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Condition F1: Facilitation of Vehicle Change

Rule, Clause or Condition Determination Date of Hearing Points Made Within Determination
Definitions “Vehicle Change” ADP31 February 2008

In considering therefore the question of whether or not the introduction of the Class 142 trains to the list of “Specified Equipment” within the FGW Track Access Contract constituted a Vehicle Change, the Panel found that:

  • before FGW could commence regular operation of regular Passenger services over these routes using Class 142s, it had needed to seek an amendment to its Track Access Contract to include these trains as Specified Equipment;

  • inclusion of Class 142 trains within the clearance tables in the Sectional Appendix confirms that the stock will fit physically onto the route in question, “for interim or full service operation” (General Notes to Section 3 of Sectional Appendix).

  • the Sectional Appendix is one of the key documents of reference for Train Operators and there must be an expectation that, where a class of rolling stock is classified Y in the relevant Table 3, an application for rights to use that class of vehicle will not be contested on grounds of physical “fit”;

  • except where Network Rail specifically agrees an amendment to the Track Access Contract, inclusion of a type of passenger rolling stock in the Sectional Appendix, does not confer upon a Passenger Train Operator any right to include such stock in the Specified Equipment, or to use such stock to operate services for which it otherwise has access rights. (For the avoidance of doubt this finding relates specifically to the Passenger Track Access Contract only; the Panel acknowledges that within the Freight Track Access Contract, the Sectional Appendix has a more specific standing in relation to the “Operating Constraints”);

  • the introduction of Class 142 trains onto the routes in question at very least requires Network Rail to reassess in detail, and very probably to change, the maintenance regime necessary to maintain the track (in particular in respect of track inspection and rail wear), as compared with the regime that has operated since before Privatisation. There can be no question but that this change to the “Specified Equipment” in the FGW Track Access Contract will also “materially affect the maintenance …of the Network”, and therefore,

  • the inclusion of the Class 142s into the Specified Equipment of the FGW Track Access Contract IS a Vehicle Change, rendering FGW potentially liable to pay compensation under Part F of the Network Code.

(ADP 31, paras 26, 26.1, 26.2, 26.3, 26.4, 26.8, 26.9)

[This finding was appealed by FGW as part of a response to a larger appeal from Network Rail against the compensation findings in ADP31. ORR, in a determination dated 29/09/2008, upheld the Panel’s finding on this point, and added the following additional reinforcing arguments (ORR words in italics)]

The definition of “Vehicle Change” depends in every case upon the qualifier “which in any case, is likely materially to affect the maintenance or operation of the Network, or operation of trains on the Network, but excluding any authorised variation”.

ORR interprets the term “is likely…to” as requiring a prospective assessment based on objective evidence that a particular outcome is more than merely possible, but less than certain to occur. ORR concludes that the adverb “materially” is intended to exclude effects which are minimal, but does not require that any effect should be substantial. In assessing whether there has been a material effect, ORR has regard to effects other than purely financial costs and has regard to the state of the Network at the time of the Proposal [for Vehicle Change].

The inclusion of rolling stock in the Sectional Appendix demonstrates that the Network is physically capable of accommodating the rolling stock on the route in question. The Sectional Appendix is not incorporated in the TAC and it is the TAC which defines the stock which the Train Operator is entitled to use on the relevant part of the Network as a matter of contract. ORR accepts that there is a distinction between the treatment of freight and passenger TACs in this respect (as noted by the Panel inpara 7.3 of the Determination), but the present case concerns a passenger track access contract. ORR attaches importance to the fact that the draughtsman of Part F has defined Vehicle Change by reference to the Specified Equipment and not the Sectional Appendix.

The need to amend the “Specified Equipment”, combined with the probable need to install extra flange lubricators meant that the introduction of Class 142s qualified as Vehicle Change. ORR considers that the Panel was correct to determine that the proposal constituted a Vehicle Change.

(ORR Determination, paras 34, 38, 41)

Definitions “Working Timetable” and “Sectional Appendix” ADP31 February 2008

[Now defined by reference to Conditions D2.1 and D2.1.6, custom and practice of many years had been that the Working Timetable embraced a number of other key operating documents. This became a decisive question in determining ADP31, where the Panel found that it had to consider the contractual status of the Sectional Appendix. It concluded:]

This document, full title “the Sectional Appendix to the Working Timetables and Books of Rules and Regulations” is NOT given a defined contractual status within the Network Code or a Passenger Track Access Agreement, except insofar as it is incorporated by reference by virtue of its title, and the obligation on Network Rail to produce (under Part D) a “Working Timetable”. The Panel was familiar with the operational use made of the Sectional Appendix; its attention was drawn to a statement by the ORR in March 2006 (order against Network Rail for contravention of Condition 7 of its Licence), which states “the capability of the infrastructure is described in the sectional appendix for a particular part of the network (including such matters as gauge, line speed, and route availability). The sectional appendices are incorporated in the industry network code and are used in access contracts between Network Rail and freight [emphasis added] train operators to describe the network covered by the contract. It is therefore important that these documents are accurate.

The tabulations and format of the various volumes of the Sectional Appendix are then governed by a Railway Group Standard (formerly GE/RT/8004; to be superseded by GO/RT/3215), but the route specific content and detail is the responsibility of the respective management areas within Network Rail.

(ADP31, para 7.3)

Condition F2: Initiation of Vehicle Change procedure

Rule, Clause or Condition Determination Date of Hearing Points Made Within Determination
F2.1 Submission of proposal ADP31 February 2008

… the Panel was asked to consider a number of arguments calling into question the very use of the Vehicle Change procedure in this case. The Panel considers it appropriate therefore to confirm the principle, based on oft repeated precedent, that Parts F and G of the Network Code should be used in any circumstances where one party (Network Rail or Train Operator) asks that it be so used, because their procedures facilitate the reaching of clear understandings. That principle would be undermined if the Panel were then to concur with one argument put forward in this case, namely that merely because one party invokes those procedures the change in question becomes, by definition, a “Vehicle Change” within the terms of the Track Access Contract.

(ADP31, para 3)

Condition F3: Response to Vehicle Change proposal

Rule, Clause or Condition Determination Date of Hearing Points Made Within Determination
F3.1 Obligation to give notice of response ADP14 February 2006

In respect of this last consideration the Panel was of the view that the manner in which Network Rail had formulated its claim for compensation was of the essence of the dispute. Therefore, for the avoidance of doubt, the Panel drew the following distinctions;

  • Condition F3.1 (c) conceded to Network Rail the right to apply to be compensated “for the consequences of the implementation of the [Vehicle] change”. However,

  • the onus of proof, to demonstrate that the type of compensation sought in this case was admissible under the terms of Part F, was on Network Rail, and that,

  • the onus of proof has to be discharged through the interpretation of the contractual documents currently in force.

Condition F3.1 provides for any claim by Network Rail for compensation to be made by means of a notice, and that any such notice “shall include a statement of the amount of compensation required”. Condition F3.2 provides that ”Subject to Condition F3.3 [which requires off-setting benefits to be taken into account] the amount of compensation…shall be an amount equal to the amount of the “costs, direct losses and expenses” (including loss of revenue)…which can reasonably be expected to be incurred by Network Rail…as a consequence of the implementation of the proposed change…”. The Panel considered that Condition F3.1 thus requires a claim for compensation to be presented in terms of a stated amount, based upon a pre-estimate of the costs etc likely to be incurred, whereas Network Rail’s claim was, in effect, a claim to be indemnified in respect of an un-stated amount, to be quantified only on the basis of a further (after the event) assessment. In the Panel’s view, a claim expressed in these terms was not admissible under Condition F3.1.

(ADP14, paras 17, 19)

F3.2 “Amount of Compensation” ADP14 February 2006

The Panel was clear in its understanding that, if either party considered that the application of the laid down process for calculating the VTU charge created a degree of unfairness considered intolerable, then the proper (and only) remedy was to apply to the Office of Rail Regulation for some form of special relief, recognising that to amend the basis of calculating the VTU charge would affect the charges payable in respect of all classes of rolling stock. Condition F3.1, in its present form, does not entitle Network Rail to impose, through a claim for compensation, what would be in effect a variation of the VTU charge (away from the formula), without the need for Office of Rail Regulation approval.

The Panel noted that, as part of progressing the Vehicle Change procedures, TPE had met various development costs, including direct payment for the calculation of bespoke Sectional Running Times for the Class 185. It was noted that charges/compensation claims of such a nature are properly one-off payments, relating to the process of change or transition, that can be assessed in advance; they are not on-going, and/or open-ended commitments to reimburse, or indemnify, Network Rail against un-quantified contingencies.

  • a claim for compensation cannot be used to create a supplementary, and unregulated, stream of Track Access charging, over and beyond the categories of charge envisaged in Schedule 7 of the Track Access Contract, and in the Office of Rail Regulation’s Access Charges Review of 2003;

  • for the avoidance of doubt, any monitoring of the interaction between rolling stock and track, is considered by the Panel to fall within the basic accountability of Network Rail to manage the Network, and as such, therefore, did not justify separate supplementary funding through Part F;

  • TPE is required to pay the VTU charge for the Class 185, but otherwise, on the basis of the arguments presented to the Panel, Network Rail is not entitled to claim, and TPE is not under any obligation to pay, compensation in respect of “costs associated with any increase in track wear and resulting increased maintenance requirements, compared to existing vehicles being operated over approved routes”.

(ADP14, paras 22, 23, 26)

F3.2 “Amount of Compensation” NV35 December 2001

Where there have been different, and inconsistent methodologies used to determine the works that might need to be undertaken, there is correspondingly greater need to ensure that all such details are clearly documented, in order to substantiate the legitimacy of any compensation claimed.

(NV35, para 10)

F3.2 “Amount of Compensation”; F3.3 “Benefits to be taken into account” NV5 July 2001

[As a general principle the forum found that even where there may be evidence that a section of line does not comply with Railway Group Standards for new works, this does not automatically imply that Railtrack [now Network Rail] has a duty to upgrade that line in advance of need. Equally the Train Operator of a vehicle that could pass over such a line (were it upgraded) should not have responsibility to pay for works that are not necessary for that particular vehicle.

Railtrack may elect to carry out the works to accommodate a new vehicle to a standard that complies with Railway Group Standards (but exceeds straightforward immediate need); the calculation of compensation should take into account the value of the changes to both the Train Operator and to Railtrack. Thus:]

there is a duty imposed by Track Access Condition F on a party wishing to introduce a Vehicle Change to compensate other parties, including Railtrack, for the reasonable costs they might reasonably expect to incur to make such a change possible;

it is NOT reasonable to argue that

  • any changes to the infrastructure required to implement a Vehicle Change automatically have no benefit to Railtrack, taking into account all considerations of inter alia, reliability, asset maintenance, normal renewals, and the duties in respect of Railway Group Standards; and that therefore

  • such benefits have no value in relation to any calculation of compensation in accordance with Track Access Condition F3.3;

(NV5, para 8.3)

F3.2 “Amount of Compensation”; F3.3 “Benefits to be taken into account” ADP31 July 2001

In relation to the operation of the Vehicle Change procedure, the Panel re-affirmed that establishing whether or not a change qualifies as a Vehicle Change, is a process discrete from that which may establish that compensation is payable. If there is no Vehicle Change, then there can be no compensation, but even where Vehicle Change is proven, compensation may not be payable.

In relation to the arguments regarding the components of the funding settlements in either CP3 or CP4, the Panel considered the following points:

  • payment for track access by a Train Operator to Network Rail is made, currently, in two stages, namely a fixed charge, and a number of variable charges, of which, in this case the Variable Track Usage Charge (VTU) is the most substantial. In general terms, and in the absence of any other bespoke (and regulated) arrangements, these payments form the main part of the income that Network Rail receives to fund its duties to each Train Operator.

  • the VTU, in simple terms, represents Network Rail’s total “wear and tear” costs that arise from the variable incidence of train mileage, and which are apportioned by vehicle type:

    • within current (CP3) access charges, the VTU allocation takes account of the dynamics in relation to only the vertical movements of rail vehicles;

    • moves are afoot to incorporate a number of other factors relating to lateral dynamics (e.g. curving performance and rail wear) into the calculation of the VTU allocation in CP4;

  • in each case (CP3 or CP4), the definition of the element of income derived from VTU, as opposed to that derived from the fixed charge, has not made any difference to either the scope of Network Rail’s obligations to the Train Operators, or the Train Operators’ rights in relation to the standard of the Network provided. Such rights and obligations are as stated on the face of the Track Access Contract;

(ADP31, paras 25, 27)

Condition F4: Changes imposed by Competent Authorities

Condition F5: Appeal Procedure

Condition F6: Establishment and Implementation