an honest witness and we believed what he said.
(10) Mr Daniel Simon Conway, a chartered accountant and director of BDO LLP. Mr Conway provided four statements to the Tribunal, dated 27 January 2012, 30 January 2012, 8 February 2012 and 27 February 2012, and gave evidence on 19 March 2012. Mr Conway gave evidence as to 2 Travel's liquidation costs. He was, essentially, a peripheral witness, who did his best to assist the Tribunal.
(11) Mr Jeffrey Roger Durbin, the operator of the South Gloucester Bus and Coach Company. Mr Durbin provided one statement to the Tribunal, dated 19 September 2011. Cardiff Bus indicated that Mr Durbin did not have to attend for cross-examination, and we accept the evidence in his witness statement.
(ii) Cardiff Bus's factual witness
(iii) The experts
(1) Dated 14 October 2011 (from Mr Good), corrected and amended on 20 March 2012;
(2) 11 November 2011 (from Mr Haberman); and
(3) 11 November 2011 (from Dr Niels), corrected and amended on 29 February 2012.
(iv) The anonymous evidence
(3) The documentary evidence
(i) Introduction
(ii) 2 Travel's disclosure
"In such a case [where witnesses were seeking to recall events and telephone conversations of five years earlier] memories may very well be unreliable; and it is of crucial importance for the judge to have regard to the contemporary documents and to the overall probabilities…"
(iii) Cardiff Bus's disclosure
"206. As regards price fixing cases under the Chapter I prohibition, the Tribunal pointed out in Claymore Dairies that cartels are by their nature hidden and secret; little or nothing may be committed to writing. In our view even a single item of evidence, or wholly circumstantial evidence, depending on the particular context and the particular circumstances, may be sufficient to meet the required standard: see Claymore Dairies at [3] to [10]. See also, for example, the opinion of Judge Vesterdorf, acting as Advocate General, in Rhône-Poulenc v Commission [1991] ECR-II at p. 867; and Cimenteries, cited above, at paragraphs 1838 to 1839. As the Court of Justice said in Cases 204/00P etc. Aalborg Portland v Commission, judgment of 17 January 2004, not yet reported, at paragraphs 55 to 57:
"55. Since the prohibition on participating in anti-competitive agreements and the penalties which offenders may incur are well known, it is normal for the activities which those practices and those agreements entail to take place in a clandestine fashion, for meetings to be held in secret, most frequently in a non-member country, and for the associated documentation to be reduced to a minimum.
56. Even if the Commission discovers evidence explicitly showing unlawful conduct between traders, such as the minutes of a meeting, it will normally be only fragmentary and sparse, so that it is often necessary to reconstitute certain details by deduction.
57. In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of coincidences and indicia which, taken together, may, in the absence of another plausible explanation, constitute evidence of an infringement of the competition rules.""
(4) Section 58 of the 1998 Act
(i) The provision
"(1) Unless the court directs otherwise, an OFT's finding which is relevant to an issue arising in Part 1 proceedings is binding on the parties if –
(a) the time for bringing an appeal in respect of the finding has expired and the relevant party has not brought an appeal under section 46 or 47; or
(b) the decision of the Tribunal on such an appeal has confirmed the finding.
(2) In this section –
"an OFT's finding" means a finding of fact made by the OFT in the course of conducting an investigation;
"Part 1 proceedings" means proceedings brought otherwise than by the OFT –
(a) in respect of an alleged infringement of the Chapter I prohibition or of the Chapter II prohibition; or
(b) in respect of an alleged infringement of the prohibition in Article 81(1) or Article 82;
"relevant party" means –
(a) in relation to the Chapter I prohibition or the prohibition in Article 81(1), a party to the agreement which is alleged to have infringed the prohibition; and
(b) in relation to the Chapter II prohibition or the prohibition in Article 82, the undertaking whose conduct is alleged to have infringed the prohibition.
(3) Rules of court may make provision in respect of assistance to be given by the OFT to the court in Part 1 proceedings."
(ii) Analysis of section 58
(1) First, it is necessary for the Tribunal to be astute to identify when findings of fact that are binding under section 58 have in fact been made. In Enron 2, Lloyd LJ noted at paragraph 56:
"In relation to findings of fact said to be binding under section 58, it seems to me that ... the party seeking to rely on a finding must be able to demonstrate that the regulator has made a clearly identifiable finding of fact to a given effect, and it is not enough to be able to point to passages in the decision from which a finding of fact might arguably be inferred."
Jacob LJ stated at paragraph 148:
"… It is not good enough for a party claiming damages in a follow-on claim to root around in the decision of the regulator to find stray phrases or sentences and say "look, here is a finding of fact, you cannot deny it.""
(2) Secondly, it must be noted that, unless disapplied by the Tribunal, "OFT findings" are findings of fact that are binding on both Cardiff Bus and 2 Travel. Yet, in the Decision, the OFT was considering not 2 Travel's losses as a result of Cardiff Bus's infringement of the Chapter II prohibition, but rather whether or not Cardiff Bus had in fact infringed the Chapter II prohibition. These are very different questions, and in this regard we have well in mind Jacob LJ's words in paragraph 150 of Enron 2:
"In this context it must be remembered that the party claiming damages is not a party to the proceedings before the regulator. Facts about causation and damages, which will normally include an investigation into whether and if so how the infringing conduct affected that particular party, are not necessarily a part of the regulator's inquiry. If one is not careful there could be an injustice: findings made by the regulator on incomplete evidence followed by an impossibility of attacking them later. Section 58 might provide a way to alleviate this, but it is not a particularly satisfactory solution: the defendant would have to rely upon the section 58 discretion being exercised in his favour to defend himself properly."
(iii) Relationship between section 58 and the decision in Iberian UK Ltd v BPB Industries plc
(iv) Findings of fact in the OFT Decision not accepted by the Tribunal
"7.231 2 Travel's no-frills services were only a part of its operation. For instance, in November 2004, its no-frills services represented approximately 25 per cent of 2 Travel's services in Cardiff, with the other approximately 75 per cent of its activities being either tendered or school services.
7.232 Furthermore, as detailed in paragraphs 2.40 onwards, the evidence indicates that shortly after the introduction of its four commercial bus services in direct competition with routes served by Cardiff Bus, 2 Travel was investigated by the Traffic Commissioner over concerns about its financial standing as a result of poor service levels in Neath, Llanelli, Carmarthenshire and Gwent. These problems did not appear to be related to 2 Travel's activities in Cardiff. Moreover, it appears from internal Cardiff Bus documents that Cardiff Bus was aware of the difficulties that 2 Travel had been encountering…
7.233 Given these developments, it may be the case that 2 Travel might eventually have exited the market even if Cardiff Bus had not engaged in predation against it.
7.234 However, given 2 Travel's weak financial position and its apparent difficulties in providing effective bus services in certain areas, the OFT considers it likely that 2 Travel was at particular risk of being forced to cease its Cardiff operations or prevented from gaining market share so as to become an effective competitor and improve its financial position. This is particularly so given 2 Travel's strategy to expand its no-frills services to a full-timetable, combined with its reliance on external sources of finance. Moreover, the fact that 2 Travel was experiencing such difficulties does not, in the OFT's view, provide any justification for Cardiff Bus to predate against it.
7.235 On this basis, whilst there may be a question as to 2 Travel's long term viability, the OFT considers that it is likely that Cardiff Bus' predatory conduct was a contributory factor in 2 Travel's exit from the market, potentially accelerating its exit. Given how little actual competition Cardiff Bus faced at the time and the fragmented nature of the competition…this would have reduced actual competition."
(1) The whole purpose of the Tribunal's jurisdiction under section 47A of the 1998 Act is to assess the damages flowing from an anterior finding of infringement. The Tribunal's role is to assess and determine questions of causation and quantum on the basis that the finding of infringement has already been made. If it is the contention of one or other of the parties before the Tribunal that a question of causation or quantum has already been determined by the anterior decision such as to bind the parties to the proceedings by virtue of section 58, then that point needs to be raised at the earliest opportunity so that the Tribunal can determine whether the parties should indeed be bound and, if so, what the purpose of further evidence might be.
(2) In this case, neither party made so bold a contention. Although 2 Travel did identify in its Schedule produced pursuant to the Tribunal's order of 21 April 2011 a number of findings by the OFT in the OFT Decision on which it relied, it did not go so far as to suggest that the OFT Decision had gone so far as to determine a question of causation or quantum. That is no doubt because of the tentative and equivocal nature of the relevant paragraphs in the OFT Decision.
(3) The Tribunal has now seen and heard a great deal of evidence going only to the question of causation and quantum, and it has heard directly from both parties. The Tribunal is now in a far better position than the OFT was in determining precisely what loss and damage the Infringement caused (which was not a question the OFT needed to consider in this case). We consider that it is the Tribunal's duty to determine questions of causation and quantum by reference to this evidence, and not by reference to paragraphs 7.231 to 7.240 of the OFT Decision.
(5) Findings of fact that the OFT might have made had Cardiff Bus been more forthcoming
"The reason given by the OFT for not making any determination in relation to these matters was that it had insufficient evidence before it to reach a conclusion. It is noticeable that a large volume of the material disclosed by Cardiff Bus in the present case was not provided to the OFT by Cardiff Bus pursuant to the section 26 notice sent to it. In fact, if the OFT had all the material available to it which is now before this Tribunal, albeit following belated disclosure, it seems that more could have been said by the OFT in this regard."
IV. CAUSATION
"The first step in establishing causation is to eliminate irrelevant causes, and this is the purpose of the "but for" test. The courts are concerned, not to identify all of the possible causes of a particular incident, but with the effective cause of the resulting damage in order to assign responsibility for that damage. The "but for" test asks: would the damage of which the claimant complains have occurred "but for" the negligence (or other wrongdoing) of the defendant? Or to put it more accurately, can the claimant adduce evidence to show that it is more likely than not, more than 50 per cent probable, that "but for" the defendant's wrongdoing the relevant damage would not have occurred. In other words, if the damage would have occurred in any event the defendant's conduct is not a "but for" cause."
"So far as concerns the legal test of causation, Cardiff Bus's position is that the Tribunal should follow its own approach in the decision in Enron v EWS [2009] CAT 36. It should compare the position in the 'real world' (in which the infringement occurred) with what the position would have been in the counterfactual or 'but-for' world (in which there was no infringement). To the extent that the Claimant is worse off in the real world than it would have been in the 'but-for' world, such losses are to be treated as having been caused by the infringement and are in principle recoverable (subject to issues such as remoteness and mitigation). By the same token, to the extent that a particular claimed loss would equally have been suffered in the 'but-for' world, such loss is not to be treated as having been caused by the infringement, and the Claimant has no claim for damages in respect of it..."
"2 Travel puts its case on the relevant law as to causation as follows:
i) It is 2 Travel's case that the losses it claims were caused by the breaches of competition law by Cardiff Bus and that these losses can be shown to be so caused on a "but for" analysis.
ii) The law does not, however, confine itself to a test of causation on a "but for" analysis. On a correct reading of the case law, a broader approach to causation should be taken in a case such as this and, again, on this broader approach the losses which are claimed by 2 Travel were caused by the infringement established in the decision.
iii) The defendant remains liable for losses, even losses caused by the Claimant's own action where the Claimant was subject to the disability caused only or only partly by the tort or where the tort contributed substantially to the loss. The OFT has found that Cardiff Bus' predatory conduct was a contributing factor in 2 Travel's exit from the market and that is a sufficient finding upon which to conclude that Cardiff Bus is to be liable for all losses consequent upon that exit.
iv) All losses which flow from Cardiff Bus' success in excluding 2 Travel from the market are recoverable by reason of (i) the nature of the tort committed by Cardiff Bus and (ii) Cardiff Bus intended that its predatory action should cause 2 Travel the damage, or damage of the type, that it has actually suffered."
"Q (Mr Smith) | Just in terms of the articulation of your wider causation test, is your case articulated in para 91(iii) of your opening? Is that the test you contend we ought to apply? |
A (Mr Bowsher) | That is a further broader way of putting it. If you look at the case law, and we go into it – that of course is a summary of what then follows on in our opening in some detail, which we have referred to. We do say that as part of the chain of causation that where part of the losses are caused by the disability then, yes, we suddenly sustain them. I am sorry, I am not making myself clear. That is not the only way we put it but yes, that is a limb of the way we put causation. |
Q (Mr Smith) | You see, Mr Bowsher, I understand the "but for" test, and I understand you are saying that the causation test that should be applied is wider than "but for". What I do not quite understand is exactly how much wider it is. |
A (Mr Bowsher) | I suppose the way I might put it differently, and the cases are not all consistent, one has to look at "but for" but without the benefit of hindsight, is a slightly short way of putting it. You have to treat the claimant in the position that the claimant was in at the time, but judge what actually was the position of the claimant at that particular time..." |
V. THE FACTS: THE PERIOD PRIOR TO THE INFRINGEMENT (TO 19 APRIL 2004)
(1) The establishment and expansion of 2 Travel
(2) 2 Travel's financial results for the year ended 31 August 2001
(3) 2 Travel's commencement of business in Cardiff
(4) 2 Travel's financial results for the year ended 31 August 2002
"The year has been another one of growth and has seen the company move into profit. Expansion into other areas of Wales is progressing and will continue into 2003 with additional contracts to be operated in Cardiff from September 2002. The cost of establishing these new contracts have been high during the current year, the full benefit will not be seen until future years. The outlook for the future continues to look encouraging."
(5) The appointment of Mr Waters
"To ensure that a company is operating in line with its projections, the need for a formal reporting structure with regular timetables for reporting is essential, and these will need to be introduced immediately.
Whilst preparing the accounts, and during the audit, it has been apparent that the accounting records and standards have not been of the highest level, and whilst this should not be seen as a criticism of the existing staff, this is an area which will be addressed in the coming months, as new procedures and controls are introduced, and work tasks reallocated.
…
Whilst it is obvious that the company is making a profit, it is not certain from what operation within the business the money is being derived from. To ensure resources are best utilised it is essential that the accounting records are capable of measuring and monitoring all aspects of the company's operations. To do this properly there will need to be a culture change within the organisation so that the requirement for correct recording of all transactions is carried out.
…
With such rapid growth, the Company's finances have been 'stretched' over the last few years. To fund this rapid expansion, the Company has utilised all available sources of credit and in addition to very high Hire Purchase and Lease Finance borrowing, the business suppliers and other creditors (i.e. Inland revenue) have been used as sources of 'cash'…
…
To further enhance the availability of cash, a concerted effort must be made to clear the high proportion of money due to the Company. To facilitate this and prevent any future built up of debt, it is recommended that an experienced credit controller be employed. A policy of no pay, no bus, should also be enforced rigorously, even if this means upsetting some customers…
One area of finance which has not been utilised by the business is Bank Borrowings, which since the start of the Company have been nonexistent. Since the early days of the operation the Company has factored the vast majority of it's [sic] credit sales, which, whilst helping cash flow, has proved a very expensive source of finance.
…
Since inception, Lease Finance and Hire Purchase have been used to fund nearly all vehicle acquisitions, often at high rates…
…
There can be no doubt that the Company has come a long way in a relatively short period. Now is the time for consolidation. Systems and procedures need to be introduced and this is not an overnight job if they are to be done properly. The Company has gone through the growing period of the early years and financially it has gone through the worst…
…
With this in mind and the work load required to catch up in terms of systems, management and staffing, now may not be the most opportune time to progress with the AIM flotation. The tidying up exercise required to meet the standards expected of a public company will take several months, during which period the Company's value should also be enhanced, providing an even more attractive proposition for potential investors if this indeed is the approach finally decided upon."
"Obviously, Mr Waters was given a free hand as director. We were aware that we needed change at the time and felt that he was the person to introduce that change. He was given free rein to do that."
(6) 2 Travel's flotation on the Alternative Investment Market
Actual for the year ended 31 August 2002 | Projected for the year ending 31 August 2003 | Projected for the year ending 31 August 2004 | |
Turnover | £3,679,000 | £5,895,000 | £6,809,000 |
Profit before taxation | £265,000 | £295,000 | £439,000 |
(1) To fund existing and anticipated working capital requirements.
(2) To assist in the purchase of the freehold reversion of the Swansea Depot.
(3) To expand the vehicle fleet of the company.
(4) To fund two small acquisition opportunities, being the acquisition of Hawkes Coaches and the Coach Travel Centre.
Sir Richard Needham | Non-executive chairman |
Mr Fowles | Chief-executive |
Mr Waters | Finance director |
Mr Fowles Jnr | Operations director |
Mr Short | Non-executive director |
Mentor UK Limited ("Mentor") | Non-executive director |
Mr Francis – who was one of the original shareholders in the company (see paragraph 85 above) – remained a shareholder, but did not join the board. He did, however, act as company secretary.
(7) Use of the capital raised
(1) In part to acquire the freehold of the Swansea Depot (Transcript Day 1, page 143). However, the purchase of the freehold was not wholly financed by the capital raised on flotation: part of the cost of purchasing the Swansea Depot freehold was funded by a bank loan. The freehold of the Swansea Depot was financed by a cash payment of £300,000 and about £330,000 debt.
(2) To acquire the Coach Travel Centre ("CTC") for £210,000 (Transcript Day 1, page 143). CTC was a clearing house for coach tour operators.
"The Company floated on the Alternative Investment Market ("Aim") in January 2003. Depressed financial markets slowed the flotation process until well into our financial year 2002/2003, and this unfortunately pushed back many of the initiatives we had budgeted for earlier in the year. This had a detrimental impact on the year's results.
As outlined in our Prospectus, the Board has concentrated its efforts on moving the coach business away from tour work to more predictable domestic business. We have frozen the expansion of the coach fleet, and developed and expanded the business towards a mid level regional bus operator. Given the volatility of coach operations in the year, due to international events such as SARS and the Iraq war, this position has been vindicated.
At the start of the financial year, the Company had its two depots at Swansea and Cwmbran. By August 2003, facilities and infrastructure had been established at both Cardiff and Llanelli. This significantly expanded the potential range and size of our bus services and facilitated closer links with a number of Local Authorities to whom we could tender for bus services. These depots are now fully operational and have been inspected and approved by the Vehicle Inspectorate.
Since flotation, the Company has applied for, and was successful in its application to increase the number of vehicle operating disks it holds by 30 to a total of 110. The Company can now grow its activities by 37%.
Other achievements include the purchase of CTC in April 2003. CTC is a clearing house for coach tour operators and gives 2 Travel's coach unit first choice of available domestic work improving the general utilisation of the internal coach fleet. Additionally, in June 2003 the company acquired the freehold on its Head Office site in Swansea. As described in more detail below, the site is adjacent to a major retail development scheme which is currently well underway. The Board is examining how to capitalise on the site for the benefit of shareholders."
"The significant Retail and Leisure development on local authority land adjacent to the Company's 5 acre premises at Swansea which is due to complete later this year will result in a market increase in the value of the Company's premises.
During the year the local authority officially recognised the existing use of the site, which is an important step towards enhancing the planning status of the premises.
The premises have already attracted attention from national companies looking for a base in Swansea. This has prompted the Board to investigate the possibility of relocating its operations in the Swansea area.
Whilst it is not expected that a significant cash return will be generated from the premises in the next financial year there clearly exists a potential opportunity for the Company to relocate and build a purpose-built depot and generate additional profit from a redevelopment of the site."
(8) 2 Travel's operations in Cardiff in 2003
(9) Cash-flow problems in April 2003
"It is becoming obvious that the Company is currently incapable of generating enough cash to cover its current commitments. I would recommend therefore that an immediate ban is put on all non critical expenditure."
"As you can see the sums do not add up. I think we have to stop looking at everything through rose tinted eyes and recognise that things are not going to get better in the short term…
…
I am certain the board will start asking very serious questions shortly and I think we need to discuss all our options without any bias and through practical, realistic eyes rather than the misty, idealistic views of the last few months and forecast."
"Q (Mr West) | And it's right, isn't it, that the forecasts in the flotation documents had proved to be over-optimistic, as Mr Waters was saying? |
A (Mr Fowles) | They had, yes, but I think both Huw Francis and myself and probably the rest of the board, realised that there was a value underpinning the company, which was the value of the land." |
(10) The acquisition of CTC and its operation by 2 Travel
"Dear Carl,
Can't get hold of Bev as he is in a meeting. I know you said this is nothing to do with you but I have never had to put up with so much grief in the 4 years I have worked hear [sic]. I have so many companies chasing payment they are pulling out of work for October and we cant [sic] afford to loose [sic] these companies. I don't blame these companies for chasing as they are Overdue by far.
I have never worked for Coach Travel like this, me and Christine have had the worst 4 weeks of working here ever.
Please can you pass this onto Bev and get these payments sorted."
"Q (Mr West) | So the position is that the result of the CTC passing into your ownership was that you stopped paying the creditors of CTC, just like you did with all of the other creditors of 2 Travel; is that right? |
A (Mr Fowles) | No, that's not right at all. We were coming to terms with managing the Coach Travel Centre. The previous owner of Coach Travel Centre had operated it without very many systems. We were trying to implement our own systems into the place. Carl Waters was dealing with that. Quite clearly, papers had to come through Swansea to be verified and sent back before they could be paid. It just took a little bit of time." |
"Effect of unpaid suppliers
1. They have stated they will not undertake future work unless they have written guarantee of payment on terms previously agreed. They are all aware that payment has been made by tour operators. As I explained to you we have coaches booked with them for October and will not be able to cover the work if they refuse to operate. They emphasise that they do the work at a competitive rate which is true. When these operators speak to other operators it wont [sic] take to [sic] long for word to spread that payment is not being made and then we shall be in the position whereby we wont [sic] be able to cover any jobs.
2. The tour operators will also get to know the situation and wont [sic] offer any work if they feel we have any problem with getting coaches.
...
Whilst I understand that decisions taken on behalf of CTC is [sic] not my responsibility I still feel a great affinity towards the company and see it as a great pity it appears that the company is being put in the position of having is [sic] reputation spoilt which I find surprising."
"Urgent work needed to be done. Despite knowing of problems for many months, nothing has been done, both on the admin side and financial side, ie invoicing credit control, payments. We now have a very steep hill to climb to recover goodwill from coach operators and ensure our customers are shown a first class admin service, not bits of paper here and there. We must use technology…"
(11) Increase in 2 Travel's bus licences
(12) 2 Travel's cash flow and predicament in July/August 2003
"After joining the Company last year I was asked to prepare a short paper on what my initial views of the Company were, 10 months down the line I feel a quick update is probably needed.
It is clear now that the Company's cost base is much too high. A company of this size cannot justify or support a management (director level) overhead of nearly £300k per annum, whilst going public has put a further £100k of costs into the company.
At the operating level the contract base is totally underpriced and the commitment to guaranteeing 45 hours pay per week is killing any chance of improvement in the short term. We fire fight not plan. Whilst operating from several sites ha advantages I now feel that this is more of a hindrance than a help. The "dead" mileage costs are horrendous but to improve this will only lead to an even higher overhead as rental costs at the other (non Swansea) sites will have to increase, making them even more unprofitable.
The fleet itself is probably entirely wrong for the market the Company wants to be in. Too many mid life coaches not capable of doing Tour work but too expensive for schools. The huge financing costs to be covered every month, which in cashflow terms the company cannot sustain do not help the position either.
I do not believe that given the fleet mix, overhead costs, financing costs, diverse operating sites and current marketplace the Company can ever meet market expectations and the shareholders will try and force changes onto the Company in an attempt to maximise their return.
A solution to this situation has however arisen.
The potential development profits from the Swansea site (if Huw's estimates are correct) should raise enough funds to take the Company out of the public market, which given the current shareholder composition should get voted through.
I would then recommend liquidating the Company and closing all operations which should then provide enough cash to settle all outstanding debts, although given the potential development proceeds, there should also be some cash left over to enable the founder directors to acquire further small businesses if they wished to continue in the industry…"
"Q (Mr West) | Mr Waters' reaction to the possibility of development profits from the Swansea depot was that the land should be sold and the profits should be used to pay off the creditors and wind up the company. |
A (Mr Fowles) | That's what he says. |
Q (Mr West) | But, again, his advice wasn't taken about that at this stage? |
A (Mr Fowles) | His advice wasn't taken at all." |
"The profit of the past (if it existed) only arise [sic] through infill work and better vehicle utilisation. Our poor quality of service has destroyed the truth of this leaving our cost base exposed. We have dramatically increased our headcount and PVR [Peak Vehicle Requirement] but to no avail. On a weekly basis our factoring now does not even cover our net wages and this is not sustainable.
I do not want to seem the eternal pessimist but this condition cannot be allowed to go on. We have made no attempt to seriously cut costs and we will be found out very shortly.
The strive for turnover must end and some harsh decision [sic] over Company Structure and costs must be made immediately. The company was sold to the City on the basis that all standing costs were covered in the contracts and that other infill work was profit, this is blatantly now not true.
We must urgently look at how the business runs and decide where we want the Company to be in the future."
(13) 2 Travel's financial results for the year ended 31 August 2003
"This has been a period of transition for the Company; a significant amount of work has been completed in developing this bus network and the Board remains optimistic for the future.
The year has seen significant costs being incurred to grow and support the infrastructure of the business whilst the bus services are further developed.
It is expected that further development will continue through the first half of the next financial year when the remaining 40 bus workings will come on stream.
The full effect of the first phase of the Company's development plan will not be felt until the next financial year when it is expected that significant improvements in the financial results will be achieved."
"Following our meeting on Tuesday with yourself, Bev and for the last hour or so, Huw, you will be aware that there have been a number of issues that have arisen during our audit…
…
5. We have raised concerns about the accounting for cash income and cash expenses within the company. In particular there was a significant problem at your Cardiff branch for the first six months of the year and we understand that you have now done some work to estimate that approximately £39,000 of cash income was received but not accounted for in that period and that you have identified approximately £30,000 of receipts for this work i.e. there is approximately £9,000 unaccounted for. We believe this was probably spent on fuel and both yourself and Bev have confirmed that no cash wages would have been paid out of this money. As you are aware this is an extremely serious matter which you confirm is not continuing and appropriate controls have been instituted.
6. Similarly in the Cwmbran branch for December 2002 there were monies drawn for cash from the bank and spent, we are told, on fuel and again for which no invoices are available. You confirmed that this occurred because of the very serious cash flow problems that the company had at that point. Again you confirmed that no cash wages would have been paid out of that money."
This paragraph in the letter bears the handwritten annotation "I cannot agree to this, am uncertain". The letter continues:
"15. There is a degree of uncertainty on the company's ability to continue as a going concern. We understand that since the year end hire purchase and insurance direct debits have not been honoured by the bank which again highlights the lack of cash within the business. In addition we have raised the point that if the insurance direct debit has not been honoured is the company still covered by insurance. You said you would come back to us on this matter. There is no evidence that the company can meet its liabilities as they fall due and therefore we will need to see evidence that the company has sufficient cash funds in place to be able to trade for twelve months after the date of our signing the accounts before we can consider signing them. I am sure the board will also wish to see such evidence."
"At the balance sheet date the Group had current liabilities in excess of its current assets. After making enquiries the directors have a reasonable expectation that the Group as a whole has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in the consolidated financial statements."
"Q (Mr West) | It's a pretty serious position to be in, isn't it, for a bus company, if your net current liabilities exceed your current assets by over £1 million? A bus company of this size? |
A (Mr Fowles) | Yes, it is. It was a known situation. I think we were somewhere in the region of between £450,000 and £600,000 worth of one off costs in that year. The valuation of the land wasn't at its true value, it didn't have its development potential, and…But I think Richard Needham, in his statement, alludes to that. |
Q (Mr West) | So the company still had net positive assets when one took account of the value of the land? |
A (Mr Fowles) | Yes." |
(14) Quality of service provided by 2 Travel
(i) City and County of Swansea
"I am disappointed that, despite a wealth of correspondence during academic year 2001/2002, your Company's use of buses over the 20-year age limit on Home to School Transport Contracts appears to be continuing. Please note that the use of these vehicles on any school contract for the City and County of Swansea is unacceptable and therefore request that you cease this practice immediately…
Please may I draw your attention to the Authority's Scheme of Deductions for Failure to Perform Agreed Services or Comply with Conditions of Contract. As a result of the use of a vehicle over 20 years old, I am left with no option but to deduct 50% of the daily contract price for each of the days when the School has confirmed its use…"
"…should I find that your Company breaches any Condition of Contract during the next three months I will have no alternative but to cancel the contract forthwith."
(ii) Carmarthenshire County Council
"I am concerned at the high number of incidents which have had to be brought to your attention during the first week of operations since the commencement of the new school year. You will recall that there were various issues which were raised during June and July of this year, and which were attributed to the "settling down period" of the contract. Unfortunately some of these have continued to appear since 4th September, particularly in regard to the late appearance of your vehicles to commence journeys."
(iii) Neath Port Talbot County Borough Council
"You will be aware of the various problems involving the operation of the above school contract route since the start of term. A considerable amount of time is being wasted by my staff handling so many telephone complaints about this route.
Following more complaints from parents and the school on Tuesday evening because the afternoon journey was at least 90 minutes late we have consulted our Education Directorate who pay for this transport. They have requested a change of operator. As a result I am writing to you to terminate this contract with effect from Saturday the 19th October."
(iv) The Vale of Glamorgan Council
"…numerous complaints have been received with regards to the non-operation of various journeys…I note that you have sub-contracted the services to 2 Travel Group PLC. However, it is with your company that we have the contract with [sic] and I must therefore warn you that this Authority will not accept poor standards in the operation of it's [sic] Supported Bus Services and that the current level of service is unacceptable…"
"Please find attached copy of letter received from Vale of Glamorgan Council to Cardiff Bus regarding "their" operation of route number 88/89.
As you can see they have been given a final warning as to their future operation on this contract.
This typifies our problems in the Cardiff depot (and in some cases our company as a whole). However, the Cardiff depot in particular has:
1. No maintenance facility.
2. No spare parts/stock facility.
3. The oldest vehicle age profile of any depot in our company (pro rata).
4. No spare vehicle capacity.
When you consider that the depot turns over approximately £1.8 million than it seems ludicrous that so little attention is paid to its needs. It is not an outstation though it is treated like one.
Although a fitter is now sent up every day (except Tuesday because Warren attends College!) he has no parts with him of any description and is only able to undertake very minor running repairs.
We have been active in Cardiff for almost a year and it has to be said that the company has not done a great deal to improve the situation at the depot. We are all agreed that the major growth area in the company is in Cardiff but we are unable to achieve our goals.
We have already lost one school contract in the Cardiff area, not through poor operating procedures, but through mechanical failure and not having a spare vehicle to use in case of breakdown.
Until the above problems are addressed then we will continue to tread a fine line with local authorities and perhaps lose work accordingly.
I am sure that none of us would like that to happen."
The minutes of an engineering management meeting on 13 June 2003 also bear out the internal problems that 2 Travel was experiencing in providing its services.
"After several visits to Cardiff, to drive, and having spoken to the Vale of Glamorgan Local Authority, it is clear that we are struggling enormously to run the depot.
The quality of service we are providing is nowhere near acceptable and we are getting a very bad name with all customers served.
Vale of Glamorgan have advised that the last eight journeys on the 88/89 service have not run for the last week or so and in addition the 16.30 has not run on several occasions with they believe (probably correctly) the vehicle and driver being used on schools! Also the 539 service did not run at all on 6/10 and 2/10!
The impression I had from the Vale (Emma Harvey) was that they have had enough and were looking to remove contracts from us.
If this is the case then the loss of 88/89 would cost us over £3K per week in revenue (subsidy + OAP + cash) this would I believe made [sic] the Cardiff depot unviable and probably not worth operating.
If we cannot get drivers then we have to make the decision as is [sic] what we want to be a bus or a school/contractor operator. Once this decision is made then we must run the services come what may, or not be in the market place at all.
For a plc we have a very poor reputation and will I believe find it difficult to re-establish one which as a director of the company I find rather unpalatable and hard to hear.
I think we now seriously need to look at all our operations as what is quickly happening in Cardiff is I believe also occurring elsewhere and needs to be addressed, I think we need to be realistic about where we go as a company having been given a life line of the property."
(v) Gorseinon College
"7.11 The largest individual contract, Gorseinen [sic] College, which was originally awarded for five years, is due for review in the summer of 2003. Turnover from this contract is expected to exceed £220k, generating £73k profit based on 33% estimated average margin.
7.12 Management are confident of being re-awarded the work because of Bev's relationship with the college and also because there are few operators in Swansea large enough to undertake a contract of this size and nature. The Company should also have a pricing advantage in that the area served adjoins other 2TC route scheduling."
"I refer to our recent discussions regarding the concerns that have been expressed over your company's poor performance on the Gorseinon College and ASDA contract routes and the imminent expiry of our existing contract for Gorseinon College. As a result, I am writing to confirm our decision that we are terminating all our current arrangements with your company. Please treat this letter as formal notice of termination.
As you [are] aware the level of performance over the last 12 months has been far from satisfactory and although we have had cause to discuss and write to your operations staff on several occasions, sadly there has been no improvement and this has jeopardised our relationship and contract with the College. Recent experiences on the college routes during important student A level exams were totally unacceptable and the college has complained extensively about the level of service provided. As an aside to that, we were extremely disappointed that, without our knowledge your company sought to compete against us on the new tender proposal, details of which was [sic] released last September."
(vi) Complaints from Cardiff Council
"This is extremely disappointing for the first day of school. Your company failed to inform this department or any schools of any potential problems. In fact it was extremely difficult to contact your staff at your Wentloog depot to find out why buses failed to operate.
I would insist that you provide a written explanation for these failures and confirm what action you will be taking to ensure that this does not happen again.
No payment will be made for these journeys. Please accept this as a formal letter of warning."
"I am most concerned that this service ran late on four out of five school days, resulting in the Ysgol Glantaf school children having to wait for longer than necessary during inclement weather for the bus. The late running is also affecting the time at which these children arrive home on an already long journey, which is clearly unsatisfactory.
Please accept this as a formal letter of warning. I intend to monitor this service closely to ensure the service operates to the scheduled timetable. Any further failures in the operation will result in non-payment and possible termination of the contract."
"If it's in writing, then yes, those journeys may not have operated. Bearing in mind they were operating other journeys during the day satisfactorily, if one journey failed to operate, as any bus operator will tell you, things do happen, thing go wrong. I don't know the circumstances of what happened on that day. But one failure to operate wouldn't seem to be a huge problem at the time."
(vii) Conclusions
(15) 2 Travel's financial position in October 2003
"It is becoming increasingly difficult to meet our ongoing cash requirements and the position with Barclays is I believe at its limit.
To summarise, any business must make a profit and generate cash, we are doing neither.
Over £2 million of external funds have been invested in the company and the only tangible benefit I can see is we now own a potentially extremely valuable piece of land. The underlying business has not improved from where it was a year ago and in fact I believe has gone backwards. In several areas we have lost work due to poor performance caused by overstretch and a lack of resource.
Trading unprofitably is not in itself a major issue if the depreciation charge is high and ensures operating cash generation is satisfactory and the company can meet its liabilities. We are not. I attach a schedule of 'big ticket' cash requirements which funds need to be available in the short term.
The restructuring of some of the debt will help but the introduction of additional debt has eaten into the benefits of this. At the same time our single biggest creditor, The Inland Revenue, is seeing an ever increasing rise in the money owed to them; and I cannot see how much longer they will allow this to continue, particularly as I can see no way of us making payment to them of back debt or ongoing debt.
Other trade creditors continue to suffer, and now the fuel companies have been messed around their credit to us will be reduced, further worsening our already overstretched cash position."
"Before proceeding too far into the new financial year we must recognize the problems we are in as I do not believe we can talk our way out of them.
As an executive board we urgently need to discuss possible strategies so that at least we have some answers available when we are questioned as to how this position has been allowed to occur.
The other issue will be the forthcoming audit when given all the above Bevan & Buckland may question our viability as a 'Growing [sic] Concern' which may lead to a qualified audit opinion and major issue with the stock exchange. I know a rabbit was pulled out of the hat last year but now we need another one, otherwise there may be a lot of egg on a lot of faces."
" | 'Big Ticket' Cash Liabilities | |
£'000 | £'000 | |
Eversheds | 55 | 55 |
Solomon Hare | 18 | 18 |
John Owen (CTC) | 50 | 50 |
J Cleverly | 100 | 100 |
Volvo VAT | 45 | 45 |
Glan Harris | 42 | 42 |
CFA | 12 | 12 |
Downing Classic | 16 | 16 |
Matrix | 9 | 9 |
St Brides | 2 | 2 |
Stock Exchange | 7 | 7 |
Inland Revenue | 500 | 500 |
Belmont Fee | 10 | 10 |
866 | 866 |
In addition to the above I am aware we are now behind in some of our Finance Agreements and some of our Trade creditors are well overdue for payment.
To get us back on an even keel we therefore need a cash injection now of over £1 million."
"Q (Mr West) | Going back to paying for fuel in cash, that's pretty risky for a bus company, isn't it, because if you don't have sufficient on-board bus takings to pay for the fuel, you run the risk of running out of fuel whilst on the road, don't you? |
A (Mr Fowles) | There's always that possibility. It was reasonably well controlled at the depot level. They made sure in most cases that they had sufficient fuel. |
Q (Mr West) | But there were examples of 2 Travel buses running out of fuel whilst on service? |
A (Mr Fowles) | I think there was one or two in the Llanelli depot where we introduced new vehicles and the tankage wasn't assessed properly." |
(16) PwC's letter dated 13 November 2003
"Q (Mr West) | So wasn't it completely unrealistic to suggest that 2 Travel, at this stage, was in a position to spend £25 million purchasing other companies? |
A (Mr Fowles) | We would have had to go back to the market. There had been other flotations since ours in the January. One fairly large London company had also floated. They had gone back to the market and acquired certain businesses. It was felt we could do the same." |
"Q (Mr Flynn) | …but those are quite big ideas, aren't they, for a company in 2 Travel's position at that point? |
A (Mr Harrison) | And that's, I think, what I'm saying in the letter as well, isn't it, really? |
… | |
Q (The Chairman) | Can I just ask you, Mr Harrison, you've got an AIM listed company, so there are a number of…ways of raising money for acquisitions, aren't there? |
A (Mr Harrison) | Yes. |
Q (The Chairman) | One is raising money by a share issue? |
A (Mr Harrison) | Yes. |
Q (The Chairman) | Would that have been remotely feasible with the numbers here, given the dilutive effect? |
A (Mr Harrison) | I wouldn't…If by issuing shares, you mean paper exchange for an acquisition, then I wouldn't have thought so. It's very difficult to do that if you're an AIM listed company. If someone is selling out their family business, they're not going to take shares in a – |
Q (The Chairman) | Some AIM listed companies are very large and can do it. So you'd have to borrow the money? |
A (Mr Harrison) | Or raise further funds from investors who had bought into the strategy. So you could have raised, perhaps, further funds from institutions who wished to - |
Q (The Chairman) | From institutions? |
A (Mr Harrison) | Who would have invested in AIM companies. |
Q (The Chairman) | Of course, institutions do invest in AIM companies, but am I right, generally in companies with much larger numbers than this? |
A (Mr Harrison) | Funds do have spreads of sized companies they invest in, and this would obviously be a high risk fund. One would perhaps have an element of funding who could invest in a company like this. |
Q (The Chairman) | Basically, you'd have to borrow the money or find investors who are prepared to risk their capital? |
A (Mr Harrison) | Yes. |
Q (The Chairman) | And how likely a candidate did you think 2 Travel was for, over a period, raising the sort of money that your report suggested could be raised for acquisitions? |
A (Mr Harrison) | Well, in my sort of recommendations under this, as I was saying in – the essence behind this letter, having listened to what was being described to me by Sir Richard Needham and Bev Fowles and Huw, was they really needed to articulate the strategy of how building blocks of this growth strategy were going to occur through acquisition. Because I, in a sense, couldn't see how, as is being implied all the way round, they could possibly achieve this level of growth." |
(17) Valuation of the Swansea depot in December 2003
(18) 2 Travel's interim accounts for the six months to February 2004
"It was noted that the majority of cash is spent on fuel, if the company were able to obtain credit with a fuel card provider approximately 80% of the onerous recording and collation of cash payments would disappear.
…
General points
…
e) We realise that it is a relatively short space of time between our issuing the management letter regarding the August 2003 audit and our review of the interim accounts and progress on controls. The majority of our recommendations have been actioned, there are some however that have not been actioned:
1. Goods received are not being matched to purchase invoices.
2. Debtors remain high and collection procedures must remain vigorous.
3. The Finance Director has not had any input in some major financial transactions, such as possible change of the factoring facility.
…
g) We are still very concerned at the cash flow position of the company..."
(19) The February 2004 PwC Report
(i) Introduction
(ii) Manner in which the February 2004 PwC Report was compiled
"My involvement or my firm's involvement came first of all when I met Richard Needham, and that was in November, I think, towards the end of 2003. We then became involved and the report, that is – the first report, which was the February 2004 report, took a number of weeks. It's a long time ago and I'm going to preface a lot of what I'm going to say by saying this is from a memory point of view. It would have taken a number of weeks. The person involved in it was Nigel Ferrand, who was the senior manager who worked for me in the Cardiff office, and he undertook that work and … I would have thought it would have typically involved about three weeks of constant time doing that, of that sort of order."
"Q (Mr Smith) | These figures on page 38, do they simply represent 2 Travel's expectations or were they in any way subject to due diligence by PwC? |
A (Mr Harrison) | No, no, they were – we went through the exercise, as you would in any exercise of this nature. We went through it with the management and questioned them on it. Nigel Ferrand would have done that, and the judgment taken, based upon our view of Bev Fowles at the time – and it's throughout this, I have no reason to doubt his ability as understanding buses. He understood buses, he'd had a track record in the First Group, and therefore I believed his explanations behind these assumptions to be credible. |
Q (The Chairman) | So it is all predicated on Mr Fowles giving you information that was not over-optimistic but was credible? |
A (Mr Harrison) | I thought he was credible in his assessment of this. He had enough experience of this sector to be credible." |
"The Financial Projections ("Financial Projections") on which this report is based were prepared by the management of the Company ("Management") and are the sole responsibility of the Directors. We have reviewed the Financial Projections only to the extent that we considered necessary as part of our review. We have not undertaken any verification or audit work on the Financial Projections or any of the other information provided to us during this review.
…
We emphasise that the Financial Projections relate to future events and are based on assumptions which may not remain valid for the whole of the relevant period. Consequently they cannot be relied upon to the same extent as information derived from the audited accounts for completed accounting periods. For these reasons, we express no opinion as to how closely the actual results achieved will correspond to the Financial Projections."
(iii) Development of new routes
(iv) Revenue projected
Month 1 | Month 2 | Month 3 | Month 4 | Month 5 | Month 6 | |
Weekly profile | ||||||
Cardiff for single bus | ||||||
Revenue | £576 | £576 | £960 | £1,281 | £1,281 | £1,920 |
Costs | (£1,035) | (£1,035) | (£1,035) | (£1,035) | (£1,035) | (£1,035) |
Weekly profit/(loss) | (£459) | (£459) | (£75) | £246 | £246 | £885 |
Gross margin % | 46% |
"General
• The dynamics of the new routes varies depending on whether they are commercial, tendered or infill.
• Ticket income is assumed to increase over a six month period to its full potential. This is based on the profile of some Neath infill routes that commenced in late 2003.
• As costs (fuel, tyres, additional labour costs, etc) are relatively fixed once the routes are operating, the services will incur losses during initial start up period.
• Ticket revenues are based upon market research of the routes. This has identified current ticket prices and the number of passengers travelling on the routes.
• It is assumed that the new service will attract 30% of all passengers using the corridors by month 6. Brand loyalty is minimal in this industry.
Cardiff
• The Cardiff routes are all infill. The gross margin is therefore higher than phase 1 or Llanelli as most of the fixed costs covered by the contracted school routes.
• The routes are expected to incur losses until month 4."
"Q (Mr West) | What does that reference to market research – what document does that refer to? |
A (Mr Fowles) | It doesn't refer to any document, it's research that we did ourselves. |
Q (Mr West) | So one can't find that written down anywhere? |
A (Mr Fowles) | It would have been submitted to PwC at the time." |
Mr Harrison also confirmed that PwC simply worked from information provided by 2 Travel (Transcript Day 4, page 126).
(1) Number of bus journeys per week.
(2) Number of passengers for each journey.
(3) Fares paid by each such passenger.
(1) We were provided with copies of the timetables of the five routes that 2 Travel intended to operate in Cardiff. These routes are considered more fully below, but for present purposes it is sufficient to note that these timetables disclose that 2 Travel intended 18 journeys into Cardiff and 18 journeys out of Cardiff on each route per day. (This is generous to 2 Travel, because it includes journeys that could only be undertaken on non-school days: on "in-fill" days, when the schools were open, the number of daily journeys would be less.) As we have seen, it was intended that each route would be served by four buses. Thus, each bus on each route would make 9 journeys a day (i.e. (18 x 2)/4 = 9), and 45 in a five day week (i.e. 9 x 5 = 45).
(2) Table 5 on page 22 of the OFT Decision identifies the fares charged by 2 Travel. Naturally, the level of these fares varied according to how far the passenger was travelling (a zonal system was used, comprising 4 zones), whether the passenger was an adult or a child, and whether the journey was one-way or return. 2 Travel's ticket prices, as found by the OFT, were as follows:
Zone | Adult single | Adult return | Child single | Child return |
1 | 50p | 80p | 30p | 50p |
2 | 80p | 130p | 50p | 80p |
3 | 100p | 160p | 70p | 110p |
4 | 120p | 190p | 80p | 130p |
Clearly, the passenger who would generate the most revenue for 2 Travel would be the Zone 4 adult single passenger, who would pay £1.20 for his ticket.
(3) Assuming that 2 Travel based its projections on this price, it is clear that in order to generate revenue of £1,920 per week per bus, that bus would have to transport 1,600 passengers. Given the 45 journeys per week undertaken by each bus, this is just over 35 passengers per journey. Given that the buses used by 2 Travel generally had a maximum (seated) capacity of 35 passengers, although some double-decker buses were also used (Transcript Day 5, page 54), this is obviously unrealistic.
(4) Of course, as we have noted, not every passenger would travel for the maximum distance (i.e. not every passenger goes to and/or from Zone 4). Many passengers will get on in the middle of the bus's journey, and many will get off. But, of course, this will have a negative effect on revenue. A Zone 4 passenger pays £1.20; a Zone 2 passenger pays 80p.
(5) In Table 1 of his report (at paragraph 5.2.3), Mr Good set out the average full fare revenue (thus, children and other lower charged passengers are ignored) that 2 Travel actually generated, on a monthly basis, between April 2004 and September 2004 – data for subsequent months not being available. Averaging these monthly averages itself gives an average of revenue per passenger of 81.35p. On this basis (which is still optimistic in favour of 2 Travel, because it ignores passengers other than full fare paying passengers), in order to generate revenue of £1,920 per week per bus, 2 Travel would need to transport 2,360 passengers, i.e. 52 passengers per bus journey.
(6) Cardiff Bus did its own calculations, and derived an average passenger revenue of 71p, to take account of concessionary passengers, in respect of whom the revenue to 2 Travel would only be 73.69% of the full fare (Transcript Day 1, page 91 (evidence of Mr Clayton Jones)). On this basis, to generate revenue of £1,920 per week per bus, 2 Travel would need to transport 2,704 passengers, i.e. 60 passengers per bus journey.
(7) Cardiff Bus also sought to explain the figure of £1,920 by calculating a revenue figure for all of 2 Travel's Cardiff buses per week (i.e. for all 20), calculating all the journeys that these buses would undertake in a school week (i.e. fewer than the number calculated above, because there would be no non-school days), and so assessing how many passengers each bus would have to carry to produce a weekly revenue of £1,920. Cardiff Bus's figure was just over 71 passengers per bus journey. (This was put in cross-examination to Mr Harrison, who felt unable to comment: Transcript Day 4, page 132.)
(vi) Sales growth
"? There is forecast to be little growth from the existing bus business. The growth is forecast to arise from the new routes described above.
• During 2005 the 20 infill buses in Cardiff are expected to account for 50% of the growth."
(vii) Working capital requirement
(20) Reaching accommodation with the Inland Revenue
(21) Obtaining additional working capital
VI. THE FACTS: EVENTS SUBSEQUENT TO 19 APRIL 2004
(1) Preparation for the provision of Cardiff services
"With reference to your memo of 12th June 2003 I would comment as follows:
1) The decision to set up Cardiff was taken over a year ago and the full implications should have been considered then. Even at that time a schools base of 14 vehicles was planned and the maintenance needs of the operation should have been considered and casted into tenders.
2) The current site was found and although totally inadequate a lease was entered into at not inconsiderable cost. We now have to get out of this site as quickly as possible (and explain to the plc board why we are doing this) and find an alternative and hopefully cheaper alternative.
3) Until an alternative premises can be found there is no solution to the no parts, no maintenance facility problem."
"I wrote to you all in February highlighting items that needed to be addressed in order for our new Cardiff commercial registration to be successful. To date not one point has been addressed.
Our commercial registrations commence in approximately five weeks and we have nothing in place at the Cardiff depot.
• Ticket Machines/Depot reader need to be purchased (at least 15 machines are needed)
• Ticket rolls need to be purchased
• Vehicles need to be purchased (approximately 10 are needed – examples of what is available are attached)
• Said vehicles need to be painted
• Destination/Number blinds need to be purchased
The structure at the depot needs addressing:
• There is no electricity or mains water at the new site
• There is not enough office space at either the old or the new site
• An additional controller needs to be appointed. I have spoken to one gentleman and he is interested in the post
• The depot needs approximately 8 drivers. Gurkha's [sic] were promised but this has not yet materialised.
I was intstructed [sic] to register these commercial routes as soon as possible. This was done and I am now being held back because of reasons beyond my control. Unless the problem is addressed quickly I will not accept any blame for the failure of these services to operate correctly in the future."
Similar problems were observed by Mr Fowles Jnr in May 2004 when attempting to register commercial registrations in the Newport/Cwmbran areas.
"I am still awaiting clearance to purchase ticket machines, destination blinds and vehicles and am further awaiting permission to install mains water and electric at the new depot.
We are due to commence services on 19th April 2004. The allows us approximately 18 working days in which to achieve an awful lot."
"I feel it my duty to inform you all in writing of the problems currently faced with our operation in Cardiff.
I hope that you will all agree that with the resource that has been provided for the depot what has been achieved to date has been remarkable.
However we have recently been given notice on one of the school contracts by Cardiff City Council and my fear is that we will start to lose one or two more if certain issues are not acted upon. You will be aware that, politically, we are not popular in the Cardiff area and the Local Authority is looking for the slightest mistake on our part to issue final warnings etc.
Our main problem at the depot is lack of resource – both drivers and engineering.
We were initially promised Gurkhas would be made available for the depot but this now looks increasingly unlikely despite housing being found for them at extremely competitive prices.
Lack of drivers is a major barrier to increasing revenue at the depot as we are losing mileage on a daily basis.
We do not have a coherent plan for going forward – we are still no nearer to getting a firm depot sorted out and until this is done we cannot move forward. I have been told to wait on getting water and electric into the depot due to high costs and cannot maintain vehicles effectively until this issue is resolved. This is leading to increased vehicle breakdowns (which was the reason for the termination of the above contract).
If we wish the depot to become a success then firm and decisive action needs to be taken, and quickly – our actions to date, however, lead me to believe that we are not all pulling in the same direction for those depots east of Swansea."
Significantly, this memo does not mention the Infringement.
(2) Commencement of the 2 Travel In-Fill Service in Cardiff
(1) Llanrumney to Cardiff City Centre (and back): "2 Travel Route No 250".
(2) St Mellons to Cardiff City Centre (and back): "2 Travel Route No 245".
(3) Pentrebane to Cardiff City Centre (and back): "2 Travel Route No 262".
(4) Ely to Cardiff City Centre (and back): "2 Travel Route No 217".
2 Travel registered a fifth service with the Traffic Commissioner (Pentwyn to Cardiff City Centre: "2 Travel Route No 258"). Mr Fowles stated (Transcript Day 1, page 127) that "[i]t was always envisaged it would start as the others did. However, time constraints against us with bringing in driving staff meant that we had to notify the Traffic Commissioner that we wouldn't start it until November". In the event, this service never operated.
(1) Llanrumney to Cardiff City Centre (and back): "White Service Route No 150".
(2) St Mellons to Cardiff City Centre (and back): "White Service Route No 144".
(3) Pentrebane to Cardiff City Centre (and back): "White Service Route No 162".
(4) Ely to Cardiff City Centre (and back): "White Service Route No 117".
Cardiff Bus registered a fifth service with the Traffic Commissioner (Pentwyn to Cardiff City Centre: "White Service Route No 258"). Although this service operated initially, Cardiff Bus scaled back operations on this route when it became clear that 2 Travel were not running a service on this route (see paragraph 539 below). For this reason, Cardiff Bus's passenger numbers and revenues on White Service Route No 258 were far lower than passenger numbers and the revenues on the other four routes operated by it.
(1) Llanrumney to Cardiff City Centre (and back): "Liveried Service Route Nos 49 and 50".
(2) St Mellons to Cardiff City Centre (and back): "Liveried Service Route Nos 44 and 45".
(3) Pentrebane to Cardiff City Centre (and back): "Liveried Service Route Nos 61 and 62".
(4) Ely to Cardiff City Centre (and back): "Liveried Service Route No 17".
Cardiff Bus also operated a service from Pentwyn to Cardiff City Centre (and back) – "Liveried Service Route Nos 57 and 58".
"…the four Cardiff routes partially overlap with other Cardiff Bus routes. Any particular bus route into Cardiff city centre overlaps with an increasing number of other bus routes into the city centre from other departure points, the closer to the city centre one is on the route..."
(3) 2 Travel's complaints regarding the Cardiff Bus White Service
(5) Correspondence from the Office of the Traffic Commissioner
"The Traffic Commissioner has requested that you look into these allegations and advise us of your findings, as the Traffic Commissioner views anti-competitive issues seriously."
"We are grateful for the opportunity to comment on the allegations. As a Company that is seeking to work to the highest standards in our industry, we have taken the complaints made very seriously, and conducted a thorough investigation. I am pleased to attach the detailed response received from our Commercial Manager (Appendix A), which you will see totally refutes any suggestion that we are acting anti-competitively. In the majority of cases the complaints appear to emanate from a misunderstanding of our registrations, and in most other cases arise from a mis-recording by their staff, particularly as evidenced by a comparison with factual records obtained from Cardiff County Council's GPS Vehicle Location Monitoring System. Not surprisingly, given the number of observations made, there are one or two points where we have felt that action is required, and this has already been taken."
(6) The VOSA monitoring exercise in Cardiff
"2 Travel Group plc have complained to The Office of The Traffic Commissioner of experiencing anti-competitive behaviour from Cardiff Bus on routes that they both operate.
As a result of a request from Traffic Area Office (TAO), monitoring exercises have been carried out on services operated by both 2 Travel and Cardiff Bus.
These exercises were carried out over a 12 day period at various locations in Cardiff between 15.06.04 and 16.07.04. Monitoring reports consisting of 31 pages were completed and these are enclosed. [These reports were not, however, before the Tribunal.] They show all factual findings and results.
A total of 760 departures were observed.
Of these, 627 departures related to Cardiff Bus and 133 to 2 Travel.
Of the 627 observations on Cardiff Bus services –
1 departure failed to operate.
1 departure operated late.
Total punctuality 99.68%
Of the 133 observations on 2 Travel services –
91 departures failed to operate (68.42%).
24 departures operated late (18.05%).
11 departures operated early (8.27%).
Total punctuality 5.26%
In addition to these 133 observations, a further 34 were seen to be operating off their registered route."
"Also enclosed for your information are comparisons between departure times of 2 Travel and Cardiff Bus 'no frills' services on routes they both operate, i.e. Ely, Pentrebane and St Mellons.
Although no anti-competitive behaviour was witnessed by ourselves, the comparisons have been compiled in order to show the closeness of the 'no frills' and 2 Travel services. All services departing within a minute of each other are highlighted in red on the reports.
Prior to the monitoring exercises commencing we requested registered timetables from the TAO, in particular timetables referring to the Cardiff Bus 'no frills' services 117, 144 and 162.
Timetables were forwarded to us, however no details were supplied specifically relating to the Cardiff Bus 'no frills' services 117, [144] and 162.
Due to this we again contacted TAO and were then supplied with a copy of a letter between Cardiff Bus and Mr Michael Douglas of TAO dated 16.04.04, (annex 4) from which we concluded that there was no reason to suspect that the 'no frills' services were not registered and were in fact part of existing registrations."
(1) In the first place, all the Tribunal had before it were VOSA's conclusions, and not the working documents supporting those conclusions (a point made with some force by Mr Clayton Jones: Transcript Day 1, pages103 to 105).
(2) Secondly, whereas 2 Travel's services operated to a timetable, Cardiff Bus's services were registered as "frequent" services (i.e. operating 6 services an hour), and there was (for this reason) no need for a published timetable. Mr Fowles was vehement in his criticism of this: he considered that the Cardiff Bus White Service could not and should not have been registered as "frequent": (Transcript Day 2, pages 59 to 61; nevertheless, the registration appears to have been correct.) Thus, the criteria being applied to Cardiff Bus's services were different to those being applied to 2 Travel's services (Transcript Day 1, pages 104 to 108 and 123 (evidence of Mr Clayton Jones)). Essentially, services operating to a timetable would be judged as early if they left more than one minute early, and late if they left more than 5 minutes late (Transcript Day 1, page 123 (evidence of Mr Clayton Jones); page 151 (evidence of Mr Fowles)).
(3) Asked by Mr West whether VOSA's figures amounted to a "pretty damning indictment…of the standard of service provided by 2 Travel on these routes, Mr Fowles' response was (Transcript Day 2, pages 56 to 57):
"If you observe the figures as they are, yes, it would appear so. However, monitoring at that time was not a very precise science. It had only just been started by the Traffic Commissioners. Our vehicles were being predated by the white services. The white services hadn't been registered in any way with the Traffic Commissioner. We felt them to be not legal. They would follow our buses, am and pm, they would follow them all day. It was felt by a lot of our drivers, to start with, that it would be sorted. It wasn't sorted. June and July is almost three months after it had started. The Traffic Commissioner didn't decide to send anybody out to look at it for that length of time, by which time I think both companies were not adhering to some of the routes that they were supposed to.
Drivers would drop short, they wouldn't complete the journey, in an attempt to get back on the next journey in front of the white bus, try and shake the white bus off. So I think it all depends where the monitors were standing, where their observations were made. I don't think they say where their observations were made. But, for instance, if they were made in Cardiff City centre, then quite clearly, if a bus was meant to come down St Mary's Street and on to Wood Street, the driver may have decided to come down and do the turn, ready to go – to go back, missed the last stop, particularly if he didn't have any passengers on board. I think by other means of measurement, and some of Cardiff's own disclosures, I believe, indicate that we were operating up to 70 per cent of our services."
(7) 2 Travel's board meeting of 25 June 2004
"Reading through the pack I am extremely concerned about the losses and the dire state of the balance sheet where debt levels have risen to £5.46m including creditors, many of which I am sure will be terribly overdue. Given that these figures were at 30 April and that you made a cash loss of over £100k in April I can only assume the position is now much worse.
Could you please meet up urgently next week to discuss the position. I would like Graham Spooner to attend the meeting also.
I think the time has now come for some tough decisions."
Mr Graham Spooner was from Mentor, the corporate director representing the interests of VCT.
"I am very concerned about your cash position. You appear to have missed interest paid out of your cash flow figures and you have included the whole of your new overdraft facility in cash inflows the day you got the overdraft! You started the year with a £300k overdraft, you have spent further cash in the year of £540k and your stock and debtor position has worsened by £190k giving a total of £1.03 million of deficit as at 30 April. This has been financed by (yet again) increasing your creditors by £280k and loans secured on the property of £670k. It looks to me therefore that you have already used up you [sic] new bank facility and are now racking up the creditors to finance the business. There is no information in the pack showing the amount of the facility currently used or he [sic] amount unutilised. If the overdraft was used the day you got it this has serious implications and I would like to know how the business has been financed since then. Please could you let me have these figures as soon as possible and let me have your comments on my analysis."
"89. What the reference to the overdraft having been used on the day it was obtained appears to mean is that the increased funding provided by Barclays in exchange for the personal guarantees from Messrs Short and Francis, which had been intended to provide the working capital required for the development of the new routes as set out in the PWC report, had instead all been used up immediately in paying the outstanding creditors. Those loans could not therefore be used to provide the working capital which PWC had identified as being needed for the development of the new routes.
90. It is important to recognise that the infringement had no effect at all upon the company's financial position as discussed in these messages. The Cardiff in-fill services only started on 19 April 2004, whilst the figures under discussion are as at 30 April. Further, as explained above, under the PWC report, the Cardiff routes were expected to be loss-making for the first four months of their operation in any event. Thus, even if the routes had performed as expected, there would have been no profits from them at this date."
(1) That Mr Waters had resigned.
(2) That 2 Travel had received an offer from Redrow for the Swansea Depot at £500 an acre.
(3) That 2 Travel's trading continued to disappoint.
(4) That there were continuing cash flow problems, with about £550,000 of the new bank facility of £675,000 being drawn down to date.
(8) Further memo from Mr Waters
"Cheque Book payments not being properly recorded with stubs not being filled in.
Payments being made without full supporting documents.
Round sum payments being made with no allocations made.
Payments being made by third parties with no records being kept or advised to accounts.
Cash payments made with no advice to accounts department.
Invoices not being received or passed to accounts department.
Acceptance of "faxed" and "copy" invoices.
High staff turnover in accounts department, lack of training and systems familiarisation.
Staff shortages.
No formal accounts procedures.
Over reliance on "cash".
Lack of Working Capital.
Over reliance on Factoring.
Depots lack of administrative staff.
Failures to properly record cash receipts.
Incorrect invoicing.
Failure to follow systems introduced.
Continual Fire fighting, no strategic planning.
Autocratic management style.
Senior management interference.
Fear of the truth.
Company culture.
Many of these can be addressed quite quickly and will prevent future problems occurring. However, it must be recognised that it will take time and resource to clear up the present position. Similar exercises have been carried out in the past and reliance has been made on information supplied to the accounts department, which has then subsequently proved to be incorrect. This has resulted in benefits taken having to be reversed and extra work all round. When clean positions have been reached then subsequent actions taken have negated all the hard work and effort expended. Hopefully this will not be the situation after this clean up exercise is completed."
"Q (Mr West) | Many of these problems had been identified by Mr Waters at the time he arrived at the company, hadn't they? |
A (Mr Fowles) | Yes, certainly. |
Q (Mr West) | Two years later, no progress appears to have been made? |
A (Mr Fowles) | Most of them were under the remit of Mr Waters. |
Q (Mr West) | Given these difficulties, it would be almost impossible for the company to keep reliable accounts? |
A (Mr Fowles) | As he says in his next line, many of these can be addressed quite quickly. They were small systems failures. Chequebook payments not being properly recorded with stubs. I mean, it's a memo. It's his department." |
We do not accept Mr Fowles' suggestion that it was Mr Waters who had failed to address these problems within 2 Travel. The documentary evidence suggests quite the contrary. But in the end, precisely why 2 Travel was a poorly run and administered company does not matter; what matters, is that (as a matter of fact) it was poorly run and administered. The potential for 2 Travel to meet even its basic statutory accounting obligations was diminished.
(9) The June 2004 PwC Report
"…But if you look at the nature of the report, the report in 2004 [referring to the June 2004 PwC Report] is marked as a draft. I'm not sure if it was finalised in those forms. But it also, it doesn't have the same degree of commentary and so on [as the February 2004 PwC Report]. This was to do with the preparation of a financial model in order to model financial projections for the business. So that was the purpose of that second report."
"The company, by the time we were talking about her involvement, was clearly under pressure, with backlogging creditors and creditor payments, so that's the feedback that we had at the time, that they were under financial pressure."
(1) Projected a loss for the 3 months to August 2004 of £315,000;
(2) Projected a loss for September 2004 of £7,000;
(3) Projected a profit for October 2004 of £74,000, and a profit for the year ending August 2005 of (what appears to be – the document is very unclear) £647,000.
"Q (Mr West) | So yet again, some projections for the future, which don't appear to relate in any way to the company's actual performance in the past? |
A (Mr Fowles) | I disagree. We had been awarded quite a lot of contracts from the September and the bus revenues were expected to flow in, as we've said, after the initial four month period." |
"On the basis of the assumptions used, the peak overdraft requirement is projected to be £927k in April 2005."
Period | Funding requirement at beginning of period (i.e. the beginning of the month) | Funding requirement at end of period (i.e. the end of the month) |
Jun 2004 | £173,000 | £277,000 |
Jul 2004 | £277,000 | £339,000 |
Aug 2004 | £339,000 | £579,000 |
Sep 2004 | £579,000 | £664,000 |
Oct 2004 | £664,000 | £690,000 |
Nov 2004 | £690,000 | £698,000 |
Dec 2004 | £698,000 | £743,000 |
Jan 2005 | £743,000 | £785,000 |
Feb 2005 | £785,000 | £794,000 |
Mar 2005 | £794,000 | £905,000 |
Apr 2005 | £905,000 | £937,000 |
(10) The August 2004 action plan
"5. Cashflow continues to be critical and Messrs Francis and Short have agreed to underwrite additional bank facilities (of up to £500k) to meet the shortfall identified by PwC (June management accounts and projections due on 4 August for the 2TC Board to review on 6/8/04). 2TC is seeking to do deals with its creditors, including DC3.
Trading
The latest figures available at present are the 9 months to 31 May 2004, as follows:
£000s | Actual | Budget |
Turnover | 3644 | 4711 |
Operating Loss | (198) | 193 |
Net Loss | (338) | (109) |
Cash Generation | (122) | 77 |
2TC made an operating profit of £36k (£8k NPBT) in May.
The delayed (18) bus routes due to a shortage of drivers has been addressed by the recruitment of 21 former Gurkhas who have all now completed their driver training.
Cash/Balance Sheet
The cash position remains tight partly due to poor debtors collection by the factors. Creditors may be overstated due to poor financial controls.
The £675k bank facility (guaranteed by Messrs Francis and Short) is fully drawn.
Net assets have been reduced to £641k (including the freehold at Swansea at £850k) by trading losses.
PAYE arrears are a cause for concern (now £794k) as the monthly payments schedule has not been adhered to by 2TC.
Swansea Property
A joint venture with the local authority and Redrow for a housing development is the most likely way forward. Alternatively, Messrs Short and Francis will seek to buy the property (present value c. £1.5m as compared to potential value of c. £3m). King Sturge have been instructed to carry out independent valuation(s) based on existing use and housing consent being obtained.
Summary
I have been working closely with the Nomad, the Chairman and executive directors to seek a solution to the current unacceptable position. I will update you following the board meeting on 6 August 2004 which will need to establish the extent of the current financial position and resolve the way(s) forward to address the working capital shortfall identified by PwC."
(11) Mr Francis' and Mr Short's offer
"Further to our discussions I am writing to confirm that Nigel Short and I are today making available to 2 Travel Group Plc "the Company" an unsecured loan (in the short term i.e. 28 days) in the sum of £937,000 in order to enable the Company to meet its anticipated working capital requirement as shown in the recent PWC working capital projection.
The loan is being made on the condition that:
1) The company provides Nigel and myself with a legal charge over its property and depot at Upper Bank Swansea and any land acquired from the local authority for a new access such legal charge to be on normal commercial terms.
2) The company provides Nigel and myself with an option to acquire the property and depot at Upper Bank (referred to above) in addition to any land acquired from the local authority for a new access. The option price will be current market value as of today's date to be assessed by King Sterge [sic] (such value not to be less than £2m) plus 20% [of] any profit realised on a resale. This option will not be exercisable within 3 years 9 months of this letter unless an act of default occurs.
3) The company enters into the legal charge and option referred to in 1 and 2 above within 28 days of this letter.
On the basis that this is agreed, our facility is available for draw down by the Company as from today in line with the PWC projections.
We understand that City Financial Associates Limited will be referring to this letter in their forthcoming discussions with the AIM team."
(1) First, a guarantee in the amount of £300,000, done in September 2004 (see paragraph 250 below).
(2) Secondly, a guarantee in the amount of £650,000, done in October 2004 (see paragraph 259 below).
As will be seen, neither of these guarantees were gratuitously offered by Mr Francis and Mr Short.
(12) The Inland Revenue's petition
"Mr Callaghan | Just going back to the PAYE NI, the letter from Fordham Warren (?) shows a payment of £465,000. Can I ask where that money came from? |
Mr Francis | Yes, it came from Mr Short and myself, sir. |
Mr Callaghan | Is it an unsecured loan to the company at the moment? |
Mr Francis | It is, which we've guaranteed on repayment date. |
Mr Callaghan | So you actually put the cash into the Company? |
Mr Francis | £150,000 was put in immediately, sir and £300,000 by way of a loan. |
Traffic Commissioner | So the £165,000 you say was put in, was that a gift or...? |
Mr Francis | No, Sir, no its a loan. |
Traffic Commissioner | Sorry, I thought you said £300,000 was a loan. |
Mr Francis | Yeah, it's all a loan, Sir. |
Traffic Commissioner | It was all a loan. |
Mr Francis | We have a charge against all of it." |
(13) The announcement to the AIM
"Directors' loan
The Board of 2 Travel Group plc (the 'Company') announces that Huw Francis and Nigel Short, both Directors of the Company, have provided the Company with an unsecured loan of up to £937,000 for working capital purposes.
The loan has been made on condition that security will be granted to Mr Francis and Mr Short over the Company's freehold property and depot at Upper Bank, Swansea, and that they are given an option to acquire this site from the Company on agreed terms. A further announcement will be made at the time that formal agreement on the terms of security and the option have been reached."
(14) The Traffic Commissioner's inquiry into 2 Travel
(1) Various matters arising under the Public Passenger Vehicles Act 1981. These matters all occurred in a two-year period from July 2002 to July 2004.
(2) 2 Travel's bus service reliability as monitored (by a Mr Anderson) in the periods 2 to 29 October 2003 and 4 February to 6 April 2004.
(3) The financial standing of 2 Travel.
The first two matters before the Traffic Commissioner clearly pre-dated the Infringement. The question of financial standing was an on-going requirement.
"Taking these two things together, the prohibitions and the non-display of the destinations, bearing in mind that the prohibitions are not at the serious end and trying to come to a conclusion that I believe is proportionate to what has gone wrong, my decision is to curtail the maximum number of vehicles for one month, at the month of September, from 110 to 100. I am aware that that is not likely to have much practical impact, but it does flag up the issues that they are not acceptable and that the Company have got to improve in both these regards to a very much higher standard and it is a marker for the future if you do not fail [sic] to put your house in order."
"18. Of the 573 services monitored by Mr Anderson, 109 (19.0%) failed to run at all, and 61 (10.6%) ran outside the limits – almost 30% non-compliant against the 5% which is acceptable. While Neath's services improved between the autumn and the spring, the very poor performance recorded in Llanelli is consistent with the County Council's reports. I am staggered by the Newport/Cwmbran situation, where services hadn't even started to run nearly two months after the company gave notice they were to start – in other words, 100% non-compliance! Whatever the perceived greater need for drivers elsewhere, such behaviour is against the spirit and letter of the law, and cannot be tolerated. The overall non-compliance including Newport/Cwmbran would be well-over 50%.
Decision
19. I find that, under s26 of the Transport Act 1985, the company has without reasonable excuse failed to operate registered local services. I attach a condition to the licence that, for a period of 12 months from the date of this decision, the operator shall not use vehicles on any local services other than those registered at today's date. In regard to the Gwent Joint Passenger Transport Area (the unitary authorities of Blaenau Gwent, Torfaen, Monmouthshire and Newport), the period is extended to two years because of the unacceptability of the company's conduct.
…
21. The Transport Act 2000, s155, entitles me to impose a financial penalty on an operator in addition to any action under s26 of the Transport Act 1985. Any penalty must be proportionate to the company's failures to operate local services. The company has told me (subsequent to the Public Inquiry) that about 52 vehicles are engaged on schooldays on local bus services. Under our guidelines, a 30% compliance failure normally attracts the maximum penalty of £550 per vehicle, which for the vehicles engaged in local services would be a total of £28,600. To achieve this, I impose a penalty of £260 per vehicle in respect of the 110 vehicles which the company is licensed to operate. The sum is payable by the company to the National Assembly for Wales."
(15) The King Sturge valuation
(16) 2 Travel's detailed complaint to the OFT
(17) Provision of guarantees limited to £300,000 by Mr Francis and Mr Short and the option agreement
(1) The Option could only be exercised prior to 16 May 2008 with the prior consent of 2 Travel and only if certain planning conditions were satisfied.
(2) The Option had to be exercised before 22 September 2009, otherwise it would expire.
(3) The Option price (i.e. the price at which the Swansea Depot could be purchased) was £2,000,000 excluding VAT.
(4) On the exercise of the Option, the transfer of the property would contain an overage provision, entitling 2 Travel to 20% of any increased value of the Swansea Depot if the property was sold on within 5 years of the transfer.
"Dear Huw and Bev
As you know we were astonished to learn yesterday afternoon that option and loan agreements had been entered into, albeit conditionally, prior to the company's lawyers having consulted with us and Graham Spooner who represents the Independent Board.
I note that you (Huw) deny that they have been entered into although this contradicts the telephone conversation and e mail I have had from your lawyers.
Bev spoke to me at 14:30 last Friday and did not tell me that he had been to the lawyers to sign the paperwork or that he was on his way there. Getting David Fowles to countersign when David is, as far as I know, not involved in the transaction, appears to me to have been done in order to avoid asking Graham Spooner who was leading the transaction for the Independent Board, as you would have know [sic] that Graham would have refused to sign the documents at this stage.
It remains unclear why the documents needed to be entered into with such haste. Your solicitors state that it was done in order to alleviate the company's funding difficulties but you tell us that this was not the case and that your loan monies had been released to the company previously. Someone is not telling us the truth.
I was also astonished to learn that despite all of our requests to be kept informed, the company had received a demand from the Inland Revenue 2 weeks ago for payment of a substantial sum (which I understood from our conversation last night to be £400k) and that this sum has been paid out by means of Huw passing over funds to Bev for him to make the payment. I do not understand this process and I do not know when or if the payment has been made. The only mitigating factor as far as I can see is a comment made by Richard Needham last night to the effect that the IR had reached agreement with you earlier in the year and you have spent the last 2 weeks negotiating with them to get them to stand by their original agreement.
Without telling us you have also, apparently increased the amount of your and Nigel Short's loan to the company, you say to meet the shortfall in working capital arising from the increased payment to the IR. You say that you have checked the additional requirement by rerunning PWC's working capital model.
You, as directors of an AIM quoted company, had a clear duty to report these matters to your fellow board members and to keep us in our capacity as your nominated adviser, fully informed. You are in clear breach of your obligations to us as set out in our nomad appointment letter."
"Further to my email of 15 September 2004 to Robert Wilson, the 2TG Board meeting on 24 September 2004 was cancelled (at short notice). Instead, Tony Rawlinson and I met the new FD (Hugh Jenkins) and the MD designate, Martin Cook in Bristol.
Developments since August Report
1 Carl Walters [sic] has left the company. His replacement has now started and the new MD is taking up his responsibilities from 1 October 2004. Bev Fowles has been advised to take leave on medical advice.
2 The Traffic Commissioner has fined 2TG £28,600 for failing to operate 19% of its bus services. A Financial Public Inquiry by the Traffic Commissioner is to be held on 5 October 2004.
3 Huw Francis and Nigel Short have taken over "de facto" control of 2TG, by injecting c. £1.1m into 2TG and installing the new (MD/FD) management team. Overdue creditors (including the Inland Revenue £400k) are being paid from these facilities.
4 It is envisaged that Bev Fowles may return (in due course) to 2TG as its Director of Operations, reporting to Martin Cook. His departure has been precipitated by his signature on the Property Option and Charge documents in favour of Messrs Francis and Short which had not been approved by the 2TG Board in their final form. 2TG's Nomad and Independent Directors are currently considering their position as to possible breaches of Rules 10 and 12 of the AIM Rules by 2TG. An EGM will be required (and is a Condition Precedent of the Property Option) to ratify these agreements as required by S.320 of the 1985 Companies Act."
(18) Discussions within 2 Travel in October 2004
"Further to my email to Robert yesterday and following the subsequent meeting of Independent Directors (myself and Sir Richard Needham) and 2TG's Nomad yesterday evening, there will be an announcement shortly which I will circulate when it is available as it provides a useful summary.
It is intended that a circular will be despatched to shareholders early next week with an EGM scheduled for 29 October 2004 at Newport (Holiday Inn) in Wales which you may wish to attend (I will be there).
2TG's funding is being provided by Barclays (£2.2m, of which £1.625m is either being personally guaranteed by Messrs Short and Francis) plus loans/undertakings to 2TG totalling £300k from Messrs Francis Short and Bev Fowles, making total debt facilities (exclusive of vehicle and equipment finance and factoring) of £2.5m. The peak requirement in the PwC/Management Model is £2.367m in March 2005. This assumes that all debt is serviced (with £28k VCT interest paid in September 2004 and £12k quarterly thereafter). All arrears of fees (including Matrix, CFA and NxD's) [we assume this is a reference to the non-executive directors of the company] will be paid prior to the EGM on 29 October 2004.
Messrs Short and Francis are being given the option (for 3 years from 5 October 2004) to buy the Swansea property for £2m plus a 20% enhancement in value for any planning consents obtained). The option cannot be exercised before May 2008 without 2TG's consent. King Sturge have valued the existing 4.7 acre site at £1m at present whilst Redrow have apparently made an indicative offer of £600k net per acre (with housing consents in place).
In the circumstances, I would commend this deal to you as the alternative is insolvency. 2TG is currently losing c. £100k per month and shareholders funds have been reduced to c. £200k (before any impairment review) and the new management team have effectively been provided with the resources to turnaround this business which may still require (in due course) a debt-equity swap or deeply discounted underwritten rights issue to address its highly geared balance sheet."
"Trading statement
In our interim results for the 6 months ended 28 February 2004, we commented that the continued expansion of bus routes is having a positive effect even though the year had started slower than expected.
Whilst we were successful in achieving our objective of registering a number of new routes in key expansion areas, shortages of working capital, drivers and suitable vehicles meant that we were unable to operate the services at the intended levels. Our shortcomings were highlighted in a report of the Traffic Commissioner issued on 25 August and we committed to the Commissioner that we would operate all registered services in Gwent from 6 September onwards, which we have done, and improve performance in Llanelli and Neath also. These operational improvements have become possible given that we have located the vehicles we require at suitable prices, recruited additional drivers, and the further working capital facility announced on 13 August.
…
Against this background the Company's performance for the year to 31 August 2004, although not finally determined, was disappointing. In addition to not being able to expand the bus network as planned, we, in common with others in the transport sector, suffered from rising fuel, insurance and wages costs. Direct costs in the last 3 months of the year were almost half of costs in the first 9 months.
On 30 September we announced the appointment of Hugh Jenkins as our new Finance Director. Hugh's first task is to review and strengthen the financial reporting systems and controls. PricewaterhouseCoopers has been appointed as auditors and its audit will follow completion of Hugh's review.
…
Related party transactions
On 13 August 2004 the Company announced that Huw Francis and Nigel Short, both Directors of the Company, had provided the Company with an unsecured loan of up to £937,000 for working capital purposes. In fact, the facility that was provided to the company by Huw Francis and Nigel Short was in the aggregate amount of £975,000 and comprised guarantees in respect of monies advanced to the Company by the Company's principal bankers. This facility was made on condition that security would be granted to Mr Francis and Mr Short over certain property and assets, including the Company's freehold site and depot at Upper Bank, Swansea and that they would be given an option to acquire the site from the Company.
A recent update of the earlier working capital review revealed that the facility referred to above would not be sufficient for the Company's requirements. As part of agreeing the security agreement and option agreement with Huw Francis and Nigel Short, they have agreed to facilitate the Company's revised requirements by giving an undertaking, direct loans, and also by agreeing to make available guarantees in respect of part of the Company's indebtedness to its principal bankers, such guarantees in aggregate amounting to £1.625 million inclusive of the previous guarantee commitments made by them. These agreements are classified under the AIM Rules as a Related Party Transaction and require the approval of shareholders under the Companies Act. Accordingly, a circular outlining these agreements will shortly be sent to shareholders together with notification of an Extraordinary General Meeting.
…
The Independent Directors, comprising Sir Richard Needham, Bev Fowles, David Fowles and Mentor UK Limited, after consulting City Financial Associates Limited, the Company's Nominated Adviser, believe that the terms of the Related Party Transaction are fair and reasonable insofar as the shareholders are concerned.
…
Board changes
2 Travel Group Plc also announces today that Martin Cook, aged 49, will be joining the Board of the Company as Managing Director with immediate effect. Mr Cook is a highly experienced commercial Managing Director and is currently the Managing Director of Betws Anthracite Limited, a position that he has held since 1993. Bev Fowles is stepping down as Chief Executive with immediate effect, but Bev will remain on the Board as Director of Bus Operations. They will form a strong executive team along with, Hugh Jenkins (the new Finance Director) and David Fowles."
(19) Further guarantee of £650,000
(20) The EGM
(21) Proceedings before the Traffic Commissioner concerning 2 Travel's allegations against Cardiff Bus that Cardiff Bus had been operating its services in a dangerous manner
"Conclusions
40. Following the meeting and assessing the evidence I conclude the following:
41. That any accusation of cross-subsidies and unfair competition should be dealt with by the OFT.
42. I do not believe that senior members of Cardiff Bus have issued instructions inciting their drivers to act in an unsafe manner. I do not dismiss the possibility that supervisors in the depots may have aggravated the situation and helped to incite the drivers but there is no clear evidence of this.
43. That Cardiff Bus has operated in line with their high frequency registrations.
44. That the video evidence was only useful in showing incidents of poor driver behaviour as detailed above.
Recommendations
45. At the meeting both parties agreed to send letters to their drivers reminding them of their responsibilities as professional drivers. Cardiff Bus has confirmed that this has taken place. I have not heard from 2 Travel on the matter.
46. That no action be taken against Cardiff Bus as there is no evidence that they have a case to answer. This may change should the OFT find against them."
(22) Appointment of Grant Thornton as investigating accountants over 2 Travel
"It transpires that £300k of the Bank's facilities to 2TG were due for repayment on 31 October 2004. This was not reflected in the PwC model..."
(1) That although Grant Thornton had received the full co-operation of 2 Travel's directors, "our work has been hampered by the breakdown in accounting records that has occurred since the departure of the previous Finance Director at the end of August 2004" (paragraph 1.12). The Report identified a number of specific deficiencies in paragraph 1.13.
(2) That whilst there are inherent flaws in any cash flow forecast (paragraph 2.2), "[t]he cash flow forecast indicates that at the start [of] 16 November 2004 the Company is £39,000 over its existing overdraft facilities of £140,000" (paragraph 2.3) and "[t]his figure is forecast to climb to £371,000 over the current facility by 3 December 2004 before falling back to £275,000 over the facility in mid December. However, by Christmas the facility is exceeded by £318,000" (paragraph 2.4). It was also noted that no provision had been made to pay any interest on the 8% convertible loan stock of £600,000.
(3) That a significant number of "bounced" cheques, £35,000 at the end of September 2004, and £30,326 during November 2004 (paragraphs 2.21 and 2.22), together with £30,734 of cheques issued, but not yet presented for payment.
(4) That the Swansea Depot had been acquired in May 2003 for £650,000, and that (according to a valuation by King Sturge on 31 August 2004) this was its present value on an existing use basis. Its market value was assessed by King Sturge as being £1,000,000, and with residential or non-food planning permission £2,350,000 to £3,500,000 (paragraph 3.4).
(5) As to 2 Travel's ability to trade, this was dependent upon 2 Travel's solvency (paragraph 4.1) and "[w]hilst the Company is technically solvent on a balance sheet basis, it is insolvent on a going concern basis as it cannot pay its liabilities as they fall due for payment". 2 Travel was "now under significant creditor pressure" (paragraph 4.3) and "[w]ithout an injection of funds of between £300,000 to £400,000 as identified on the short term cash flow, the Company will be unable to continue to trade in the period up to 24 December 2004. The cash flow indicates that approximately £258,000 will be required this week…" (paragraph 4.4).
(6) That "[i]f there is no injection of funds as identified above within the next two days, then the directors must consider carefully whether they can allow the Company to continue to trade" (paragraph 5.1). However, Mr Short had confirmed to Grant Thornton that £300,000 could be made available within a matter of days "subject to acquisition of Company's 20% overage rights on the sale of the freehold property following exercising of an option" (paragraphs 4.4 and 4.6).
(23) Departure of the management
"Q (Mr West) | But ordinarily, the company's annual accounts would be prepared within six months of the year end; is that right? |
A (Mr Fowles) | That'd be February. |
Q (Mr West) | By February, and the company was still trading the following February, wasn't it? |
A (Mr Fowles) | Um…It was still in existence and, yes, doing some trade. |
Q (Mr West) | No steps were ever put in place to prepare the statutory accounts? |
A (Mr Fowles) | That's right. By that time we knew we weren't going to be there very much longer." |
(24) The Assignment
(25) 2 Travel's closure of its Cardiff operations
(26) Revocation of 2 Travel's operating licence
"25 …Either an operator has sufficient funds to satisfy the requirement, or he hasn't. There is no discretion for me to exercise if I find there are insufficient funds. I have been more than patient in this case in awaiting evidence of what money is available. Based on documents provided over the months since the call-up letter, it appears that, not only is there too little money available for 110 vehicles, there is not enough for 50 or even 10.
26. The latest letter from Backhouses contains no evidence of finance, just more general statements to the effect that they have money available. While funds may be available or promised, they are of no value to financial standing until held by the company.
27. If I revoke the licence without disqualification of the company or directors, they will be free to apply for a new licence. Given that the company will be structured very differently from now on, it seems to me preferable that they should follow this course, and I will be able to consider all matters, including finance, afresh in the new circumstances. I believe this is the pragmatic, and indeed the right, solution in all the circumstances.
28. If as is likely this involves a pause in their operation, this will enable them to "take stock" and plan properly for what, if the application is granted, will need to be a very much better service than in the past.
Decision
29. I find the company no longer satisfies the requirement to be of appropriate financial standing, and revoke the licence with effect from 2359 hours on 22 January 2005…"
(27) Final suspension of 2 Travel from AIM
(28) Offer to Mr Hoggan
"Q (Mr West) | …You're writing to Wally Hoggan, offering to purchase his freehold property in Swansea and his vehicles, plant and fixtures, the name Hoggans and all of the school contract work. That letter wasn't written in the name of 2 Travel, was it? |
A (Mr Fowles) | No, it was written under Jamfell Limited. |
Q (Mr West) | And can you explain what the intention was of this approach? |
A (Mr Fowles) | The approach was to purchase the company and it was a very small company, six or seven vehicles, and it was to purchase that off Walter Hoggan, which eventually was successful. |
Q (Mr West) | And why was that not done in the name of 2 Travel? |
A (Mr Fowles) | 2 Travel at the time, you're talking in January, were - we had our licence revoked, we had been subject to a serious leak from the Traffic Commissioner's office, which had undermined the remainder of the company, and it was felt that possibly acquiring Hoggans would assist in what was left on the Swansea depot. |
Q (Mr West) | So was the intention to run this as a new company, effectively a different company? |
A (Mr Fowles) | It might well have been. We had approached the Traffic Commissioner for an MBO, as I said before lunch, and if there was a possibility of doing that, then we may well have done it. |
Q (Mr West) | The plot of land in question is immediately adjacent to 2 Travel's Swansea depot? |
A (Mr Fowles) | That's right. |
Q (Mr West) | And was it the intention at this time that that land would effectively be combined with the existing Swansea depot to form a larger, more valuable plot of land? |
A (Mr Fowles) | It was a very small part of the five, six acre site. Perhaps, I don't know, as much as half an acre, if that. |
Q (Mr West) | But did Mr Hoggan – didn't his land have some rights of way over the Swansea depot? |
A (Mr Fowles) | He did have a verbal right of way over the site, given to him previously before we purchased Capital. But it was a verbal, nothing else. |
Q (Mr West) | But by purchasing this land and combining it with the larger plot, you would avoid any difficulties about rights of way? |
A (Mr Fowles) | Mm. It was Hoggan who approached us to – on the potential of selling out. So we took it for what it was." |
(29) Cessation of the Cardiff Bus White Service
(30) Exercise of the option
"Q (Mr West) | You'll remember that under the terms of the option it couldn't be exercised before May 2008, without the company's written consent? |
A (Mr Fowles) | Mm-hm. |
Q (Mr West) | So this presumably also counts as the company's written consent for those purposes, does it? |
A (Mr Fowles) | Yes, I would think so. |
Q (Mr West) | It also couldn't be exercised before the grant of planning permission. And I see in the second paragraph there at the end: "We confirm our discussions whereby you have agreed to waive the requirement for planning condition." So you waived that requirement as well, did you? |
A (Mr Fowles) | Mm-hm. |
Q (Mr West) | Again, there was no attempt to obtain the approval of the shareholders by any resolution for these further amendments to the terms of the option? |
A (Mr Fowles) | There wasn't enough time for that, I'm afraid. |
Q (Mr West) | And the way that the exercise of the option worked was that Mr Francis and Mr Short assumed the bank debt owed by 2 Travel to Barclays, which was thereby taken off 2 Travel's balance sheet. Is that how it worked? |
A (Mr Fowles) | It was, yes. |
Q (Mr West) | So, in effect, the bank lending, which had been provided by Barclays in exchange for or on security of the guarantees given by Mr Short and Mr Francis, was then assumed by them, rather than the making of any cash payment to 2 Travel, in order to exercise the option? |
A (Mr Fowles) | Yes. The option came to something like 2.4 million, I think. |
Q (Mr West) | So the amounts which had been provided by the bank under the guarantees from Mr Short and Mr Francis were effectively treated as part payments towards the exercise – the payment of the option price? |
A (Mr Fowles) | Yes. |
Q (Mr West) | So to the extent that Mr Short and Mr Francis had provided such guarantees, they were fully secured for those guarantees because they could be treated as part payment towards the £2 million option price? |
A (Mr Fowles) | Yes." |
(31) 2 Travel's liquidation
VII. THE "COUNTER-FACTUAL" SCENARIO: WHAT WOULD HAVE HAPPENED BUT FOR THE INFRINGEMENT
(1) 2 Travel would not have suffered from the severe driver shortages that (so it claims) it did suffer from (see paragraphs 3.31 to 3.33 of 2 Travel's Claim for Damages).
(2) Management time would not have been diverted from normal (i.e. revenue generating) duties, as the Infringement would not have disrupted 2 Travel's operations both in Cardiff and elsewhere (see paragraphs 3.34 of 2 Travel's Claim for Damages).
(3) Passengers that in fact travelled on the Cardiff Bus White Service would have travelled on the 2 Travel In-Fill Service, resulting in short-term increased revenues to 2 Travel (see paragraphs 3.28 to 3.30 of 2 Travel's Claim for Damages).
"1. Cardiff Bus' predation:
(a) diverted passengers, and hence the revenue from such passengers, away from 2 Travel (and to Cardiff Bus instead);
(b) (and intimidatory tactics) caused driver shortages which:
(i) prevented 2 Travel from operating the full number of planned services;
(ii) prevented 2 Travel from operating the 258 service from November 2004 (as agreed with the Traffic Commissioner);
(iii) had consequential effects for 2 Travel's services in Swansea, Llanelli and Cwmbran due to drivers being diverted to Cardiff; and
(c) prevented 2 Travel's infill services from growing in line with 2 Travel's previous experiences in Neath and achieving optimal route realisation,
which, together, caused 2 Travel to suffer reduced revenues.
2. The reduced revenues caused:
(a) 2 Travel to suffer losses (both on the infill routes and by the 2 Travel business as a whole) rather than the anticipated profits; and
(b) a negative effect on 2 Travel's cash flow and working capital requirement.
3. From the commencement of the predation to the insolvency of 2 Travel, 2 Travel's management and staff were diverted from their normal revenue generating duties by having to deal with the predation, causing significant disruption to the 2 Travel business, thereby exacerbating the impact of Cardiff Bus' predation on 2 Travel's cash flow and working capital requirement.
4. The impact on 2 Travel's cash flow and working capital requirement caused 2 Travel to:
(a) abandon its expansion plans;
(b) grant security over and an option to purchase the Swansea Depot in return for an increase in its working capital requirements; and
(c) close the Cardiff depot (and the Cwmbran depot) and retreat to Swansea and Llanelli.
5. Unable to recover from the losses caused by Cardiff Bus and the consequential impact on 2 Travel's cash flow and working capital requirement, 2 Travel entered insolvency, thereby causing 2 Travel to:
(a) suffer the loss of future profits;
(b) suffer the loss of a capital asset (the business of 2 Travel as a going concern);
(c) lose the commercial opportunity to grow the 2 Travel business; and
(d) lose the commercial opportunity to develop the Swansea Depot."
(1) The Infringement had three, immediate effects:
(i) 2 Travel suffered from driver shortages, and these shortages affected operations. We consider this in Section VIII below.
(ii) Management and staff were diverted away from their normal duties, to the detriment of 2 Travel's operations. We consider this in Section IX below.
(iii) Passengers were diverted away from 2 Travel's In-Fill Service, resulting in a revenue loss. We consider this loss of revenue in Section X below. This question overlaps with 2 Travel's Claim 1: Loss of Profits, which we also consider in Section X.
(2) These immediate effects resulted in 2 Travel going under as a business. This issue – which is effectively synonymous with 2 Travel's Claim 2: Loss of a Capital Asset – is considered in Section XI below. Furthermore, as a result of 2 Travel's liquidation, 2 Travel lost the commercial opportunity presented by the Swansea Depot. This loss – Claim 3: Loss of a Commercial Opportunity – we consider in Section XII below.
VIII. DRIVER SHORTAGES AND THE EFFECT OF DRIVER SHORTAGES
(1) Approach
(1) First, that it suffered from a driver shortage in the period April to December 2004.
(2) Secondly, that that driver shortage was caused by the Infringement.
(3) Thirdly, that this driver shortage had an impact upon 2 Travel's operations.
(2) Driver shortages suffered by 2 Travel prior to 19 April 2004
(i) 2 Travel's contentions and witness evidence
"92. The vast majority of our drivers, almost all of them, were employed on a full-time basis…
93. We historically had very little casual absenteeism. When a driver was absent he was either genuinely ill, which wasn't very often, or he wasn't coming back. We had experienced driver shortages in 2001 in the Swansea area, but the reason for this was that 2 Travel was growing and acquiring businesses and some of the drivers did not come over with the acquired business. If there was a driver shortage it would have been 2 or 3, nothing serious as such and nothing that managers couldn't cover."
"Whilst there was a national shortage of bus drivers, we didn't suffer more than anyone else. We used innovative methods of coping with this national shortage. We hit upon the idea that armed forces personnel were finishing in their droves, and there were big transport sections in the RAF and the Army. Somebody just happened to mention that the transport section of the Army is largely operated by British Army Ghurkhas. So we embarked upon recruiting Ghurkas."
(ii) The contemporary documents
(1) The minutes of a 2 Travel meeting held on 23 October 2001 record:
"Alun to shedule [sic] in advance for November & December so as to organise excess drivers who will be required, also to organise drivers times to collate Park & Ride with scheduled runs. Alun expressed concern to going ahead with 4 new contracts until we can be assured that we can get enough to [sic] drivers. It was suggested that we employ 17/18 yr old apprentices in the workshop who can be used on buses in peak periods."
(2) The minutes of a 2 Travel meeting held on 12 September 2002 record:
"A shortage of drivers at the Cardiff Depot was placing a strain on resources at Swansea Depot. Drivers from Swansea were being transferred to Cardiff on a daily basis. Engineers and Supervisors were replacing driving staff at Swansea."
(3) The minutes of a 2 Travel meeting held on 5 September 2003:
"Engineering Staff used for Driving School/Contracts
This is detrimental to our own discipline, as the scheduled maintenance is well in arrears and not completed to the standard required."
It is clear that in October 2003, Mr Waters was driving buses to Cardiff (see paragraph 146 above and the evidence of Mr Fowles Jnr at Transcript Day 5, page 105).
(4) Although the Traffic Commissioner's inquiry into 2 Travel first took place in August 2004 (as has been described, there were several hearings before the Commissioner), the evidence before the Commissioner regarding 2 Travel's performance pre-dated 19 April 2004 (see paragraph 242 above). As we have noted in paragraph 245 above, of 573 services, some 19.0% failed to run at all, and in Newport/Cwmbran no services ran. The Commissioner found that at least a factor in this was driver shortage.
(3) Driver shortages in the period April to December 2004
(i) 2 Travel's contentions regarding driver shortages
"At the time the infill services commenced, we had 18 drivers in the Cardiff depot. At the start of the infill services operating, the four routes we were operating had three buses on each of them, so we had 12 drivers on the infill services. We had two drivers working all day on the 98 and 99 services, which meant we had four drivers spare, when they were not otherwise engaged on school contracts."
"As well as the 2 drivers who failed to turn up at the start of the infill services, a further driver left in the second week. The hard core stayed right the way through, but I would say there was 20% that probably left within 3 months. Some were replaced, but not all. Others would come in and not stay long, they just didn't like these White Buses, it was intimidation and they didn't like it, they couldn't handle it. I don't know many people that could."
(1) Frustration at being "squeezed" by Cardiff Bus White Service operations. In a memo dated April 2004, Mr Fowles Jnr wrote to drivers, thanking staff for "conduct[ing] themselves beyond reproach in the face of some unsavourary [sic] behaviour from the major bus operator in Cardiff, Cardiff Bus". In paragraph 25 of his first witness statement, Mr Fowles Jnr commented upon the frustrations and difficulties his drivers suffered in being "sandwiched" by Cardiff Bus buses (i.e. where a 2 Travel bus would find itself preceded by and/or succeeded by a Cardiff Bus bus or buses; see also Transcript Day 2, pages 56 to 57 and pages 160 to 161 and 164 (evidence of Mr Fowles)).
(2) Frustration at 2 Travel's ineffectual handling of, and inability to stop, the Infringement (see, for example, paragraph 120 of Mr Fowles' first statement; Transcript Day 2, pages 56 to 57 (evidence of Mr Fowles)). Although this might be said to be a sign of 2 Travel's managerial failings (at the time 2 Travel certainly did not press its contentions as to predation very hard), we consider that – if factually well-founded – the essential cause would be the Infringement itself.
(3) Frustration at time being wasted in being transported, at short notice, from one depot to another, in order to meet driver shortfalls in that depot (see paragraphs 133 to 135 of Mr Fowles' first statement; and paragraphs 38 to 39 of Mr Fowles Jnr's first statement).
(4) Intimidation of drivers by Cardiff Bus (see paragraphs 122 and 125 of Mr Fowles' first statement; paragraph 39 of Mr Fowles Jnr's first statement; and paragraphs 27 to 29 of Mr Cartwright's statement).
(5) The mere fact that Cardiff Bus was operating additional buses in Cardiff in order to operate its White Service inevitably meant that, in the Cardiff area, there were more jobs available to drivers, and that it would be harder for 2 Travel to recruit (see paragraphs 35 to 36 of Mr Fowles Jnr's first statement).
(ii) Impact
Period | Percentage of scheduled journeys completed |
From 19 Apr 2004 | 84% |
May 2004 | 72% |
Jun 2004 | 65% |
Jul 2004 | 62% |
Aug 2004 | 57% |
As Mr Good pointed out in Note 3 to Appendix 2.4, there is no data going beyond August 2004.
(1) The various complaints in respect of 2 Travel's service set out in paragraphs 136 to 157 above.
(2) The findings of the Transport Commissioner (see paragraphs 245 above) in relation to pre-19 April 2004 services, which found that 19% of all services failed to operate at all.
(iii) The evidence of the contemporary documents regarding driver shortages
"5.1.1 The staffing position, particularly with regards to driving staff, had improved considerably in the month with no leavers.
5.1.2 Since the end of the reporting period the Company had successfully recruited and introduced 20 Gurkha Transport Regiment soldiers into the Swansea and Llanelli depots. The Company Secretary stated that the progress made by the Company in this recruitment was unique and that the Gurkhas work ethic was beyond reproach. They had settled to their tasks very quickly."
In paragraph 130 of his first statement, Mr Fowles sought to minimise the significance of statements such as this, as being references only to absenteeism, rather than absences due to the Infringement. We do not accept this explanation. It is obvious that the minutes are referring to the driver position generally, and the reference to "leavers" is not consistent with the discussion being confined to absenteeism.
"Driver availability for new services was discussed. Estimated that over 30 drivers are needed across all depots to achieve PVR. CEO told CAW [Mr Waters] that Cwmbran had sufficient drivers. This is not the case. Estimated that 16 drivers are needed at Swansea (just for Local Bus Services), seven at Cwmbran and five at Cardiff. CEO told CAW [Mr Waters] to tell meeting that Cwmbran services to commence Monday 5th July. DRF [Mr Fowles Jnr] concerned where resource would come from."
The sense is that the company had sufficient drivers for the present, but that drivers were required for new services that were starting. This is confirmed by 2 Travel's letter to the Traffic Commissioner dated 21 June 2004 regarding the introduction of new services in Cwmbran and Swansea.
"5.1.1 The Staffing position continues to improve with a significant reduction in staff leaving.
5.1.2 The Ghurka training has now finished and all 21 are now in full time employment in Llanelli and Swansea depots."
Again, the suggestion is that present driver needs are being met.
"It has been some time since I last kept you updated on the situation in Cardiff.
Competition
Cardiff Bus are still operating illegally and unfairly along routes served by 2TG. Evidence suggests that approximately 6 pax per journey are being carried by these white "battle buses". Drivers are still filling out forms and evidence continues to be collated but the feeling in the depot is that the company is doing nothing to remedy the situation. Perhaps a staff notice from senior company officials is needed to reassure them that we are dealing with the matter and also any progress that may have been made.
VOR/Vehicle Maintenance
The depot continues to suffer from inadequate maintenance facilities.
Due to problems with monthly rent payments we have now been given immediate notice to vacate Lamby Way (where we currently maintain vehicles) and so the situation may even worsen in the short term.
We currently have six or seven vehicles off the road for various defects – many of which are parts related and are large unit failures.
As stated we will have no maintenance facility at the depot from Monday 28th June 2004 and after discussions between AOP [Mr Price] and myself it appears that we will be forced to maintain low height vehicles at Cwmbran in the short term.
This is far from ideal as this facility is currently working to capacity with only one skilled engineer and one semi-skilled. Their workload is also due to increase significantly in the next month due to increased local bus workings at the depot. Some thought needs to be given to this as soon as possible.
The VOR situation needs to be addressed ASAP as it is affecting operations at the depot considerably.
Resource
The depot continues to lose mileage on a daily basis due to severe driver shortage. We are also in the process of losing another school contract due to lack of driver availability.
Carl has noted that some of the most profitable bus workings are to be found in Cardiff and the depot is regularly carrying 800-1000 passengers per day. To not concentrate resource on this depot seems to be ludicrous and needs addressing as soon as possible. Additional resource could make this depot a huge success.
New depot
Some good news is that a suitable depot and maintenance facility has been found at Pontmanmoor Road (near Western Mail Printing Works and Docks).
I have already sent you all details of this site and I have now been told that the vendor will agree to let these premises with an initial bond of three months up front to be paid (approximately £8.8k).
I need to get back to Cooke and Arkwright as soon as possible if we wish to proceed with this new site.
Other
Fuel supply continues to be a problem on a day-to-day basis. It is extremely difficult to ensure that all vehicles are fuelled daily when there is not a regular supply of cash available.
I firmly believe that other directors and senior managers should spend more time addressing our Eastern operations. I am concerned that without us all discussing the problems and addressing them one by one the depots will fail to deliver what has been promised and forecasted.
After what has been reported at Board Meetings about how successful the areas are I am sure that this is the last thing we would want and I would welcome comments."
(1) Lack of maintenance facilities: obviously, a broken-down bus cannot operate, and unless the company has a redundant stock of buses to be deployed, operations are bound to be affected.
(2) Lack of fuel: equally obviously, without fuel, buses cannot run; and, again, operations will be affected.
"There are currently no planned interviews or new starters waiting to join the Company in Cardiff.
It is interesting to note that there appears to be a number of current employees who are researching the job market. Feedback indicates a frustration at the lack of progress by the authorities in curbing Cardiff Bus and the tactics adopted against 2 Travel."
This is the first mention of the effect of the Infringement.
"Following the loss of N857 clutch whilst away on tour over the weekend I decided to spend half an hour with the offending driver to firstly explain in monetary terms the loss incurred and also the operationally disruptive nature that his abuse of the vehicle caused.
The driver concerned is a nice enough guy who I am absolutely convinced did not burn this clutch out deliberately.
Gary and myself then took the driver on a short driving assessment and within a minute of driving it became apparent that whilst the drivers [sic] road awareness and vehicle positioning skills were adequate his use of the clutch pedal was appalling."
(iv) Analysis
Decline in 2 Travel's operations
Pressures on drivers to leave/recruitment difficulties
(1) We accept that "sandwiching" and 2 Travel's inability to stop this would have caused frustration in 2 Travel's drivers, a fact that Mr Brown acknowledged (Transcript Day 7, page 90). Sandwiching is practically an inevitability where multiple buses are operating the same route. (The first bus stops at the bus stop, and is delayed picking up the passengers; it is overtaken by the next bus, which is itself delayed at the next stop, for the same reason. Inevitably, "bunching" or sandwiching occurs.) Here, however, there was a deliberate decision on the part of Cardiff Bus to run its White Service just ahead of the 2 Travel In-Fill Service. In particular, Cardiff Bus's Competition Policy of 24 March 2004 (which we consider in greater detail below: paragraph 522) expressly stated that the White Service buses "will be timed to operate just in front of the competitor's vehicles. Where the competitor departs from scheduled time our times will vary to remain in front of the competitor's vehicle".
(2) We also accept that the additional demand for drivers, to service the Cardiff Bus White Service, would have made retention of existing drivers and recruitment of new drivers more difficult for 2 Travel. Indeed, there is evidence in the documents that suggests that this was precisely Cardiff Bus's aim. The minutes of Cardiff Bus's recruitment and selection meeting held on 22 April 2004 record (at point 2) that "a business decision had been taken to deprive 2T of any staff we could, and leave our internal mechanisms to deal with poor performance".
Reason for the decline in services
(1) There is no driver.
(2) There is no bus (because, e.g. the bus has broken down or because the bus has no fuel).
IX. MANAGEMENT TIME WOULD NOT HAVE BEEN DIVERTED
"It is clear from the witness statements and the oral evidence that the predation severely distracted 2 Travel's management and staff from carrying out their proper functions and that a considerable amount of time was wasted dealing with matters that arose as a result of the predation. It is, however, difficult to specifically quantify the sum owed to 2 Travel for this loss and 2 Travel accepts that the Tribunal may not be able to award a significant sum under this head of loss as a consequence."
"You have to understand at the time, we didn't fully understand, I suppose, the level of the predation. Certainly, the management resources in the business, the executive management resources had become increasingly swamped by dealing with the issues. It became all consuming really, for the management by the end, even to the detriment of other aspects of the business."
"We agree that it is for the Tribunal to determine whether there is sufficient evidence that 2 Travel experienced any wasted staff and management time in dealing with any problems related to the running of the White Services. We agree that we have not seen contemporaneous documentary evidence of this. Mr Good notes that this issue is addressed in the statement of 2 Travel's witnesses of fact."
X. DIVERSION OF PASSENGERS, LOSS OF PASSENGER REVENUE AND 2 TRAVEL'S CLAIM 1: LOSS OF PROFITS
(1) Introduction
(1) We have excluded consideration of the fifth route (White Service Route No 258) because that route was never operated by 2 Travel and this fact affected the extent to which Cardiff Bus itself devoted resource to this route. As is clear from paragraph 539 below, when it became apparent to Cardiff Bus that a fifth route was not being operated by 2 Travel, Cardiff Bus scaled back its operations on this route. This is reflected in the passenger and revenue figures for this route, which are a fraction of the figures for the other four routes. We therefore regard the data relating to White Service Route No 258 as unrepresentative and misleadingly low if relied upon.
(2) We only refer to Cardiff Bus's revenue and passenger figures to the end of 2004 for the same reason: 2 Travel did not operate in Cardiff in 2005, and a falling off in the Cardiff Bus White Service is to be anticipated, rendering the data unrepresentative.
(2) The scope of 2 Travel's loss of profits claim
"The resolution is in my view to take a capital value of the hypothetical business at the time at which it became clear that it could not proceed, that is, when it was lost. That is the best reflection of what UYB...[has] been deprived of. That value should be based on the value which the business would have fetched in the open market at that date. That figure will reflect the fact that the new purchaser would be running the business and taking the risks in the place of UYB. It would reflect the market view of the value. It will carry appropriate interest at the date of the valuation."
(3) Lost revenue in the period to end 2004, on the basis of four operated services
(i) The counter-factual scenario
(1) Some or all of these passengers would not have travelled by bus at all. They would either have travelled by alternative (non-bus) means or they would not have travelled at all.
(2) Some or all of these passengers would have travelled on the Cardiff Bus Liveried Service.
(3) Some or all of these passengers would have travelled on the 2 Travel In-Fill Service.
(ii) Number of passengers in fact travelling on the Cardiff Bus White Service
"The position in respect of the headings is as follows:
1. Adult – This relates to all adult classified tickets including single, day return or unlimited day travel tickets purchased on a bus.
2. All – This relates to any passengers boarding with a pre-purchased pass. The duration of the pass could be daily, weekly, monthly or annual as well as for the period of an educational term. This category does not include return tickets or 12 journey child tickets, which are covered by 'Use' (see below).
3. Child – This relates to all child classified tickets including single, day return or unlimited day travel tickets and also a 12 journey ticket purchased on a bus.
4. Cycle – This relates to any passenger boarding with a bike. This applies only to the Sunday Brecon service and is not applicable to the white service.
5. Family – This relates to a day ticket for a family purchased on a bus.
6. Swift – This relates to any passenger boarding with a smartcard containing a monthly ticket. This category is therefore analogous to 'All'.
7. Use – This relates to any passenger boarding with a return ticket or a school child using a 12 journey ticket. In both cases, the driver would use the punch on the ticket to punch a hole in the ticket.
8. Welsh Conc – This relates to any passenger boarding with an all Wales concessionary pass entitling them to free travel."
(1) It is clear that Category 4 (Cycle) can be disregarded for present purposes.
(2) It is evident that Categories 2 (All) and Category 6 (Swift) can be combined. The labels of these categories are not especially helpful or illuminating, and we propose to use the label "Season/Multi-Use Tickets", but we exclude return tickets from this class.
(3) In the data provided to us, there appear to have been no sales of Category 5 (Family) tickets. This class, also, falls to be disregarded. In any event, it seems to us that this category could, in any event, be combined with Category 1 (Adult). We also consider that Category 7 (Use) should be combined with Category 1 (Adult), because this relates to a passenger using a return ticket for the other leg of his journey, the first leg having been included in Category 1. We refer to this combined category as "Adult", although we recognise that some of the Category 7 (Use) tickets will have been children's tickets. There is, however, no means of differentiation, and it would appear to us that this classification has no revenue implications anyway: the price paid by a child will have been paid on the first journey undertaken, not the return journey, and this would be classified as Category 3 (Child).
(4) The label "Welsh Conc" is not particularly helpful, and we propose to use the label "Concessionary".
(1) Season/Multi-Use Tickets (which exclude return tickets).
(2) Concessionary Tickets.
(3) Adult Tickets.
(4) Child Tickets.
Period[6] | Adult | Child | Season/Multi-Use | Concessionary | Total |
Apr 2004 | 2,833 | 274 | 1,243 | 3,878 | 8,228 |
May 2004 | 6,130 | 568 | 3,035 | 8,002 | 17,735 |
Jun 2004 | 6,370 | 824 | 3,064 | 7,507 | 17,765 |
Jul 2004 | 7,857 | 1,268 | 3,416 | 10,066 | 22,607 |
Aug 2004 | 5,804 | 1,541 | 2,552 | 7,750 | 17,647 |
Sep 2004 | 4,651 | 516 | 2,253 | 6,300 | 13,720 |
Oct 2004 | 6,699 | 727 | 3,967 | 8,818 | 20,211 |
Nov 2004 | 5,116 | 465 | 3,160 | 7,485 | 16,226 |
Dec 2004 | 5,774 | 689 | 2,768 | 7,357 | 16,588 |
Total | 51,234 | 6,872 | 25,458 | 67,163 | 150,727 |
(iii) Revenue to Cardiff Bus
(1) "Fares";
(2) "Other on bus";
(3) "Multiride";
(4) "Concessions"; and
(5) "Advertising".
"A (Mr Good) | …All I had for white bus was the total number of passengers per month and the revenue for each of the five different types, whether it's full fare, concession, et cetera. And so, in order to work out the passenger numbers, I had to work back from the revenue to passenger numbers by type of passenger. |
Q (Mr Smith) | I see. So just to go through your various revenue heads. "Fares". That is full adult fares, is it? |
A (Mr Good) | That's on-bus cash, so that would include children. |
Q (Mr Smith) | Right. And "Other on bus"; what is that? |
A (Mr Good) | I'm not sure. It was so small that I wasn't too concerned that I didn't know. |
Q (Mr Smith) | "Multi-ride" we understand. "Concessions" we understand. "Advertising"? |
A (Mr Good) | Yes. That's advertising, as I understand it, advertising on the buses. I think we've seen – I know there were pictures of the 2 Travel buses that we saw with advertising on. As I understand it, that would be advertising in or outside the bus. But I haven't included any revenue from that in my numbers at all." |
(1) "Multiride" corresponds to the "Season/Multi-Use" category.
(2) "Concessions" corresponds to "Concessions".
(3) "Fares" and "Other on bus" correspond to "Adult" and "Child".
Period | Adult and Child | Season/Multi-Use | Concessionary | Total |
Apr 2004 | ||||
Revenue (£) | £2,201.81 | £924.62 | £3,051.35 | £6,177.78 |
Passengers | 3,107 | 1,243 | 3,878 | 8,228 |
Average ticket price | 71p | 74p | 79p | 75p |
May 2004 | ||||
Revenue (£) | £4,892.79 | £1,982.04 | £6,261.29 | £13,136.12 |
Passengers | 6,698 | 3,035 | 8,002 | 17,735 |
Average ticket price | 73p | 65p | 78p | 74p |
Jun 2004 | ||||
Revenue (£) | £5,200.94 | £2,028.85 | £5,916.94 | £13,146.73 |
Passengers | 7,194 | 3,064 | 7,507 | 17,765 |
Average ticket price | 72p | 66p | 79p | 74p |
Jul 2004 | ||||
Revenue (£) | £6,492.53 | £2,127.65 | £6,018.29 | £14,638.47 |
Passengers | 9,125 | 3,416 | 10,066 | 22,607 |
Average ticket price | 71p | 62p | 60p | 65p |
Aug 2004 | ||||
Revenue (£) | £5,127.71 | £1,508.60 | £6,201.52 | £12,837.83 |
Passengers | 7,345 | 2,552 | 7,750 | 17,647 |
Average ticket price | 70p | 59p | 80p | 73p |
Sep 2004 | ||||
Revenue (£) | £3,773.07 | £1,667.78 | £5,238.81 | £10,679.66 |
Passengers | 5,167 | 2,253 | 6,300 | 13,720 |
Average ticket price | 73p | 74p | 83p | 78p |
Oct 2004 | ||||
Revenue (£) | £5,374.85 | £2,551.68 | £7,268.55 | £15,195.08 |
Passengers | 7,426 | 3,967 | 8,818 | 20,211 |
Ticket (p) | 72p | 64p | 82p | 75p |
Nov 2004 | ||||
Revenue (£) | £4,082.24 | £1,905.80 | £6,245.12 | £12,233.16 |
Passengers | 5,581 | 3,160 | 7,485 | 16,226 |
Average ticket price | 73p | 60p | 83p | 75p |
Dec 2004 | ||||
Revenue (£) | £4,694.41 | £1,747.33 | £6,138.29 | £12,580.09 |
Passengers | 6,463 | 2,768 | 7,357 | 16,558 |
Average ticket price | 73p | 63p | 83p | 76p |
Apr to Dec 2004 | ||||
Total Revenue | £41,840.41 | £16,444.35 | £52,340.16 | £110,624.92 |
Total Passengers | 58,106 | 25,458 | 67,163 | 150,727 |
Average Ticket | 72p | 65p | 78p | 73p |
(iv) Maximum possible additional revenue to 2 Travel
Zone | Adult single | Adult return | Child single | Child return | Child return | Child return | Child return | Child return |
2 Travel In-Fill Service | Cardiff Bus White Service | 2 Travel In-Fill Service | Cardiff Bus White Service | 2 Travel In-Fill Service | Cardiff Bus White Service | 2 Travel In-Fill Service | Cardiff Bus White Service | |
1 | 50p | 60p | 80p | 110p | 30p | 40p | 50p | 70p |
2 | 80p | 60p | 130p | 110p | 50p | 40p | 80p | 70p |
3 | 100p | 80p | 160p | 150p | 70p | 50p | 110p | 90p |
4 | 120p | 100p | 190p | 170p | 80p | 60p | 130p | 110p |
(v) Realistic revenue assessment
"...There are two aspects of customer conduct. First, some customers commit to a particular operator by purchasing a single-operator multi-journey ticket. Second, customers place a high value on time saved and certainty, relative to other factors such as price or quality. This means that customers who are not already committed to an operator prefer to catch the first available bus when at the bus stop and to minimize waiting time (regardless of any differences in relative fares and service quality between operators)."
(1) The likely behaviour of purchasers of season/multi-use tickets.
(2) The price of tickets.
(3) The quality of service provided.
(4) The frequency of services, bus timetabling and the reliability of those services.
Season/Multi-Use tickets
Price
Zone | Adult single | Adult return | Child single | Child return | Child return | Child return | Child return | Child return |
2 Travel In-Fill Service | Cardiff Bus Liveried Service | 2 Travel In-Fill Service | Cardiff Bus Liveried Service | 2 Travel In-Fill Service | Cardiff Bus Liveried Service | 2 Travel In-Fill Service | Cardiff Bus Liveried Service | |
1 | 50p | 65p | 80p | 115p | 30p | 40p | 50p | 70p |
2 | 80p | 95p | 130p | 175p | 50p | 60p | 80p | 110p |
3 | 100p | 125p | 160p | 225p | 70p | 75p | 110p | 140p |
4 | 120p | 155p | 190p | 260p | 80p | 90p | 130p | 170p |
Quality of service
(1) First, the fact is that all of the passengers here being considered chose to travel on a Cardiff Bus White Service, rather than a 2 Travel In-Fill Service. In short, these passengers disregarded the "quality" of service allegedly being provided by 2 Travel.
(2) Secondly, there were aspects of 2 Travel's services that were undoubtedly of poor quality. We have already noted (from the evidence set out above) that 2 Travel was not a particularly reliable operator, and there was evidence of some 2 Travel buses having to halt operations in order to fill up with fuel (paid for in cash by the driver from the fares collected that day) whilst passengers were still on board. In short, even if there were aspects of 2 Travel's service that would have attracted customers, this would have been off-set by other aspects of 2 Travel's service that would have deterred customers.
(3) Thirdly, although it is true to say that the Cardiff Bus Liveried Service did not provide change, whereas 2 Travel did, 2 Travel did not have a monopoly on driver-friendliness, as Mr Brown pointed out (Transcript Day 7, page 10):
"Well, friendly drivers isn't the exclusive province of any one bus company. I wouldn't think that whether the drivers are friendly or not is a major factor. It's certainly in the list that I talked about, after reliability and frequency. It's a nice to have, rather than a major driver of demand."
Moreover, there were other aspects of the Liveried Service which rendered it better quality than 2 Travel's service. Mr Brown noted (Transcript Day 7, pages 6 to 7) "in Cardiff, we have made a great play of having high quality vehicles, with things we would expect to attract, particularly perhaps the low floors, which are particularly attractive to parents with buggies and to older people".
Frequency of service, timetable and reliability of service
"Q (Mr Smith) | ...clearly frequency of service must affect the extent to which a passenger pre-plans his journey? |
A (Mr Brown) | Yes. |
Q (Mr Smith) | In the sense that if your bus stop is served by buses coming along every couple of minutes, you don't have to pre-plan. |
A (Mr Brown) | Yes. |
Q (Mr Smith) | Whereas if you have a bus stop which perhaps has two buses stopping an hour, you will plan ahead. |
A (Mr Brown) | Yes. |
Q (Mr Smith) | I get the sense from your answers that the factors that will determine choice of carrier are different, according to whether you are looking at a very frequently stopped bus stop or infrequently stopped bus stop? |
A (Mr Brown) | Yes. I think that's basically right. We talk about frequent services at every 15 minutes and every 10 minutes. At 15 minutes they are on the cusp of becoming a frequent service. At 10 minutes, we describe it as a turn up and go service, and the reason for that is 10 minutes is believed to be an acceptable waiting time. If you miss your bus, it's somewhere between 0 and 10 minutes to go. If it's less frequent than that, then you do tend to plan your journey. There are many factors in how you might plan your journey and the most – the one I'm on, at best, an infrequent service, it's every half an hour, and I tend to look at when I'm trying to get to work and then you work back from that to find out the time of the bus that will get me to work for that time. That's probably the main – it's different for me, of course, but in general, people will look at the bus that will get them to where they want to go at the time. |
Q (The Chairman) | So you do go to work by bus, do you? |
A (Mr Brown) | I do both, but I frequently do, yes… So yes, I think generally it's about finding the convenience of the bus that will get you where you want to on time. Outside of that, if you're totally indifferent as to when you travel, then there may be other factors that come into it. |
Q (Mr Smith) | And those other factors will be things like reliability and quality of service? You put reliability as the first key factor? |
A (Mr Brown) | Yes. Reliability, followed by frequency. |
Q (Mr Smith) | It just struck me, if you've got a frequently served bus stop, just how important is reliability? Will you surely not just get on to the next bus? Or will you say: I'm not going to get on this bus because I'm worried about reliability? |
A (Mr Brown) | In those situations, I think the frequency trumps reliability because, effectively, it's overcome that problem, because even if the bus service is a little bit unreliable, you've still got a bus every 2 or 3 minutes on a frequent corridor." |
(1) First, the figures in the table set out the published frequency of 2 Travel's services, and make no discount for services that did not operate.
(2) Secondly, the Liveried Services included are not just the four services that operated on precisely the same routes as the 2 Travel In-Fill Service (these are described at paragraph 204 above), but those Liveried Services that operated on the particular section of the route in question.
2 Travel Route No 250 Llanrumney – Cardiff City Centre |
Liveried Services operating on this section of the route | |
Section 1: Llanrumney Shops | 2 | 8 |
Section 2: Ball Road/Burnham Avenue | 2 | 4 |
Section 3: Carpenters Arms | 2 | 15 |
Section 4: New Road | 4 | 19 |
Section 5: Infirmary | 4 | 33 |
2 Travel Route No 245 St Mellons – Cardiff City Centre |
Liveried Services operating on this section of the route |
|
Section 1: St Mellons Police Station | 2 | 8 |
Section 2: Crickhowell Road | 2 | 4 |
Section 3: New Road | 4 | 19 |
Section 4: Infirmary | 4 | 33 |
2 Travel Route No 262 Pentrebane – Cardiff City Centre |
Liveried Services operating on this route |
|
Section1: Pentrebane | 2 | 6 |
Section 2: Fairwater Green | 2 | 8 |
Section 3: Waungron | 2 | 2 |
Section 4: Ely Bridge | 4 | 19 |
Section 5: Canton | 4 | 21 |
2 Travel Route No 217 Ely – Cardiff City Centre |
Liveried Services operating on this route | |
Section 1: Heol Trelai | 2 | 6 |
Section 2: Pendine | 2 | 14 |
Section 3: Ely Bridge | 4 | 19 |
Section 4: Canton | 4 | 21 |
(1) There was evidence before us that the Cardiff Bus White Services were intended to run just ahead of the 2 Travel In-Fill Services (see paragraph 324(1) above). It therefore seems to us that if a passenger could not get on a White Service bus, because that service did not operate in the counter-factual scenario, there is a greater likelihood that he would have got on a 2 Travel bus than a Liveried Service bus, simply because the White Service ran ahead of the 2 Travel In-Fill Service. This, we consider, is a factor insufficiently taken into account by Dr Niels.
(2) The table of bus frequencies enumerates all Liveried Services operating on a particular route section. But only four Liveried Services completely paralleled the In-Fill Services. All other services would diverge – to a greater or less extent – from the 2 Travel routes. Given that the passengers we are considering all got on a White Service that ran the identical route as the equivalent 2 Travel In-Fill Service and these four Liveried Services, we consider that a number of these passengers would have wanted to travel on this particular route as opposed to a different route sharing some sections of the journey. Again, this is a factor that is insufficiently taken into account in a distribution based purely on frequency of service and is, we consider, a factor insufficiently taken into account by Dr Niels.
Our approach
"This goes to the PwC report, 30 per cent market share estimate, and re-works some calculations of Dr Niels in a way that was not put to Dr Niels at trial. We say this approach is simply unacceptable. This is inadmissible new evidence, unsupported by an expert's report and not put to our expert for comment. That sort of approach again should form no part of the Tribunal's conclusions in this matter. The Tribunal's task is, if I may say, a difficult one possibly, but making sense of the evidence that was given at trial, and not subsequent attempts to re-jig it."
(1) As we have noted, we consider the appropriate starting point to be the number of passengers who, in fact, travelled on each of the four Cardiff Bus White Service routes.
(2) From these passengers, it is necessary to exclude the passengers who had a season or multi-use ticket since, as we have found (see paragraph 376 above), these passengers would not have travelled on a 2 Travel bus in the counter-factual scenario.
(3) The total number of passengers travelling on the four Cardiff Bus White Service routes between April 2004 and December 2004 – excluding season/multi-use ticket passengers – were as follows:
(i) White Service Route No 150: 44,593 passengers in total, of whom 7,598 were season/multi-use ticket passengers, leaving 36,995.
(ii) White Service Route No 144: 34,317 passengers in total, of whom 8,098 were season/multi-use ticket passengers, leaving 26,219.
(iii) White Service Route No 162: 29,589 passengers in total, of whom 3,315 were season/multi-use ticket passengers, leaving 26,274.
(iv) White Service Route No 117: 42,228 passengers in total, of whom 6,447 were season/multi-use ticket passengers, leaving 35,781.
(4) These passengers are then allocated evenly across each section of the relevant route. (As we have noted, the available data provides no material for any more sophisticated approach.) Thus, for example, White Service Route No 150 carried 36,995 passengers (excluding season/multi-use ticket passengers) and comprised five sections. In our model, we allocate 7,399 passengers to each section.
(5) Prima facie, we consider that the passengers for each section of the journey should be allocated between 2 Travel and Cardiff Bus in accordance with the proportion of 2 Travel buses and Liveried Service buses serving that section. This is because – as we have found in paragraphs 386 to 394 above – frequency is a key determinant as to whether a non-season/multi-use ticket passenger will get on a particular bus. In the case of frequent services, a passenger will get on the next bus. Thus, taking Section 1 of White Service Route No 150, we find that that section was served by two 2 Travel In-Fill Services and eight Liveried Services. An allocation purely according to frequency would result in the 7,399 passengers being allocated 20% to 2 Travel and 80% to Cardiff Bus.
(6) This, frequency-based allocation represents our starting point. However, for a number of reasons, we do not consider that purely frequency-based allocation is appropriate:
(i) We concluded in paragraph 394(1) above that the Cardiff Bus White Services were intended to operate just in front of the 2 Travel In-Fill Services. Eliminate, for the purposes of the counter-factual scenario, the White Service, and there is a greater probability that the next bus will be a 2 Travel In-Fill Service.
(ii) We concluded in paragraphs 377 to 382 above that some passengers would be sensitive to price. This, we find, would incentivise these passengers to wait for a cheaper, 2 Travel In-Fill Service, rather than get on a more expensive Liveried Service.
(iii) We noted, in paragraph 394(2) above, that only four liveried services completely paralleled the In-Fill Services. All other services would diverge – to a greater or less extent – from the 2 Travel routes. Given that the passengers we are considering all got on a White Service that ran the same route as the equivalent 2 Travel In-Fill Service, we consider that a number of these passengers would have wanted to travel on this particular route as opposed to a different route sharing some sections of the journey. This would have inclined some passengers against all Liveried Services except the four that did run along the 2 Travel routes.
(iv) The frequency of 2 Travel buses noted in the table at paragraph 391 above is too generous to 2 Travel because it fails to take into account that fact that not all 2 Travel services operated. As we have noted in paragraph 306 above, the evidence is that the number of In-Fill Services that 2 Travel successfully operated over time diminished.
(7) The first three of these factors all suggest that an allocation of passengers based purely on frequency of published services would under-state the number of passengers that would get on a 2 Travel In-Fill Service. The fourth factor goes the other way, and results in an over-statement.
(8) In order to reflect these factors in our model, we have adjusted upwards the frequency of 2 Travel's buses so as to reach a notional or adjusted frequency that we consider reflects not merely actual frequency of service, but the three other factors listed in paragraph 398(6). The adjustment we consider appropriate is to double the frequency of 2 Travel's buses, so that in the case of section 1, where 2 Travel was scheduled to operate two services, 2 Travel is deemed to operate four. (We are not, of course, saying that 2 Travel was capable of operating such services: plainly it was not. This is a purely notional adjustment to figures which (left unadjusted) would not properly reflect the factors identified in paragraph 398(6).) As a result, instead of allocating the 7,399 passengers on that section 20% to 2 Travel and 80% to Cardiff Bus, the allocation becomes 33% to 2 Travel and 67% to Cardiff Bus.
(9) Having, in this way ascertained how many passengers 2 Travel would have gained in the counter-factual scenario, we then use our analysis of ticket prices (see paragraphs 360 to 370 above) to determine what revenue would thereby have accrued to 2 Travel.
2 TRAVEL ROUTE NO 250 | Number of services per hour | Number of passengers on route: 36,995 Number of passengers per section: 7,399 |
Number of passengers on route: 36,995 Number of passengers per section: 7,399 |
Number of passengers on route: 36,995 Number of passengers per section: 7,399 |
Number of passengers on route: 36,995 Number of passengers per section: 7,399 |
Number of passengers on route: 36,995 Number of passengers per section: 7,399 |
2 Travel | 2 Travel (uplifted) | Liveried | Pax per section | Allocation to 2 Travel | Allocation to Cardiff Bus | |
Section 1: Llanrumney Shops | 2 | 4 (33%) | 8 (67%) | 7,399 | 2,442 (33%) | 4,957 (67%) |
Section 2: Ball Road/Burnham Avenue | 2 | 4 (50%) | 4 (50%) | 7,399 | 3,700 (50%) | 3,700 (50%) |
Section 3: Carpenters Arms | 2 | 4 (21%) | 15 (79%) | 7,399 | 1,554 (21%) | 5,845 (79%) |
Section 4: New Road | 4 | 8 (30%) | 19 (70%) | 7,399 | 2,220 (30%) | 5,179 (70%) |
Section 5: Infirmary | 4 | 8 (20%) | 33 (80%) | 7,399 | 1,480 (20%) | 5,919 (80%) |
2 TRAVEL ROUTE NO 245 | Number of services per hour | Number of passengers on route: 26,219 Number of passengers per section: 6,555 |
Number of passengers on route: 26,219 Number of passengers per section: 6,555 |
Number of passengers on route: 26,219 Number of passengers per section: 6,555 |
Number of passengers on route: 26,219 Number of passengers per section: 6,555 |
Number of passengers on route: 26,219 Number of passengers per section: 6,555 |
2 Travel | 2 Travel (uplifted) | Liveried |
Pax per section | Allocation to 2 Travel | Allocation to Cardiff Bus | |
Section 1: St Mellons Police Station | 2 | 4 (33%) | 8 (67%) | 6,555 | 2,163 (33%) | 4,392 (67%) |
Section 2: Crickhowell Road | 2 | 4 (50%) | 4 (50%) | 6,555 | 3,278 (50%) | 3,278 (50%) |
Section 3: New Road | 4 | 8 (30%) | 19 (70%) | 6,555 | 1,967 (30%) | 4,589 (70%) |
Section 4: Infirmary | 4 | 8 (20%) | 33 (80%) | 6,555 | 1,311 (20%) | 5,244 (80%) |
2 TRAVEL ROUTE NO 262 | Number of services per hour | Number of passengers on route: 26,274 Number of passengers per section: 5,255 |
Number of passengers on route: 26,274 Number of passengers per section: 5,255 |
Number of passengers on route: 26,274 Number of passengers per section: 5,255 |
Number of passengers on route: 26,274 Number of passengers per section: 5,255 |
Number of passengers on route: 26,274 Number of passengers per section: 5,255 |
2 Travel | 2 Travel (uplifted) | Liveried | Pax per section | Allocation to 2 Travel | Allocation to Cardiff Bus | |
Section1: Pentrebane | 2 | 4 (40%) | 6 (60%) | 5,255 | 2,102 (40%) | 3,153 (60%) |
Section 2: Fairwater Green | 2 | 4 (33%) | 8 (67%) | 5,255 | 1,734 (33%) | 3,521 (67%) |
Section 3: Waungron | 2 | 4 (67%) | 2 (33%) | 5,255 | 3,521 (67%) | 1,734 (33%) |
Section 4: Ely Bridge | 4 | 8 (30%) | 19 (70%) | 5,255 | 1,577 (30%) | 3,679 (70%) |
Section 5: Canton | 4 | 8 (28%) | 21 (72%) | 5,255 | 1,471 (28%) | 3,784 (72%) |
2 TRAVEL ROUTE NO 217 | Number of services per hour | Number of passengers on route: 35,781 Number of passengers per section: 8,945 |
Number of passengers on route: 35,781 Number of passengers per section: 8,945 |
Number of passengers on route: 35,781 Number of passengers per section: 8,945 |
Number of passengers on route: 35,781 Number of passengers per section: 8,945 |
Number of passengers on route: 35,781 Number of passengers per section: 8,945 |
2 Travel | 2 Travel (uplifted) | Liveried | Pax per section | Allocation to 2 Travel | Allocation to Cardiff Bus | |
Section 1: Heol Trelai | 2 | 4 (40%) | 6 (60%) | 8,945 | 3,578 (40%) | 5,367 (60%) |
Section 2: Pendine | 2 | 4 (22%) | 14 (78%) | 8,945 | 1,968 (22%) | 6,977 (78%) |
Section 3: Ely Bridge | 4 | 8 (30%) | 19 (70%) | 8,945 | 2,684 (30%) | 6,262 (70%) |
Section 4: Canton | 4 | 8 (28%) | 21 (72%) | 8,945 | 2,505 (28%) | 6,440 (72%) |
TOTAL | 41,255 | 84,020 |
(1) In transporting a total of 150,727 passengers (see paragraph 357 above), Cardiff Bus generated revenue of £110,624.92 between April and December 2004 (see paragraph 370 above).
(2) Of these 150,727 passengers, 25,458 (or 17%) were Season/Multi-Use ticket holders who (ex hypothesi) would not have travelled with 2 Travel (see paragraph 376 above), leaving 125,269 (or 83%) non-Season/Multi-Use ticket holders.
(3) Splitting the £110,624.92 revenue generated by all passengers 17%:83% gives a revenue split of £18,806.24:£91,818.68, and an average ticket price per (non-Season/Multi-Use ticket passenger) of 73p, which unsurprisingly dovetails with the average ticket price found in paragraph 365 above.
(4) Of course, that average includes passengers using Season/Multi-Use tickets, which (as can be seen from paragraph 365) have a lower average price than the tickets sold to other classes of passenger. The average excluding Season/Multi-Use tickets is 75p/ticket, and this is the average ticket price we propose to use.
(5) We have found that the Infringement caused 2 Travel to lose 41,255 passengers. Applying the average ticket price of 75p per passenger, this gives a loss of revenue of £30,941.25.
(6) This figure then needs to be increased to reflect the higher 2 Travel prices. We have noted (paragraph 369 above) that 2 Travel's fares were 9.3% higher than those of Cardiff Bus. Increasing £30,941.25 by 9.3% gives £33,818.79.
(vi) Conclusion
(4) Duration and expansion of services by 2 Travel
(i) Introduction
(ii) Would the service have continued beyond December 2004?
(iii) Would a fifth service have been commenced?
(iv) Conclusion
(5) Costs
(6) Cardiff Bus's contention that additional losses caused by Cardiff Bus are irrecoverable by 2 Travel
"...Cardiff Bus says that the counterfactual additional revenues are not recoverable by 2 Travel in these proceedings. In the first place, 2 Travel's claim in these proceedings is for lost profits...Since the Cardiff in-fill services would not have been profitable, there would never have been any such profits. More fundamentally, however, it does not amount to a valid claim for damages for a Claimant to say that, although the part of its business which was affected by the infringement would always have been loss-making even if there had been no infringement, by reason of the infringement it was even more loss-making than it would otherwise have been. Such a claim founders at the causation stage, because all of the losses would have been avoided if the Claimant had not operated an unprofitable line of business in the first place. Furthermore, by continuing to run a line of business which was never going to be profitable, the Claimant failed to mitigate its loss."
XI. CLAIM 2: LOSS OF A CAPITAL ASSET (THE BUSINESS OF 2 TRAVEL AS A GOING CONCERN)
(1) Introduction
(1) First, we consider whether the February 2004 PwC Report constituted a viable business plan for the future of the company, and one which we could rely upon as a sensible projection of 2 Travel's business going forward.
(2) Secondly, we consider the inherent characteristics of 2 Travel as a corporate entity. We do so under three heads: (i) management; (ii) quality of service; (iii) debt and cash flow. We also consider the extent to which these characteristics were affected by the Infringement.
(3) Thirdly, we consider what, as a matter of fact, drove 2 Travel into insolvency.
(4) Fourthly, we consider whether 2 Travel could have staved-off insolvency:
(i) By relying on the revenue it lost as a result of the Infringement; and/or
(ii) By relying upon Mr Francis and/or Mr Short advancing it more money.
(2) The February 2004 PwC Report
(1) First, 2 Travel's management was persistently and significantly over-optimistic in its projections as to how the business would perform in the future. Thus, by way of example:
(i) The Solomon Hare Working Capital Report projected profits for the year ending 31 August 2003 of £295,000 (paragraph 97 above); 2 Travel actually made a loss of nearly £1 million (paragraph 128 above).
(ii) Although the Prospectus on AIM flotation set out a plan to acquire the Swansea Depot, expand the company's fleet of vehicles and acquire Hawkes Coaches and CTC (see paragraph 98 above), 2 Travel's management achieved only parts of these objectives. A large part of the money raised on flotation, that should have been spent on building the business, appears to have gone into 2 Travel's general funds (see paragraphs 106 to 108 above).
(iii) The company's management simply disregarded Mr Waters' frequent warnings about the state of 2 Travel.
(iv) The February 2004 PwC Report identified an additional working capital requirement of £600,000. That was intended to fund the expanded operations described in the report (see paragraph 190 above). Yet, when the money was raised, it was immediately spent dealing with 2 Travel's cash-flow problems (see paragraphs 218 to 220 above), and the company's Cardiff operations were neglected (see paragraphs 195 to 201). Within four months, PwC was identifying the need for further, substantial, cash injections.
(2) Secondly, on their face, it is impossible to understand how the projections in the February 2004 PwC Report were derived. More particularly:
(i) In questions given to the parties prior to their oral closing submissions on 10 May 2012, we asked the parties to consider how the per bus revenue figures could be reconciled with the annual revenue projections. Neither party was able to do: Mr Good, in particular, provided a very helpful analysis in his letter of 27 April 2012, but even he had to concede that there were "unexplained differences" between these figures.
(ii) We considered the revenue figure of £1,920 per bus per week in some detail in paragraphs 186 to 187 above. We found that it was impossible to understand how they had been derived, but in attempting to understand how such a figure had been reached, we found that improbably over-optimistic assumptions had to be made as to the number of passengers each bus would have to transport.
(iii) The state of 2 Travel's records was such that it was impossible to reach any view as to 2 Travel's costs, and in particular the weekly costs of £1,035 that were projected for each In-Fill Service bus. We can only say that – given what we know about the internal management of 2 Travel, and the way in which other figures in the February 2004 PwC Report were compiled – we would treat them with a healthy scepticism.
(3) Inherent characteristics of 2 Travel
(i) Poorly managed
(1) The flawed and over-optimistic business projections made by the company, which we have referred to in paragraph 424(1) above.
(2) 2 Travel's failure to implement its strategic objectives. By way of example, having raised significant capital on flotation, 2 Travel then failed to use that capital for the purposes the money was raised (see paragraphs 424(1) above). Another good example is the failure to properly to prepare for the commencement of the 2 Travel In-Fill Services in Cardiff.
(3) The way in which what appears to have been a soundly run business – CTC – was mismanaged by 2 Travel (see paragraphs 116 to 121 above).
(4) The poor quality of 2 Travel's services, which we address next.
(ii) Poor quality of service
(iii) Enormous financial difficulties
(1) For the year ended 31 August 2000, 2 Travel made a profit of £23,412 on turnover of £566,618. For the year ended 31 August 2001, 2 Travel made a loss of £51,654 on turnover of £2,334,451 (see paragraph 89 above).
(2) For the year ended 31 August 2002, 2 Travel made a profit of £212,135 on turnover of £3,678,935 (see paragraph 91 above), although it is right to note that Mr Waters subsequently expressed the view that this profit might have been overstated (Transcript, Day 2, pages 11 to 12 (evidence of Mr Fowles)).
(3) In January 2003, 2 Travel was floated on the AIM. Although – remarkably – it is not possible to say exactly what this flotation raised, it was somewhere between £1,104,000 and £1,304,000. However, only about £500,000 of this capital was spent on the acquisitions 2 Travel had proposed, the rest went into 2 Travel's general funds or working capital (see paragraph 108).
(4) Despite this, 2 Travel was reporting cash-flow difficulties in April 2003 (see paragraph 112 above), and in the summer of 2003 Mr Waters was openly questioning the viability of the company (see paragraph 126 above). 2 Travel's financial results for the year ending 31 August 2003 showed a loss of £949,636 on turnover of £4,245,185 (see paragraph 128 above). These accounts were not published until 26 February 2004, and it is clear from correspondence from 2 Travel's accountants (see paragraph 131) that they were concerned about the company's ability to continue trading as a going concern.
(5) The company appears to have been financing itself using the money from the flotation. Certainly, its bank lending was very limited. 2 Travel had an overdraft of £48,036 as at 1 September 2002, which had increased to £87,914 by 31 August 2003. It had also borrowed £330,000 to purchase the Swansea Depot (see paragraph 164 above).
(6) By October 2003, Mr Waters was reporting that "it is becoming increasingly difficult to meet our on-going cash requirements" (see paragraph 158 above), and 2 Travel's "big ticket" cash liabilities were put at £866,000 (see paragraph 161 above).
(7) Thus, the company's position, before it commenced the In-Fill Services, can only be described as precarious. The February 2004 PwC Report suggested that additional working capital of £600,000 was required to implement the strategy contained in the report (see paragraph 190 above), and this was provided by the bank, secured by guarantees given by Mr Francis and Mr Short (see paragraphs 193 to 194 above). This money was not actually used to implement the strategy contained in the February 2004 PwC Report, but went to pay off creditors (see paragraphs 218 to 220 above). The facility was fully used by August 2004, when 2 Travel again experienced cashflow difficulties (see paragraph 233 above).
(8) The June 2004 PwC Report identified the need for further injections of money, and projected a maximum overdraft requirement for the company of £937,000 (see paragraph 229 above). Again, this money was provided by the bank, this lending being secured by guarantees executed by Mr Francis and Mr Short in September and October 2004 (see paragraphs 233 to 235 above). At about this time, the company had to pay an enormous amount of money to the Inland Revenue, because it had been unable to keep to the agreed timetable for repaying its tax arrears.
(9) When, unexpectedly, the bank demanded repayment of £300,000, Grant Thornton came in as investigating accountants and concluded that the company could not trade as a going concern (see paragraphs 265 above), although in fact the company carried on trading for several months, receiving a further £300,000 from Mr Short. But, by this time, the writing was clearly on the wall: 2 Travel's shares were suspended from trading, and in December 2004 2 Travel was forced to close many of its operations (including those in Cardiff) and left AIM.
(4) What drove the company into insolvency?
(5) Could the company have been saved?
(i) The lost additional revenue
(ii) Additional funding from Mr Francis and Mr Short
(1) A guarantee of 2 Travel's borrowing from the bank in the amount of £675,000.
(2) A guarantee of 2 Travel's borrowing from the bank in the amount of £300,000.
(3) A guarantee of 2 Travel's borrowing from the bank in the amount of £650,000.
(4) An injection of funds from Mr Short of £300,000.
XII. CLAIM 3: LOSS OF A COMMERCIAL OPPORTUNITY (THE SWANSEA DEPOT DEVELOPMENT)
XIII. CLAIM 4: WASTED STAFF AND MANAGEMENT TIME
XIV. CLAIM 5: LIQUIDATION COSTS
XV. CLAIM 6: EXEMPLARY DAMAGES
(1) Introduction
"...if, but only if, the sum [awarded as compensation] is inadequate to punish [the defendant] for his outrageous conduct." (Emphasis added.)
(1) Oppressive, arbitrary or unconstitutional conduct by "servants of the government".
(2) Conduct calculated to make a profit which may well exceed the compensation payable to the claimant.
(3) Cases authorised by statute.
(2) Oppressive, arbitrary or unconstitutional conduct by servants of the government
(i) The relevant law
"In the court below Mr Symons [counsel for the defendant] had conceded that the defendants' servants might be within the first category. However, before us he sought and was granted leave to withdraw the concession. At the time of these events the defendants were a nationalised body set up under statute for a commercial purpose, namely the supply of water. They have since been privatised, but carry on essentially the same functions. Although it is conceivable that governmental functions could be delegated or entrusted to a nationalised industry with appropriate powers to carry out such functions, perhaps for example with powers of entry and search, I do not think it can possibly be argued that the defendant's servants or agents were performing such a function in this case. A serious mishap had occurred in the course of the defendants' commercial operations, their reaction to it was open to serious criticism if the allegations in the statement of claim are true, as they must be assumed to be for the purpose of this case. But their conduct was not an exercise of executive power derived from government, central or local and no amount of rhetoric describing it as arbitrary, oppressive, unconstitutional or high-handed makes it so. It would have been no different if the defendants had already been privatised and their servants were answerable to a board of directors and the shareholders rather than a board set up under statute."
"If the defendants' conduct was as pleaded, as we must for present purposes assume, it was highly reprehensible, but the conduct complained of was quite unlike the abuses of power which Lord Devlin had in mind and I cannot regard the defendants, for any purposes relevant to these claims, as wielding executive or governmental power. They were a publicly owned utility acting as monopoly supplier of a necessary commodity, enjoying certain statutory powers and subject to certain obligations, but they were not acting as an instrument or agent of government."
"In Rookes v Barnard [1964] AC 1129, 1226, Lord Devlin drew a distinction between oppressive acts by government officials and similar acts by companies or individuals. He considered that exemplary damages should not be available in the case of non-governmental oppression or bullying. Whatever may have been the position 40 years ago, I am respectfully inclined to doubt the soundness of this distinction today. National and international companies can exercise enormous power. So do some individuals. I am not sure it would be right to draw a hard-and-fast line which would always exclude such companies and persons from the reach of exemplary damages."
(ii) Application in the present case
(1) That, prior to the coming into force of the Transport Act 1985, bus transport was subject to a high degree of government regulation (paragraph 9), but that "[t]he Transport Act introduced de-regulation in the marketplace, with Councils being required to divest themselves of their bus undertakings. As an alternative to outright sale, local authorities were permitted to transfer their bus undertakings into a separate private limited company, whose shares were owned by the local authority, but with management that operated independently from the local authority and at arms length" (paragraph 10).
(2) Cardiff Bus fell to this category, of being owned by the local authority, but operated at arm's length (paragraphs 10 and 29).
(3) Cardiff Bus has a board of directors, comprising three executive directors and seven non-executive directors. At the time of the Infringement, the executive directors were Mr Alan Kreppel (managing director); Mr Brown himself (finance and administration director and then, in succession to Mr Kreppel, managing director); and Mr David Worsell (engineering director). When Mr Brown succeeded Mr Kreppel, his position as finance and administration director was filled by Ms Cynthia Ogbonna (paragraph 13).
(4) The non-executive directors are councillors appointed by the Council (paragraph 14). Essentially, the non-executive directors attend board meetings of Cardiff Bus, but between board meetings, have minimal dealings with the company (paragraph 18). Non-executive directors understand that they are not to concern themselves with the day-to-day management of the company, and they did not do so in the case of the Cardiff Bus White Services (paragraph 19). Although councillors, the non-executive directors understand that they cannot allow political alliance, personal constituency interest or any other non-Cardiff Bus considerations to play any part in their role as non-executive directors (paragraph 20).
(3) Conduct calculated to make a profit which may well exceed the compensation payable
(i) The law
"Where a defendant with a cynical disregard for a plaintiff's rights has calculated that the money to be made out of his wrongdoing will probably exceed the damages at risk..." (Emphasis added.)
"...either knowing it to be untrue or quite reckless whether it is true or not, and with full knowledge that it is going to hurt somebody, but he published that statement after a cold and cynical calculation of profit and loss..."
"...the defendant, at the time that he committed the tortious act, knew that it was unlawful or suspecting it be unlawful deliberately refrained from taking obvious steps which, if taken, would have turned suspicion into certainty. While, of course, it is not necessary to prove that the defendant made an arithmetical calculation of the pecuniary profit he would make from the tortious act..., it must be a reasonable inference from the evidence that he did direct his mind to the material advantages to be gained by committing the tort and came to the conclusion that they were worth the risk of having to compensate the plaintiff if he should bring an action."
"…(i) knowledge that what is proposed to be done is against the law or a reckless disregard whether what is proposed to be done is illegal or legal, and (ii) a decision to carry on doing it because the prospects of material advantage outweigh the prospects of material loss."
"An ill disposed person could not infrequently deliberately commit a tort in contumelious disregard of another's rights in order to obtain an advantage which would outweigh any compensatory damages likely to be obtained by his victim."
"On occasion conscious wrongdoing by a defendant is so outrageous, his disregard of the plaintiff's rights so contumelious, that something more [than compensatory damages] is needed to show that the law will not tolerate such behaviour..."
"...the essence of the conduct constituting the court's discretionary jurisdiction to award exemplary damages is conduct which was an outrageous disregard of the plaintiff's rights..." (emphasis added.)
"The minimum threshold is that the defendant has been subjectively reckless – to use criminal law terminology. The notion of 'outrage' imports the element of judicial discretion that we believe is inevitable, and essential, in this area. Factors that will no doubt be relevant in deciding whether conduct is not merely reckless but outrageous will include whether the wrong was intentionally committed, the extent and type of the potential harm to the plaintiff, and the motives of the defendant." (Emphasis added.)
(ii) Exemplary damages in the context of the Infringement
(1) First, the circumstances in which exemplary damages can be imposed where the wrong in question is an infringement of competition law, specifically an infringement of the Chapter II prohibition.
(2) Secondly, what role exemplary damages can play where (as here) there exists a jurisdiction to impose a fine on the wrongdoer.
Exemplary damages where the Chapter II prohibition is infringed
(1) Involving conduct that entails a cynical disregard for a claimant's rights (to use Lord Devlin's test in Rookes v Barnard); or
(2) Behaving outrageously (Lord Hailsham in Cassell v Broome) or in outrageous disregard of the claimant's rights (Lord Nicholls in Kuddus).
"...frequently the situation is neither clearly white nor clearly black… Instead there is a gradually darkening spectrum which can be described with labels such as clearly authorised, probably authorised, possibly authorised, wholly unclear, probably authorised and, finally, clearly unauthorised."
(1) Any expected pro-competitive effects of the conduct.
(2) The degree and seriousness of any anti-competitive effects.
(3) The motive of the undertaking for acting.
(4) The practicability of achieving the same commercial or pro-competitive aim by following a different course of action with less serious anti-competitive effects.
Punishment in parallel
"I do not accept this submission. The Commission decided in principle that fines should be imposed on the Aventis companies. It is true that by the application of the Leniency Notice, those fines were commuted to zero as a result of Aventis' conduct as whistleblower; but the starting point of the application of the Leniency Notice was the finding of unlawful conduct coupled with the imposition, in principle, of a fine. The application of the Leniency Notice serves the important policy aim that it is of even more importance to encourage whistleblowers than to punish participants in a cartel. In my judgment the national court should not undermine that policy by an award of exemplary damages against a person who has had his fine commuted as a result of the application of the Leniency Notice."
"8.6 Sections 40(3) and (4) of the Act provide that a person is immune from the effect of section 36(2) if his conduct is conduct of minor significance. The OFT may withdraw that immunity if as a result of its investigation the OFT considers that the conduct is likely to infringe the Chapter II prohibition. Conduct of minor significance is defined, pursuant to section 40(1) of the Act and Regulation 4 of the Competition Act 1998 (Small Agreements and Conduct of Minor Significance) Regulations 2000 (the Regulations), as conduct by an undertaking the applicable turnover of which for the business year ending in the calendar year preceding the one during which the infringement occurred does not exceed £50 million.
8.7 Applying the provisions of the Regulations and, through section 60 of the Act, applying the meaning of the term 'undertaking' under EC law, the OFT considers that the applicable turnover of Cardiff Bus does not exceed £50 million. Accordingly, Cardiff Bus benefits from immunity provided for in section 40(3) of the Act. The OFT can decide to withdraw the immunity from financial penalties in circumstances where it considers that it would be appropriate to do so. The OFT does not propose to do so in this case."
(1) The impact on public resources if exemplary damages were imposed (paragraphs 320-324 of Cardiff Bus's written opening submissions); and
(2) Double jeopardy as a result of Cardiff Bus's exposure to a possible sanction from the Traffic Commissioner (see paragraphs 33 and 292-295 of Cardiff Bus's written opening submissions).
As to the first of these points, we consider that it would be wrong in principle for a public body to have what would in effect amount to an immunity from Lord Devlin's second category of exemplary damages. Indeed, such an approach would be fundamentally inconsistent with the existence of Lord Devlin's first category. As to the second point, we accept the general point that no-one ought to be punished for the same thing twice; that was the point made by Lewison J in Devenish. Had the Traffic Commissioner found an intentional or reckless breach of the law on the part of Cardiff Bus, and punished Cardiff Bus accordingly, then that is a matter we would take into account. But the fact is the Traffic Commissioner did not do so.
(iii) The facts
Prior alleged anti-competitive behaviour on the part of Cardiff Bus
(1) First, we heard very little specific factual evidence in respect of either episode.
(2) Secondly, these are both episodes that would not have been regulated by the 1998 Act (which came into force on 1 March 2000), but by the rather different rules previously in force. We note that the Chapter II prohibition was one of the major innovations of the 1998 Act.
(3) Thirdly, it has not been established that this conduct constituted an infringement of the old law or would have constituted an infringement under the 1998 Act, had that been applicable.
Cardiff Bus's preparations for competition from 2 Travel
"Competition
...
The meeting noted that 2 Travel Ltd have recently obtained an increase in its operator licence provision at Wentloog to 45 vehicles. A numbers [sic] of actions were being taken to address the potential for a competitive attack in the run up to Christmas, including the retention of surplus vehicles."
"This way we can really do what we like without registering specific competing services."
The email shows something of the corporate mental state within Cardiff Bus regarding 2 Travel, referring to the buses that would operate additional services as "battle buses".
"If you wish to be considered for a driving role protecting your Company's status, reputation and profitability, in a highly professional manner, on routes shortly to be facing competition please apply in writing to Dave Cole, Assistant Operations Manager by Friday 19th March 2004."
One of these notices was in the form of the famous First World War Lord Kitchener poster "Your Country Needs YOU"; but instead of bearing the image of Lord Kitchener, the poster had a picture of Mr Brown (with super-added moustache) and the slogan "Your Company Needs YOU".
Legal advice obtained by Cardiff Bus
"We are about to encounter a dose of heavy competition in Cardiff. I attach a draft of an article that will appear in our internal house magazine entitled "OMNIBUZZ".
Would you or a colleague please cast your eye over this article to make sure that it could not be used by the incoming competitor for any legal action against us."
"The Swansea/Cwmbran based AIM (Alternative Investment Market) Company 2 Travel has now registered competitive local bus routes from Ely, Pentrebane, St Mellons, Llanrumney and Pontprennau to start operating Monday 19th April.
This follows 2 Travel's expansion in to local services in Swansea, Llanelli, Neath and other areas. It is in line with this Company's aggressive business plan.
The competition is likely to be low grade using a mixture of second hand double and old single decks vehicles. Details of the timetable are known to link the new local bus operation to school contracts awarded to 2 Travel by Cardiff Council.
Said Alan Kreppel, Managing Director "this operation to cream off revenue from Cardiff Bus was anticipated. As usual the competitor will only be operating during the working day and leaving Cardiff Bus to operate at times of low demand such as early mornings, late evenings and Sundays. The operation is entirely geared to provide cashflow to 2 Travel which is struggling to meet its business targets". 2 Travel lost nearly £1m last year according to their latest published accounts. You can rest assured however that the Cardiff Bus response will be robust" said Alan Kreppel.
"We anticipate that in 12 months time Cardiff Bus will still be here but 2 Travel will have gone. There are no surprises in this business. We have all been here before. History shows that poor quality competition eventually disappears and dies."
Details of the Cardiff Bus response and revised working arrangements will be discussed shortly with staff representatives. Full details will then be circulated to all members of staff."
"As promised, this is to summarise my advice on the Competition Act implications of your response to the arrival of 2 Travel. (As it is legally privileged it will not be read by a competition authority, such as the OFT).
Since you are likely to be dominant in your market the risk is one of a complaint based on alleged abuse of a dominant position (sometimes known as an infringement of Chapter II), which could trigger an OFT investigation, which, if it leads to a finding of infringement, could lead to directions to cease doing something, or even a fine (up to 10% of relevant turnover). If there is such a finding an affected party could also, independently, seek damages for loss suffered. (None of this is quick – investigations take months if not years to produce results. Any findings of infringement are also appealable).
However, as I mentioned, I have not been able to find any recent examples of the OFT issuing findings of infringement in similar cases. One possibility is that, where there have been complaints, they have not been able to establish sufficient evidence in what is a difficult area of competition law; another is that they may not have resources; another is that the parties have sorted out their differences between them, and an investigation has been abandoned.
There is, however, a 1993 case involving the dominant bus company Mid & West Kent (I'll send you the summary) suggesting that particular areas to watch out for are:
1. Running additional services where the long term profitability is doubtful;
2. Targetting the response to the new entrant in such a way as to appear retaliatory, or to exclude it from the market.
On the other hand, generally improving the level of services you supply, in response to increased competition, is a rational response to a new entrant, and it would be difficult for the OFT to base an abuse case on that.
I hope this is helpful. As and when matters progress do let me know if you need further help." (Emphasis supplied.)
"DMH [Mr Harrison] called Alan Kreppel, and explained the completion [sic] law implications of the proposed course of action, as summarised in DMH's mail of 8 March to Alan Kreppel.
In discussion, AK mentioned that he thought there was one investigation of behaviour by a dominant bus company in Edinburgh currently underway (? First). He thought that in this case 2Travel were very unlikely to complain to the OFT, since their activities were by no means respectable.
AK said they were going to prepare a competitive response to the arrival of 2Travel, and DMH might well need to be on call as matters are unfolded.
AK said he would like to see the 1993 Kent case, and DMH said he would send him a copy of the case summary as it was very useful."
(1) First – as evidenced by the words underlined in the letter of 8 March 2004 set out in paragraph 509 above – Mr Harrison appears to have spoken with Mr Kreppel between Mr Kreppel's letter of 3 March 2004 and Mr Woodhouse's email of 8 March 2004.[8]
(2) Secondly, there is a fairly sophisticated understanding of how competition investigations work (or do not work). In particular, there is a very realistic appreciation of the length of OFT investigations (which proved entirely accurate), and an appreciation of legal advice privilege.
(3) Thirdly, there is an absence of detailed advice. This is scarcely surprising, given the lack of detail in Mr Kreppel's 3 March 2004 letter. Nevertheless, Mr Harrison does draw a broad distinction between abusive, anti-competitive behaviour and non-abusive "improving the level of services you supply, in response to increased competition". This, of course, is significant, because Cardiff Bus did the former, whilst (when the OFT did investigate) purporting to do the latter. Mr Harrison also makes the point that Cardiff Bus is likely to be dominant in its market.
"...[t]he original press release (12th March) was issued internally...but apparently not copied in to you and does not appear to have been issued externally.
I have revised it to todays [sic] date (13th April) as discussed to take out the reference to school holidays in para 4 which was wrong – PLEASE USE THIS VERSION!
Please can you now put this into external format with appropriate headers and quotations. My view is that the quotations should be in my name, but I am checking with the Chairman and will get back to you if he wants it in his name instead.
Next stage is for a revised version to be sent to me for approval."
Board meeting of Cardiff Bus on 9 March 2004
"2 Travel the relatively new AIM listed company, which has already started to operate competitive services in Swansea and Llanelli, has now registered a network of thirteen vehicles on five of the company's key services, due to commence on Monday 19th April 2004.
This company is a low cost, low-grade operator and intends to use twenty to twenty-five year old double deck vehicles in competition with this Company's services on Ely, Pentrebane, Pentwyn, Llanrumney and St Mellons. Services will only operate Monday to Friday and will operate in between school contract commitments. During the peaks, the vehicles will be operating on Cardiff school contracts. Cardiff Bus will need to make an immediate and positive commercial response details of which will be diarised at the meeting.
With this competition our financial position will have an effect on the Company's finances [sic – but it is easy to see what Mr Kreppel meant] and may affect our ability to make a substantial contribution to "socially" necessary services. It may therefore be necessary in the middle of the Summer to review some of the little used services.
...
The Board needs to be aware that if this competition is successful there is likely to be a second tranche of registrations, which has already happened in the South West Wales area."
"791 Managing Director's Report
(ii) Financial
…
(c) The budget proposals for the financial year commencing 1st April 2004 were considered and reviewed in some detail. Councillor Sheppard raised a number of issues which were discussed in some depth.
It was noted that the recent advent of competition had effectively invalidated the budget as it stood. Options for addressing the situation were discussed, with the meeting agreeing that the budget should be implemented on a "without competition" basis, and then updated early in the New Year when the competitive situation had become clearer. This was compatible with the process adopted in previous years of updating the budget once approved with one or two revised forecasts to ensure that the company's financial planning was up to date and sound.
Councillor Sheppard expressed his concerns over approving a budget without receipt of a formal Business Plan. The Chairman made reference to arrangements in previous years which had been deemed to be satisfactory, and expressed some concern that the divide between the role of the Executive and non Executive Director was in danger of becoming blurred. Following discussion the Board did however agree that a Business Plan to support the budget was an advisable requirement, and it was therefore agreed that the budget be approved subject to receipt of an acceptable Business Plan. Given that it was inadvisable to start the new financial year without an agreed budget, a special Board Meeting was arranged for Friday 26th March, 2004, and the Executive Directors were asked to prepare their Business Plan and circulate it in time for it to be reviewed at this meeting with a view to the existing budget being confirmed.
(d) Predicted cash flow figures were reviewed, and Councillor Sheppard pointed out that the cash projections made no allowance for sale and lease back moving forward. The Financial Director [ie Mr Brown] pointed out that the cash flow forecast was a working document that would be updated in relation to the company's ongoing trading performance and future plans. Leasing facilities had traditionally been reviewed on an annual basis, and whilst the forecast did not include any lease facilities, this did not preclude the use of lease facilities as part of the company's ongoing cash management programme. It was agreed that this point would be considered further in relation to the company's Business Plan.
…
(iv) Competition
The Board were advised of competitive registrations, and the company's reaction to this.
It was expected that this competition would significantly damage the company's profitability, and the extent of this financial effect was reviewed.
The company was preparing to make a commercial response, details of which were given to Board Members.
The Chairman led a wide ranging debate on the potential impact of these competitive registrations, and the company's commercial response, with the Managing Director confirming that the company's response would be in accordance with the Traffic Commissioner's guidelines and legal requirements, and in accordance with competition legislation.
…
(viii) Driver Shortages and Reliability
The current driver/staff establishment was complete, with reliability having been good in recent months. The position would need to be reviewed in the light of the company's competitive commercial response, and the effects of the holiday season."
Meeting of Cardiff Bus management on 16 March 2004
Cardiff Bus's "Competition Policy" dated 24 March 2004
"This document sets out the rules to be followed in the competitive environment, which will emerge, from mid April.
1. On the company's services registered as frequent the company will operate an experimental low grade service with additional mileage to match the mileage of the competitor. Buses will be in a white livery and will be timed to operate just in front of the competitor's vehicles. Where the competitor departs from scheduled time our times will vary to remain in front of the competitor's vehicle.
2. Where the competitor fails to appear or "disappears" for a meal break we will run the mileage until the two vehicles can be "re engaged".
3. Drivers will to all intents and purposes be in civilian clothing and Ticket machine rolls will be white. This is to differentiate the vehicle and the product completely from the mainstream high quality low floor Cardiff Bus operation.
4. Fares charged will be similar or the same as competitor's fares. At the start of the operation the adult single fares are likely to be as follows with appropriate day returns and child fares:-
Zone 1/2 – 60p
Zone 3 – 80p
Zone 4 – £1
The company's multiride, returns, local rider, network rider and all other company day or season tickets will be accepted on the separate "white bus" operation.
5. Where the competitor changes fares, such that they are below our experimental operations fares we will match their fare scale, but will not charge below the fare scale. The principle to be followed is that we will "not be knowingly undersold".
6. In terms of publicity we will keep all publicity to an absolute minimum, we do not want to have comments from managers causing "eye grabbing" headlines. We need to reduce the publicity opportunities for the opposition as much as possible.
7. The team operating the white vehicles will require instant communication between the team, with supervisors and with the Control Room. This may require a separate radio system. DBW/CD please progress.
8. Supervision of the operation needs to be down to one key inspector with a fully trained stand-in. Inspectors and drivers must follow the principle that our services should operate within the legislative framework and safely at all times but effectively reducing the opposition's carryings to the absolute minimum.
9. The Supervisory staff should build a good rapport not only with their own staff, but with the opposition's drivers who may be persuaded to join and work for us as the incumbent operator rather than the new competitor.
10. In terms of our mainstream operations there must be no lost mileage on services which are subject to competition. Bus Station and control inspectors must pay particular attention to ensure that there are no operational gaps in any of these services. If need be vehicles will be switched from other areas to ensure that no holes appear for the opposition to fill.
...
11. The duty supervisor of the competitive operation will need to ensure that full details are taken of both our and other company's loadings. We will also need a programme of obtaining loadings from other sources and geographical points so that we can establish exactly the market penetration of the competition and the estimated number of passengers being carried per week. Peter Heath to pursue.
12. Every week OM/CM should chair a competition meeting involving drivers supervisory staff and marketing to review the competitive position, making any adjustments to our operation and strategy as required to minimise the competitiors [sic] passenger carryings."
Before the OFT, Cardiff Bus asserted that "the Competition Policy document was not implemented" (paragraph 7.93 of the OFT Decision). Indeed, Mr Brown asserted before the OFT that "it was something that had been produced by my predecessor and was just ditched" (paragraph 7.93(d) of the OFT Decision). This was not accepted by the OFT. The OFT set out, in Table 23 of the OFT Decision, the very close similarity between the actions proposed in the Competition Policy document and Cardiff Bus's actual actions. In paragraph 7.94 of the OFT Decision, the OFT stated:
"Accordingly, whether or not the Competition Policy document was formally adopted by Cardiff Bus' Board of Directors, that document was plainly prepared at the senior executive level within the company and, in the OFT's view, is demonstrative of exclusionary intent. Further, the fact that Cardiff Bus' conduct on the market closely resembled that proposed in the document strongly suggests that the policy was substantially implemented and that the intent behind that conduct was itself exclusionary."
We agree with this assessment. It is quite clear from the evidence that this policy document described how Cardiff Bus in fact acted during the Infringement. The fares charged were as stated in paragraph 4 of the policy (see paragraph 368 above); publicity was kept to a minimum; drivers were dressed in civilian clothing; and the White Service buses were indeed white, and timed to run ahead of the 2 Travel service.
The Cardiff Bus board meeting on 26 March 2004
"The meeting also considered their obligations under Competition Law, with the Managing Director confirming that he was satisfied that the company's current activities were legally compliant in this regard."
Mr Brown succeeds Mr Kreppel as managing director of Cardiff Bus
"We are currently facing a potentially very damaging period of trading for the company, with the introduction of significant competition from April 19th. Our initial estimates are that this will cost us some £½M in lost profit in the current financial year, affecting our investment plans and forcing us to look at economy measures. In West Wales the company concerned, 2 Travel, has taken up to 40% of the market in some instances, and if anything like this were to be repeated in Cardiff it would certainly result in very significant job losses, and potentially put in jeopardy the current ownership arrangements. All our efforts are therefore currently targeted at minimising the impact of the competition, with the strategy designed to persuade the competition that there is no profitable future for them in Cardiff. We have the very fullest support of our TGWU and Unison partners in our strategy, who have indicated their willingness to be particularly flexible at this difficult time. Clearly I would hope to receive similar support from AMICUS, and look forward at our meeting to receiving similar reassurances."
Steps taken in preparation for the commencement of "competitive services"
"As I indicated to you with a new Managing Director taking over, there will be changes in the structure of the organisation in the short term. As also indicated to you, you are likely to start as a Market Research & Planning Assistant working with Peter Heath. This will be confirmed by David Brown the new MD, who would like to see you within the next four weeks or so, prior to your starting to confirm full details.
As you are aware we face competition from 2 Travel from 19th April 2004, and it is highly likely we will want you to over-see the Company's programme to ensure this competition is met on a fully effective basis."
"Please note that from Monday 19th April, we will start operating journeys on certain bus services in the Cardiff area on a low cost "no frills" basis, to test the commercial viability of this type of operation as a means on [sic] growing the public transport market. These services will operate at cheaper fares with a lower standard of vehicle and at lower frequencies compared to our normal operations.
These journeys will be operated as part of our existing registrations, but to permit the public to differentiate between a normal services and "no frills" journey we will be adding 100 to the service number of a "no frills" journey."
Bond Pearce's email of 13 April 2004
"Though I'd check to see if all is well. As I understand it, the 2 Travel services begin next week?"
The "Competitive Services Guidelines"
"These fares will be altered once the market level of cheaper fares has been determined.
Normal Cardiff zonal fare stages will be used.
All competitive services will give change. Drivers must therefore carry a float, but will not be required to issue a change ticket.
On competitive services, only single and return tickets will be issued, but the full range of Cardiff Bus fares and tickets will be accepted on competitive services. 2 Travel tickets will not be accepted.
Lower price return tickets issued on competitive services are valid on normal Cardiff Bus services."
Mr Brown's concern with the press
"The view here is that we cannot simply ignore the Echo – and it is better to keep in control of things. Inevitably Phil Nifield will be phoning me to ask for details of how many vehicles and the fares charged – I think I will have no choice other than to tell him, as he will be able to work out the details himself if we do not supply the information.
PLEASE NOT [sic] THAT ALL COMPETITION PRESS RELEASES ARE FOR THE ECHO ONLY AND SHOULD NOT BE CIRCULATED ANY FURTHER. If other media pick up on the story then we will deal with that on a case by case basis."
Cardiff Bus's monitoring of 2 Travel's services and reactions to it
"If we only operate the 157/158 service between Coed-y-Gores and Panasonic factory between approx 0900 and 1500, we can provide the 6 journeys per hour over this section of route for most of the day. This achieves a saving of 2 buses and means two duties Z009 and Z013 are on reserve all day.
Suggest we decide tomorrow. Meanwhile, can you warn Greg/Allocations that there will be another set of alterations to duties from Monday – live work becoming reserve."
"Agreed as the best option, it will be boring for the 1 driver but saves 2 others and retains this registration should 2 travel start running. This will mean a duty board for this change."
Bond Pearce's email of 29 April 2004
"On Alan's return could you please pass him the following message?
The OFT have on 29 April issued an interesting decision that First Edinburgh Ltd has not infringed the Competition Act in the Greater Edinburgh area, after a complaint by a rival bus company Lothian Buses.
Lothian complained that First Edinburgh was abusing a dominant position by predatory pricing and increasing services, and also cross-subsidising routes.
The OFT investigation seems to have found some conflicting evidence on pricing, but no intent to drive Lothian out of the market. The balance of evidence suggested that for First to reduce fairs [sic] or increase services was a reasonable commercial strategy, from which passengers benefited, rather than an unlawful attempt to push Lothian out of the market.
It seems also that Lothian was in fact the larger operator in part of the area in question.
For the present only a summary of the decision is available. I will however attempt to obtain a full version."
Mr Brown's email of 30 April 2004
"Thanks for the info. Just to let you know that I have taken over as MD designate – Alan is leaving at the end of May.
This is a live issue so all information is very welcome. Please could you also copy in Peter Heath on all information…"
Bond Pearce's email of 30 April 2004
"Just to report that the OFT are not yet sure when the full Edinburgh decision will be available. On past form, I would expect it to take them a few days to remove business secrets etc. We will keep in touch.
The decision may well provide useful guidance on current thinking about predatory practices in the bus sector. (I sent Alan a rather old 1993 decision in March).
In the meantime, my advice would be to continue to ensure that your response to 2Travel is presented in terms of improving services to customers rather than retaliating against a new arrival. (If there is uncertainty about the economics of pricing a service the competition authorities may take into account evidence of intent)."
Cardiff Bus board meeting of 4 May 2004
"5. Competition
Competitive services commenced on the 19th April, 2004, and the company made a positive commercial response.
…
Whilst the company response has been professionally executed, the 2 Travel Service has been ragged and unreliable. The full service proposed has not been run due to driver shortage, and the services that remain have kept neither to timetable nor to route. The vehicles involved breach a number of legal requirements. Early indications are that patronage has been poor, with no clear demand emerging for a "no frills" service at this early stage, although the market will of course develop.
We are advised that 2 Travel may have complained both to the Traffic Commissioner and the Office of Fair Trading about Cardiff Bus' commercial response which has been alleged to be uncompetitive. Whilst these matters are of course always open to interpretation, our view remains that our response is reasonable, appropriate and legal. At the present time we have not heard from either the Traffic Commissioner or the OFT, but are prepared to deal with any feedback in a positive and robust manner.
…
13. Drivers Shortage and Reliability
The company has enjoyed an extended period of full staffing, which together with effective management has meant minimal loss of mileage arising from staff shortages.
With the additional staff requirements resulting from competition, combined with the main summer holiday period, the situation will become more difficult in the months ahead. The company is currently actively recruiting to meet this requirement."
"(v) Competition
The meeting discussed the additional services launched by 2 Travel, and the extremely poor quality of service that had been introduced.
The company's commercial response was reviewed, and the company had received no external feedback."
"As you may be aware we have been dealing with David Harrison in relation to competition advice, but the early issues being raised appear to relate more to traffic law, and area where you of course are the expert.
I enclose copies of correspondence between Solicitors acting for 2 Travel and ourselves, which are largely self-explanatory. Although this exchange has now taken place, I should be grateful for any additional comments you may have.
I also enclose correspondence with Cardiff County Council, again which is self-explanatory. At this stage we feel it to be inadvisable to contact the Traffic Commissioner ourselves direct, and are hopeful that Cardiff County Council will now wish to contact the Traffic Commissioner in its own right as representing the broader interests of Cardiff.
Clearly this is a developing matter, and one where we may wish to seek your advice at short notice."
Debate regarding operation of the Cardiff Bus White Service
"…our policy seems to be to run to scheduled time. You need to look at this as they are all over the shop and occasionally are getting a reasonable load. We need to consider running with them, given the fact that most of our mileage is registered 'frequent' – please discuss with David [Brown] and Peter [Heath]."
"Is this one for the competition group? Should we have a meeting this week given that [Chris Dexter] and myself are away next week?"
"The T.G.W.U. is becoming increasingly concerned with the operation of the [competitive vehicle roster]. We are concerned that the drivers on this roster are being used as nothing more than scapegoats for the inability of the company to operate in competition with 2 Travel. The supervisor for this roster and the manager who is in charge of this roster are continually altering the rules so much so that the drivers are no longer sure of where they are and which rules they are under. One minute they are working to the pad the next minute they are being told to fight the competition, Yesterday Alun Kreppel told me that he had instructed the supervisor to tell the drivers not to run to the pad and to start competing against 2 travel. We really need to let the drivers either compete against them or if we are not going to do this I suggest we remove our buses and save ourselves the revenue we are wasting…"
"[G]entlemen, I have just spent some time this morning observing operations in Ely. Our competitive services are nothing short of a joke. We are successfully competing with ourselves and allowing 2 Travel a completely free rein. Our only saving grace is that many passengers will not travel with them.
If this is typical and carries on then 2 Travel will gain a firm foothold just as they have in Swansea but we will have thrown around £500,000 p.a. down the drain.
[T]he TGWU is partially correct except I have not instructed anyone to do the sensible thing (for reason [sic] which are obvious). That is to ensure our white vehicles shadow 2 Travels' rather than run to our notional timetables on services that are for the most part registered 'regular'.
The current nonsense needs to stop now and we need to start competing with the competition rather than ourselves – I suggest we get on with it urgently before it is too late."
"Thanks for your note. I fully understand your frustrations but feel that perhaps you are not seeing the full picture.
The competiton [sic] battle is being fought on many fronts, and not just the white bus competetive [sic] response. 2 Travels activities in a range of areas leave them wide open to challenge – for example by the Traffic Commissioner, VOSA, and potentially by a number of other statutory bodies. We believe that they are setting themselves up to be architects of their own fall, and part of our behind the scenes work is to ensure that the relevant authorities become aware of 2 Travel activities.
For example, whilst we would in any event not have been able to cover the Park and Ride, we were ready and waiting with our 'spotters' to observe 2 Travels activities. As expected a bus arrived without an O licence, and we were able not only to draw this to the attention of the Council official who was there, but also explain that the vehicle was illegal and could not be moved! The impact of that one incident was critical to our wider campaign, and is we now understand being followed up on.
However for our campaign to be successful we have to be 110% safe, and legal, and we do not wish to get involved in any activities that would compromise that position. Having said that there is perhaps scope to alter timings on some routes and we will explore that option further.
For the sake of clarification Peter Heath is coordinating our competitive strategy, and chairs a group comprising of myself, DBW, CD and KSS that meets weekly to discuss developments and agree any strategic changes. I have asked Peter to meet with you to explain things in a little more detail, and to discuss whether there is any scope for fine tuning. Together with CD they can also discuss the issues of inconsistency to which you refer."
Mr Harrison's email of 9 June 2004
"David
The OFT (finally) released the full 35 page version of their First Edinburgh/Lothian competition law bus decision earlier today.
Looking through the decision the facts of the Edinburgh case are a little different, in that both First Edinburgh and Lothian (who complained to the OFT) were sizeable firms, and each probably dominant in different geographic areas. There was in fact no prospect of First Edinburgh driving Lothian out of the Greater Edinburgh area, where the alleged predatory behaviour (price cutting and increasing services) took place.
The decision is nonetheless useful, because it shows the current reasoning that lies behind applying competition law to a 'bus war', involving fares reduction and increasing the number and frequency of services in response to a competitor (in this case over a period of over two years).
What the OFT did, briefly, was to consider all the allegations of fare reduction (by route, and by day or weekly tickets), increased frequency of routes and/or introducing new routes, and cross-subsidising of loss-making services from profitable parts of the business, as aspects of potential predatory behaviour by First Edinburgh.
The OFT said that predation infringes the Competition Act 1998 Chapter II prohibition (on abuse of a dominant position), and that it comprises 'strategic behaviour whereby a dominant undertaking deliberately incurs losses in order to eliminate a competitor, or deter market entry by potential competitors, so as to be able to charge excessive prices in the future.'
…
I should add that this decision slightly tweaks the case law, which says, normally, that any prices below average variable costs will be predatory, and that only where prices are above average variable costs, but below average total costs, should evidence of the intention of the dominant firm be taken into account). (Variable costs are those which vary directly with the amount of output produced).
If you would like to discuss, or me to give further detail about this decision and its implications, please let me know."
(iv) Analysis
Cardiff Bus's intention
Whose knowledge is attributable?
"The phrase "directing mind and will" comes of course from the celebrated speech of Viscount Haldane L.C. in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705, 713. But their Lordships think that there has been some misunderstanding of the true principle upon which that case was decided. It may be helpful to start by stating the nature of the problem in a case like this and then come back to Lennard's case later.
Any proposition about a company necessarily involves a reference to a set of rules. A company exists because there is a rule (usually in a statute) which says that a persona ficta shall be deemed to exist and to have certain of the powers, rights and duties of a natural person. But there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the company. It is therefore a necessary part of corporate personality that there should be rules by which acts are attributed to the company. These may be called "the rules of attribution."
The company's primary rules of attribution will generally be found in its constitution, typically the articles of association, and will say things such as "for the purpose of appointing members of the board, a majority vote of the shareholders shall be a decision of the company" or "the decisions of the board in managing the company's business shall be the decisions of the company." There are also primary rules of attribution which are not expressly stated in the articles but implied by company law, such as "the unanimous decision of all the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company:" see Multinational Gas and Petrochemical Co. v. Multinational Gas and Petrochemical Services Ltd. [1983] Ch. 258.
These primary rules of attribution are obviously not enough to enable a company to go out into the world and do business. Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability in tort.
It is worth pausing at this stage to make what may seem an obvious point. Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company "as such" cannot do anything; it must act by servants or agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company "as such" might suggest that there is something out there called the company of which one can meaningfully say that it can or cannot do something. There is in fact no such thing as the company as such, no ding an sich, only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company.
The company's primary rules of attribution together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person "himself," as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company?
One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or an unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.
The fact that the rule of attribution is a matter of interpretation or construction of the relevant substantive rule is shown by the contrast between two decisions of the House of Lords, Tesco Supermarkets Ltd. v. Nattrass [1972] AC 153 and In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C. 456..."
The extent of Mr Brown's involvement
"49. Although I took on the role of Managing Director designate from 1 April 2004, I had no involvement in considering the potential impact of the Infill Services on the company and the subsequent decision to operate the White Services. This was a matter dealt with exclusively by my predecessor, Alan Kreppel. In his role as Managing Director, Mr Kreppel had exclusive responsibility for operational matters and the planning of Cardiff Bus' competitive response therefore fell to him. As I mentioned above, the management structure at that time was departmental in nature and so it was not unusual for the particular details on matters that Mr Kreppel was dealing with not to be shared with me."
"Q (Mr Bowsher) | You were involved in the initiation of this commercial response, were you not? |
A (Mr Brown) | No, I took over when I took over as managing director designate at the beginning of April. So this planning, I wasn't aware of this planning in March, when it was going on, other than in terms of what I knew as a board member. It was the previous managing director's project." |
See also, Transcript Day 7, page 84 (evidence of Mr Brown).
Was there contemporaneous knowledge of unlawfulness?
"We note that 2 Travel believes that there is a market for what can perhaps best be described as a "no frills" operation – limited frequency, older vehicles, basic standards and lower fares. Experience in the past has indicated that such services are generally unsustainable in the longer term, even when cherry picking key routes and times of day. We do not believe that these are the future of public transport in a modern European Capital City.
On a commercial basis however we are bound to retest the market, to see whether a demand has emerged for this type of service. On an experimental basis we are therefore introducing a limited number of unbranded vehicles, on a "no frills" basis, to test demand, and will keep the situation under close review."
"Q (The Chairman) | What were you trying to achieve at this time in relation to 2 Travel? |
A (Mr Brown) | Well, my understanding – and I appreciate the OFT finding is different from this – was based around the principle of differentiated competition, and I think in my original press release, I set out that as being what we were doing. Effectively, I think we talked about if Cardiff Bus were Sainsburys or Marks & Spencers and they had set up a Lidl, this was an Aldi. We talked about British Airways, who set up a low cost subsidiary, Go, and Stagecoach in Manchester, with Magic Bus. So that the idea of a differentiated market, I think I said that – I may even have said that we'd experimented with it in the past - |
Q (The Chairman) | If you look at the very negative press release about 2 Travel, you were not saying in that press release: this is a legitimate differentiated market in which we believe our product is better. You were saying: this is a rubbish company which runs awful buses and is going to the wall. |
A (Mr Brown) | Certainly we said that. I thought in that press release, I thought we'd said the other part as well. Certainly, in one of the press releases it does talk about the concept of Sainsburys, Aldi and Lidl. |
Q (The Chairman) | But what did your board want to happen to 2 Travel? |
A (Mr Brown) | We were clearly trying to protect our market. |
Q (The Chairman) | What did your board want to happen to 2 Travel, or had that not been a question that was asked at board? |
A (Mr Brown) | As I said, I don't recollect the full discussion, but I think it's clear that certainly we were looking to protect the market in terms of them getting a foothold, and I think it is reasonable to say that we would not have been upset if they had left Cardiff. |
Q (The Chairman) | So you wanted to put them out of business? Is that too direct a way of putting it? |
A (Mr Brown) | No. Well, we're talking about Cardiff? |
Q (The Chairman) | Yes, of course we're talking about Cardiff. |
A (Mr Brown) | It was a competitive situation. We were seeking to stop them getting a foothold in Cardiff. |
Q (The Chairman) | You're being asked a lot of very legitimate questions by Mr Bowsher, but if the answer is "Yes, we were trying to get them out of business in Cardiff", it might be as well to get over that hurdle, perhaps slightly more quickly than we are. |
A (Mr Brown) | I'm not used to this sort of format. I think I prefaced all my comments by saying that we have accepted the finding of exclusionary intent and I think if one finds the – accepts that statement, then clearly, underlying things is the presumption that we would have been quite happy for 2 Travel - |
Q (The Chairman) | I'm feeling a "Yes" coming on. |
A (Mr Brown) | Yes." |
"Q (Mr Bowsher) | But at the time, is there any indication, other than that press release [i.e. the press release quoted at paragraph 578 above], that you were testing the market? |
A (Mr Brown) | It was my understanding of what we were doing. I subsequently now understand, being able to see the full picture, that the OFT took a different view and why they took that different view." |
(1) The White Service commenced at the same time as 2 Travel's In-Fill Service, and on exactly the same routes. 2 Travel's services were paralleled closely. Thus, when it became clear that 2 Travel's fifth service was not being operated, Cardiff Bus scaled back its service on this route (see paragraph 539 above). Equally, once it had become clear that 2 Travel had ceased operations in Cardiff altogether, Cardiff Bus's "competitive services" stopped (see paragraph 278 above).
(2) The White Service was intended to operate just in front of 2 Travel's services, so as to pick up passengers that 2 Travel would otherwise have collected. This is what paragraph 1 of the "Competition Policy" said in terms (see paragraph 522 above) and what we find in fact happened (see paragraph 394(1) above). Essentially, Cardiff Bus's objective was not to maximise the number of passengers on its buses, but to ensure that 2 Travel's buses were as empty as possible. Of course, these two aims are linked, but what was driving Cardiff Bus's actions was the fullness or otherwise of 2 Travel's buses, as the exchanges on 24 May 2004 and 25 May 2004 make very clear (see paragraphs 549 to 553 above).
(3) The prices on the White Services were designed to undercut – or at least match – 2 Travel's prices. As we have noted, the prices on the White Service were nearly 10% cheaper than those on 2 Travel's In-Fill Service (see paragraph 368 above). This was no coincidence: paragraphs 4 and 5 of the "Competition Policy" make it clear that Cardiff Bus had a close eye on the fares 2 Travel intended to charge, and would not be "knowingly undersold" (see paragraph 522 above). Also, the "Competitive Services – Guidelines" made clear that the White Service fares "will be altered once the market level of cheaper fares has been determined" (see paragraph 535 above).
(4) The White Services were introduced without any consideration as to their cost or profitability. That would be extraordinary in the case of a company considering the viability of an experimental service. One would expect a careful analysis of cost and a careful articulation of objectives and success criteria in the case of a genuine experimental service. One would also expect the pros and cons of such a new service to be articulated in a business plan. Yet Cardiff Bus's rather detailed business plan – which was considered at the 26 March 2004 board meeting (see paragraph 523 above) – contains no reference, not even a mention, of the White Service. Of course, in the case of a service designed simply to drive someone else out of business, this silence is explicable (the service is not part of the company's business strategy), and the normal cost/benefit analysis does not pertain. The aim is to drive out the competitor as quickly as possible, and the nature of the service offered is informed by that objective.
(5) The White Services were introduced with minimal publicity. There was no effort to promote the service (see, for example, the documents referenced at paragraphs 522 and 537 above, and also the "Competitive Services – Guidelines" document under the heading "Timetables/Publicity": "No timetables will be produced for competitive services, nor will details of these services be added to roadside timetables, PTI Cymru database or Real Time information system"). Again, this would be difficult to understand in the case of a new service that Cardiff Bus genuinely wanted to succeed: one would expect the service to be publicised as a genuine, cheaper, alternative, to the Liveried Service. But in the case of a service that was only intended to operate as a means of excluding 2 Travel, the lack of publicity is understandable.
Although he denied this (particularly when re-called to give evidence on Day 10, but also in the passages we have cited above), we consider that Mr Brown always knew the true reason why Cardiff Bus introduced the White Service as and when it did; we also find that Mr Brown must have known that the tale Cardiff Bus told – that it simply wanted to offer an alternative service to its Liveried Services, a no-frills service, and that this decision was prompted by 2 Travel's arrival in the Cardiff market – was false.
"In my opinion travel are making a last ditch attempt to earn some cash, on tuesday they operated 7 buses at one stage into the west of the city.
At this time it is imperative we do not give them any opportunities to gain a foothold.
We will not regulate any bus during the day on its inbound journey on any competition route, if there are any problems of any kind on competative [sic] routes inform greg john who may be able to assist with his staff.
Your cooperation will assist in their demise."
"Q (Mr Bowsher) | So he's completely wrong, is he, Mr Cole, when he says "Your co-operation will assist in their demise"? That's not what Cardiff Bus intended? |
A (Mr Brown) | I would read it: their demise in Cardiff." |
(1) A state of mind so confident of the propriety of the course being undertaken, so as to render legal advice unnecessary;
(2) A state of mind that simply does not consider the legality of the course of conduct being undertaken, and so does not contemplate taking legal advice; or
(3) A state of mind where the holder has some sense or appreciation that he is doing wrong, and deliberately avoids seeking confirmation of that fact.
(1) Even the limited advice that Cardiff Bus obtained (and, for the reasons we have given in paragraphs 565 to 575 above, we find that Mr Brown was as aware of this as Mr Kreppel) indicated:
(i) That Cardiff Bus was likely to be dominant in its market: see Mr Harrison's email of 8 March 2004 (paragraph 509 above).
(ii) That "[t]argeting the response to the new entrant in such a way as to appear retaliatory, or to exclude it from the market" was a "particular area[] to watch out for": see Mr Harrison's email of 8 March 2004 (paragraph 509 above).
Given even these limited points, alarm bells should have been ringing in the mind of an innocent protagonist.
(2) Both Mr Kreppel and Mr Brown gave unspecific and broad-brush assurances to the Cardiff Bus board that there was nothing wrong with the "competitive services" being proposed (see paragraphs 520, 525 and 546 above). Mr Brown, in his evidence, made much of this. Thus, in paragraph 51 of his first statement, he refers to the 9 March 2004 board meeting, and says that "[t]his concluded with Mr Kreppel confirming that the response he had outlined to Board Members would be in accordance with the Traffic Commissioner's guidelines and legal requirements, and in accordance with competition legislation". Mr Brown made the same point orally, at Transcript Day 6, pages 134 to 135 and again at Transcript Day 6, page 137:
"We were reassured by the managing director that this was in compliance with all relevant laws, including competition law. I can't remember the detail of the discussion but I was satisfied that what we were doing was legal and correct. I have no reason to doubt that. The board had discussed it and it's there in the minutes."
There is nothing in Mr Kreppel's managing director's report about the legality of the "competitive services", and the minutes simply record Mr Kreppel "confirming that the company's response would be in accordance with the Traffic Commissioner's guidelines and legal requirements, and in accordance with competition legislation" (see paragraph 520 above). Yet Mr Kreppel had no basis for saying this: he had no legal advice on the point, and what advice he had received (which arose incidentally, when he consulted about an article the company wanted to publish) suggested that the retaliatory response Cardiff Bus had in mind was an area to watch out for.
(3) The mention of legality in the minutes for the 26 March 2004 board meeting are similarly vague, with the managing director "confirming that he was satisfied that the company's current activities were legally compliant in this regard" (see paragraph 525 above). Mr Kreppel – and the rest of the board – were plainly aware that a question of legal propriety was in issue. This was not a case of a company acting utterly unconscious of the legal question. Everyone knew there was an issue, and Mr Kreppel gave his assurance. Either – without having the benefit of legal advice – he was so confident of the answer no legal advice was needed. Or he said what the board needed to hear, quite conscious of the fact that he had no legal advice supporting his position. The latter was the case here.
(4) The same is true of Mr Brown. Mr Brown was not the sort of man to accept, without question, statements made by his predecessor on important points, and it is clear (from his conduct in respect of employment and transport questions) that he was assiduous in taking advice. Yet he, too, assured the board (on his report given on 4 May 2004: paragraph 546 above) that "[w]e are advised that 2 Travel may have complained both to the Traffic Commissioner and the Office of Fair Trading about Cardiff Bus' commercial response which has been alleged to be uncompetitive. Whilst these matters are of course always open to interpretation, our view remains that our response is reasonable, appropriate and legal". Here, too, it is clear that there was an issue of whether Cardiff Bus was acting lawfully or not – indeed, there was an appreciation that the OFT was involved – and yet Mr Brown gave a bland assurance of legal propriety without having any foundation for giving that assurance.
(v) Conclusion
(1) Whilst exemplary damages do have to punish and deter, we consider that they also have to bear some relation to the compensatory damages being awarded, which in this case are low.
(2) In assessing the amount of exemplary damages, it is important to have regard to the economic size of the defendant. In some cases, a defendant may be so economically powerful that exemplary damages will have to be of an order of magnitude sufficient to make that defendant take notice. Here, we do bear in mind that Cardiff Bus is a relatively small company.
(3) As an entity with an association with a local authority, Cardiff Bus will no doubt take very full account of the Judgment, even if exemplary damages are (in numerical terms) quite low. In these circumstances, we consider that the punishment and deterrence effect of exemplary damages can be obtained by an award of exemplary damages at a level that is relatively low.
XVI. CONCLUSIONS
(1) We award damages to 2 Travel in respect of Claim 1: Loss of Profits in the amount of £33,818.79 (see paragraph 415 above).
(2) We award interest on this sum at a rate of 2% above the Bank of England base rate from 1 August 2004 (see paragraph 415 above).
(3) We reject 2 Travel's Claim 2: Loss of a Capital Asset (see paragraph 442 above), Claim 3: Loss of a Commercial Opportunity (see paragraph 444 above), Claim 4: Wasted Staff and Management Time (see paragraph 446 above) and Claim 5: Liquidation Costs (see paragraph 447 above).
(4) We hold that this is a case where exemplary damages should be awarded under Lord Devlin's second category in Rookes v Barnard and make an award in the amount of £60,000 (see paragraph 597 above). We make no award of interest in respect of this sum (see paragraph 597 above).
Lord Carlile of Berriew C.B.E., Q.C. |
Peter Freeman C.B.E., Q.C. (Hon) |
Marcus Smith Q.C. |
Charles Dhanowa O.B.E., Q.C. (Hon) Registrar |
Date: 5 July 2012 |
Defined Term | Description | Defined at para. |
1998 Act | Competition Act 1998 | 1 |
2 Travel | 2 Travel Group plc (in liquidation) | 1 |
2 Travel Route No 217 | Ely to Cardiff City Centre (and back) | 202 |
2 Travel Route No 245 | St Mellons to Cardiff City Centre (and back) | 202 |
2 Travel Route No 250 | Llanrumney to Cardiff City Centre (and back) | 202 |
2 Travel Route No 258 | Pentwyn to Cardiff City Centre | 202 |
2 Travel Route No 262 | Pentrebane to Cardiff City Centre (and back) | 202 |
AIM | Alternative Investment Market | 95 |
Assignment | On 22 December 2004, Mr Short agreed to advance £300,000 to 2 Travel in return for an assignment to him of any monies payable to 2 Travel under overage provisions of the Option | 269 |
Cardiff Bus | Cardiff City Transport Services Limited, trading as Cardiff Bus | 1 |
CFA | City Financial Associates (2 Travel's nomad) | 104 |
Chapter II prohibition | The prohibition contained in section 18 of the 1998 Act | 1 |
CTC | Coach Travel Centre | 106 |
Enron 1 | English Welsh & Scottish Railway Limited v Enron Coal Services Limited [2009] EWCA Civ 647 | 30 |
Enron 2 | Enron Coal Services Limited v English Welsh & Scottish Railway Limited [2011] EWCA Civ 2 | 65 |
February 2004 PwC Report | PwC report to 2 Travel entitled "Overview of business strategy and short term funding requirements" | 172 |
Grant Thornton Report | Grant Thornton Report dated 23 November 2004 | 265 |
In-Fill Service or 2 Travel In-Fill Service | 'No-frills' bus service operated on certain routes in Cardiff by 2 Travel | 8 |
Infringement | Cardiff Bus's unlawful response to the 2 Travel In-Fill Service | 8 |
June 2004 PwC Report | PwC report containing financial projections for 2 Travel for the period to 31 August 2005 | 224 |
Liveried Service or Cardiff Bus Liveried Service | Liveried bus services operated by Cardiff Bus | 204 |
Liveried Service Route No 17 | Ely to Cardiff City Centre (and back) | 204 |
Liveried Service Route Nos 44 and 45 | St Mellons to Cardiff City Centre (and back) | 204 |
Liveried Service Route Nos 49 and 50 | Llanrumney to Cardiff City Centre (and back) | 204 |
Liveried Service Route Nos 57 and 58 | Pentwyn to Cardiff City Centre (and back) | 204 |
Liveried Service Route Nos 61 and 62 | Pentrebane to Cardiff City Centre (and back) | 204 |
Mr Fowles | Mr David Beverley ("Bev") Fowles, former Managing Director of 2 Travel | 46 |
Mr Fowles Jnr | Mr David Rhys Fowles, former Operations Director of 2 Travel | 46 |
Nominated adviser or nomad | Each company listed on the AIM must have a nominated adviser or nomad. The role of a nomad is to ensure regulatory compliance by AIM-listed companies | 104 |
OFT | Office of Fair Trading | 1 |
OFT Decision | Decision number CA98/01/2008, dated 18 November 2008 | 1 |
Option | Option agreement relating to the Swansea Depot | 251 |
PCV licence | Passenger Carrying Vehicle licence | 297 |
PwC | PricewaterhouseCoopers | 46 |
Swansea Depot | Land purchased by 2 Travel that is the subject-matter of 2 Travel's Claim 3: Loss of a Commercial Opportunity | 10 |
TAO | Traffic Area Office | 212 |
VOSA | Vehicle and Operator Services Agency | 212 |
White Service or Cardiff Bus White Service | Bus service launched by Cardiff Bus in response to 2 Travel's operation of the In-Fill Service | 6 |
White Service Route No 117 | Ely to Cardiff City Centre (and back) | 203 |
White Service Route No 144 | St Mellons to Cardiff City Centre (and back) | 203 |
White Service Route No 150 | Llanrumney to Cardiff City Centre (and back) | 203 |
White Service Route No 162 | Pentrebane to Cardiff City Centre (and back) | 203 |
White Service Route No 258 | Pentwyn to Cardiff City Centre | 203 |
Note 1 Annex 1 to this Judgment lists the various terms defined in the Judgment, and identifies the paragraph in the Judgment in which the term is first used. [Back] Note 2 We prefer the term “immediate” to “short-term”, simply because “short-term” can mean that the effect was short-lived. This was not 2 Travel’s case: 2 Travel contended that these effects followed quite quickly from the Infringement. Although “immediate” is, perhaps, an over-emphatic term, we consider it best captures the case that 2 Travel put forward. [Back] Note 3 This case was not cited to us by either of the parties, although the substance of Lord Goff’s observation was raised with both parties during the course of oral closing submissions. During the course of this Judgment, we cite a number of other cases which were not cited by the parties to the Tribunal. These cases reflect points that were fully debated before the Tribunal, and do not give rise to new points or matters which, in fairness to the parties, they ought to be called upon to address. We did not, therefore, consider it necessary to invite further submissions from the parties on any of these cases. [Back] Note 4 In dealing with 2 Travel’s financial issues, the Commissioner heard evidencein camera. However, we have seen the entire transcript of the proceedings. [Back] Note 5 The Option contained provisions relating to other land close to the Swansea Depot. Although, therefore, the term “Swansea Depot” is a little inapt, nothing turns on this, and we continue to use the term for ease of reference. [Back] Note 6 The periods used by Cardiff Bus did not precisely correlate to months, but did so as nearly as possible. Thus, for instance, the figures for April 2004 were in fact for the period 1 April 2004 to 2 May 2004 and the figures for July 2004 were in fact for the period 27 June 2004 to 1 August 2004. We consider that nothing turns on this, and have (for simplicity’s sake) referenced the month. [Back] Note 7 Note that this extension to the circumstances in which exemplary damages could be awarded was limited by the Supreme Court in Lumba where at [165] Lord Dyson pointed out that the role of exemplary damages is to punish the commission of the underlying tort and not the subsequent conduct of the litigation as any disapproval of the conduct of the litigation can be marked by an appropriate order for costs or by an increased award of (compensatory) aggravated damages (citing Thompson v Comr of Police of the Metropolis [1998] QB 498, 517D, per Lord Woolf MR). [Back] Note 8 We are satisfied that, by the conclusion of the trial, we had seen all of the privileged communications between Cardiff Bus and its lawyers as regards the White Service. Privilege in these communications was waived by Cardiff Bus. It is worth noting that this material would not have been available to the OFT. [Back] Note 9 In this paragraph, Mr Brown states: “I can confirm that Cardiff Bus did not seek or obtain any legal advice in respect of the launch and running of the White Services”. That paragraph was corrected by Mr Brown’s third statement, where Mr Brown makes clear that Cardiff Bus did, in fact, obtain “limited legal advice before the commencement of the White Services”. We have described that limited legal advice fully in this Judgment, but the fact remains that Mr Brown’s first statement remains correct as regards legal advice specifically directed to the legality of the Cardiff Bus White Service. [Back]