Stagecoach takes rail franchise row to High Court

Virgin Trains were replaced on the West Coast Main Line after Stagecoach was disqualified

UK rail operator Stagecoach has taken the government to the High Court, arguing that ministers acted unlawfully in awarding rail franchises.

Last year, Stagecoach and its partners were barred from bidding to run three franchises in a row over pension liabilities.

Rail firms face an estimated £7.5bn pensions gap and Stagecoach says it was asked to take on too big a burden.

It alleges that the Department for Transport mismanaged the bid process.

It is seeking compensation, as well as a judicial review, which could see franchises already awarded being declared invalid.

Stagecoach's legal action is backed by its bid partners, Virgin and French state-owned operator SNCF.

Opening the case for Stagecoach and its partners, Jason Coppel QC said the rail franchise system and the railway pension scheme were both "in crisis".

He added that the procurement process was "shrouded in secrecy" and said there had been "a long series of mistakes and missteps which result in the unlawful disqualification decisions that we challenge".

A similar but separate case brought by Arriva, owned by Deutsche Bahn, had also been filed with the court.

However, at Monday's hearing, the court heard that Arriva had reached a confidential settlement with the DfT over its disqualification from bidding for the East Midlands franchise and had withdrawn its claim.

• Stagecoach 'asked to take on £1.6bn pensions risk'

The West Coast Main Line, previously run by Virgin Trains, is now operated by a partnership between Aberdeen-based firm FirstGroup and Italy's Trenitalia.

Another affected franchise, the East Midlands, was awarded to Dutch-owned firm Abellio.

The hearing is expected to last about four weeks, with a judgement to be issued later this year.

Stagecoach has said it is "disappointing" that it has had to resort to legal action, but feels it has "a strong case".

The DfT has said it has "total confidence" in the franchise competition process and will "robustly defend" the decisions that were taken.

The Pensions Regulator has estimated the UK rail industry needs billions of pounds to plug a shortfall in the railway pension scheme, while Stagecoach has said it was being asked to take on risks it "cannot control and manage".

Rail firms have called on the government to help make up the pensions deficit.