Great Western Trains Company Ltd v Network Rail Infrastructure Ltd

Compensation under Part G of a Network Code is assessed by identifying loss consequential upon a Network Change. The relevant comparison is between the train operator’s position with and without that change. Compensation under a separate franchise provision intended to insulate the operator from charges reviews may nevertheless fall within Part G where its loss results from the Network Change rather than the charges review.

Contractual arrangements forming a single structure must be read coherently, while each compensatory or insulating provision is confined to its proper sphere. The order of calculation is not decisive. A payment caused by the Network Change is recoverable from the infrastructure operator; a payment properly attributable to the charges review remains a matter for the franchising authority.

The claimant, a train operating company, appealed under section 69 of the Arbitration Act 1996 against an interim arbitration award concerning the construction of Part G of the Network Code, incorporated into its Track Access Agreement with the defendant.

The dispute arose from alleged Network Changes during the claimant’s franchise. The parties agreed that payments under Schedules 4 and 8 of the Track Access Agreement were relevant to Part G compensation. The central issue was whether payments under clause 18.1 of the Franchise Agreement, including sums that would have been paid absent the Network Change, should also be taken into account.

1. Appeal allowed in part. The court held that the Track Access Agreement and Franchise Agreement formed a coherent contractual structure, but Part G and clause 18.1 had distinct functions. Part G compensated loss consequential upon a Network Change. Clause 18.1 insulated the train operator from the direct financial consequences of charges reviews.
2. Part G required comparison of the operator’s position without and with the Network Change. Its reference to costs, direct losses and expenses was not restrictively defined. The loss of a clause 18.1 payment was therefore capable of falling within Part G if, on the facts, the loss resulted from the Network Change.
3. The illustrative £38 million payment arose under the hypothetical position as an insulating payment following the charges review. In the actual position, the Network Change meant that the operator was no longer liable to make the increased payments to Network Rail. The basis for the authority’s insulating payment had therefore disappeared. The £38 million exposure was attributable to the Network Change and fell within Part G.
4. The court accepted that the order of calculation was not determinative, although calculating Schedules 4 and 8, then Part G, and finally clause 18.1 was generally the natural approach. The decisive question was the true cause of the loss.
5. The illustrative £18 million payment made by the operator to the authority was treated differently. Network Rail was not liable for that sum. If recoverable, it had to be recovered from the authority, and any risk of failure to recover it remained with the claimant.
6. Accordingly, the appeal succeeded as to the £38 million and failed as to the £18 million. On the illustrative figures, the claimant was entitled to total Part G compensation of £85 million.

• Arbitration: By an Interim Award dated 24 April 2009, the arbitrator decided that clause 18.1 payments should not be taken into account in calculating Part G compensation.
• High Court (Commercial Court): The court allowed the appeal concerning the illustrative £38 million, dismissed it concerning the illustrative £18 million, and determined that the illustrative total Part G compensation was £85 million.