[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Merseyside Passenger Transport Authority & Anor v Secretary of State for Transport [2006] EWHC 226 (Admin) (08 February 2006) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2006/226.html Cite as: [2006] EWHC 226 (Admin)

[New search] [Printable RTF version] [Help]

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Court No 27 The Royal Courts of Justice The Strand London WC2A 2LL
		8th February 2006

Wednesday, 8th February 2006

MR JUSTICE SULLIVAN:

Introduction

1. Because of the urgency of this matter, I gave a short judgment at the conclusion of the hearing on 1st February. I dismissed the claimants' application for judicial review and gave a brief summary of my reasons for doing so. I indicated that I would provide the full reasons for my decision at the earliest opportunity this week. The reasons for dismissing the claimants' application are as follows:
2. In this application for judicial review, the claimants challenge the legality of the defendant's decision announced in a letter dated 29th November 2005 to withdraw a £170 million grant contribution under section 56 of the Transport Act 1968, ("the 1968 Act"), towards the funding of a proposed light rail scheme running from Kings Waterfront in Liverpool City Centre to Kirkby Town Centre in Knowsley known as Merseytram Line 1.
3. So far as material, section 56(1) provides that the defendant:

"... may with the approval of the Treasury make grants upon such terms and conditions as the Minister thinks fit to any person towards expenditure appearing to the Minister to be of a capital nature incurred or to be incurred by that person for the purpose of the provision, improvement or development of facilities for public passenger transport in Great Britain."

4. When the Merseyside County Council was abolished on 1st April 1986 its passenger transport functions were transferred to the claimants whose combined operating name is Merseytravel. There are five district authorities, ("the districts") within the Merseytravel area: Liverpool City Council ("Liverpool"), Knowsley Metropolitan Borough Council, ("Knowsley"), Sefton Metropolitan Borough Council, ("Sefton"), St Helen's Metropolitain Borough Council, ("St Helen's"), and Wirral Metropolitan Borough Council, ("Wirral").
5. The Merseyside Passenger Transport Authority ("the PTA") is an independent body corporate established under section 28(1) of the Local Government Act 1985, ("the 1985 Act"). Its 18 members are appointed by the five districts, Liverpool appoints six members; Knowsley, two; Sefton, four; St Helen's, two and Wirral, four. The general functions of the PTA and the Merseyside Passenger Transport Executive, ("the PTE"), are set out in section 9A of the 1968 Act which provides, so far as material:

"(3) It shall be the duty of the Executive for each passenger transport area in England to secure the provision of such public passenger transport services as the Authority for the area consider it appropriate for the Executive to secure for meeting any public transport requirements within the area which in the authority's view would not be met apart from any action taken by the Executive for that purpose.

"(3A) The Authority shall seek and have regard to the advice of the Executive for their area in determining which services it would be appropriate for the Executive to secure under subsection 3 of this section.

"(5) Where it appears to the Authority for any passenger transport area that it would be appropriate for the Executive for that area to take any measures for the purpose of or in connection with promoting, so far as it relates to that area --

(a) The availability of public passenger transport services ...

"the Authority may from time to time formulate general policies with respect to the description of such measures to be taken by the Executive for that area, and the Executive shall take such measures for the purpose or in the connection mentioned above as appear to them to be appropriate for carrying out those policies.

"(6) It shall be the duty --

(a) of the Authority for any passenger transport area, in formulating any such policies; and

(b) of the Executive for any passenger transport area in carrying out any such policies;

To have regard to a combination of economy, efficiency and effectiveness."

6. Section 10 sets out the PTE's powers which include the carriage of passengers by road or any other form of land transport. In summary, the PTA sets public passenger transport policies for Merseyside and the PTE implements those policies.
7. Implementation costs money and the PTE's activities are financed by grants made by the PTA. In turn, the PTA derives its funds from three principal sources, central Government funds, its own income including, in the case of Merseyside, income from the Mersey tunnels and ferries, and a levy on the five districts under section 74 of the local Government Act 1988. The PTA also has power to borrow.
8. The PTA's current annual income is just over £250 million of which about £100 million derives from the levy (40 per cent), about £80 million from central Government (32 per cent) and about £70 million from its own independent income (28 per cent). The PTE spends this income on a wide range of subsidised bus, rail and ferry services across Merseyside.

Factual background

9. The documentation submitted in support of and in reply to the claim is voluminous. For present purposes the salient events were as follows:
10. In July 2000, the Department of the Environment, Transport & the Regions published "Transport 2010, A 10-Year Plan", in which the Government stated that it expected that light rail passenger journeys would be "at least doubled by 2010" and that funding would be provided for "up to 25 new light rail lines in major cities and conurbations around the country".
11. In the following month Merseytravel and the five districts set out their own 10-year plan. The Merseyside local transport plan ("the LTP") prepared under section 108 of the Transport Act 2000, ("the 2000 Act"), included proposals for a three-line tram network. Merseytram Line 1 was one of the three routes and was identified in the LTP as the first priority scheme.
12. Also in July 2000, Merseytravel submitted an application to the Department for Transport ("the Department") for provisional funding for Line 1. An updated and more detailed application was submitted in July 2002 in which Merseytravel sought a grant of £170 million against total estimated costs of £225 million at 2006 prices. The Department sought Treasury approval.
13. The Treasury's response dated 6th December 2002 said so far as material:

"2. We agree that there will be a cap set on central Government contributions to Merseytram of ££170 million, leaving local sources to find a matching 25 per cent of the total cost of £225 million.

"3. If there is any subsequent increase in costs above £225 million, this will all have to be met through local sources. This could be by local authority borrowing under the prudential borrowing regime, if that is in place by then; if not, then there would have to be consideration of unsupported credit approvals, enabling local authorities to borrow and cover costs through local taxation. DfT should consider, with ODPM, the ability of local authorities to meet the costs of this borrowing before giving final approval to the scheme.

"4. DfT should also obtain assurances at the appropriate time from Section 151 officers in these authorities that they have considered the impact of potential cost overruns on the future finances of the authority and, as a matter of professional judgment, are satisfied that it would be affordable, bearing in mind that the Government's contribution is capped.

"5. These constraints will have to be made quite explicit in the approval given, and local promoters of the scheme left in no doubt that there will be no additional Government funding. Given the marginal nature of the existing cost benefit case, any cost increases would effectively undermine the economic rationale for the project."

14. Under the heading "Future DfT Strategy for Light Rail", the Treasury said:

"All of the above schemes will require a robust and proactive approach to management of costs and expectations by your Department. The local promoters must be made aware of the need for sound management of scheme development and bidding, and the share of costs that they are expected to take on -- essentially, 25 per cent of total agreed costs shared between local authorities and other local or commercial interests. It must be made clear that this is a risk transfer, and that cost escalation will fall on the local promoters rather than central Government. DfT, in conjunction with local authorities and ODPM, should ensure that the costs of borrowing to provide this contribution can be afforded."

15. On 10th December 2002, the Secretary of State for Transport, Mr Darling, announced in the House of Commons that, subject to statutory procedures, "a major light rail line will be built in Liverpool." In response to a question from Mr Howarth, one of the local MPs, on whether he would join in congratulating Merseytravel "on bringing the project to the point where it is now a reality" Mr Darling agreed, saying "Merseytravel has put a lot of work and effort into the project and I am glad that we were able to agree the funding."
16. An unkind commentator might have observed that these mutual congratulations were somewhat premature because, as the Department's letter to the claimants dated 19th December 2002 made clear, the Department's agreement on "funding" was only a provisional view and was subject to a number of conditions. The letter explained:

"My Secretary of State announced on 10 December his provisional view in favour of the proposed Merseytram Line 1 ... I am writing to confirm the conditions which attach to this view.

"First, his view is given solely in respect of the economic appraisal of the scheme as submitted to us, and the further studies that have since been undertaken of potential alternative public transport options for the same corridor. It is entirely without prejudice to any future TWA application that may subsequently be made or to the exercise of any of his other functions.

"Second, an updated appraisal of the scheme will need to be prepared if your authority obtains TWA powers. This appraisal will need to reflect any changes to the scheme as a result of the TWA process and any other developments. You will appreciate that the existing cost-benefit case is only marginal (though it is recognised that there are also benefits which are not included in the quantitive analysis) and that any significant cost increases could undermine the economic rationale for the project.

"Third, if the budget were to pass these further tests a cap of £170 million would be set on central Government contributions to Merseytram. This is 75 per cent of the currently estimated public sector costs of £225 million. The form of these contributions would depend on whether the current local authority capital control regime was still in force by then or had been replaced (as is the current intention) by the proposed prudential borrowing regime. In the former case, half the contribution would be section 56 grant and the other half would consist of supplementary credit approvals. In the latter case, the form of the contribution would reflect decisions yet to be taken, on how local authority investment would be supported under the prudential borrowing regime.

"In either case, were the public sector costs of the project to increase above the current estimate of £225 million, the entirety of the excess would have to be met through local sources. Under the prudential borrowing regime, it would be open to the PTA to borrow to finance any such costs, subject to prudential limits, but without the benefit of any grant support towards the financing costs. If the prudential borrowing regime were not in place by then, consideration would be given to providing unsupported credit approvals.

"Fourth, DfT would need to obtain assurances at the appropriate time from the Section 151 officers of the authorities contributing towards the costs of the scheme that they had considered the impact of potential cost overruns on the future finances of the authority and, as a matter of judgment, were satisfied that it would be affordable, bearing in mind that the Government's contribution would be capped.

"I know that you are determined to deliver the project within these cost limits, and are already considering what procurement arrangements would be best calculated to secure rigorous cost discipline and effective transfer of appropriate risks to the private sector. We look forward to working with you on the details of these."

17. The TWA application was approved and the relevant order came into force on 11th February 2005. The claimants submitted an updated appraisal of the scheme and a final bid report to the Department in November 2004 seeking Government funding of £204 million. On 5th April 2005, the Department approved a contribution of £4.2 million towards the claimants' preparatory costs, but on 13th June 2005 the Department refused to accept the final bid. The Department's letter said:

"Merseytram:

"The Secretary of State has considered very carefully all the information that Merseytravel has provided for Merseytram Line 1.

"We provisionally approved a Government contribution of ££170 million, in cash terms, towards the cost of Merseytram Line 1. That commitment remains if the scheme can be delivered at that cost. However, it has become increasingly clear that there is a problem with the cost of the scheme. The public sector cost has increased by 40 per cent since the Government gave provisional approval, and that is for a smaller scheme.

"In December 2002 the scheme was given provisional approval at a public sector cost of £225 million, in cash terms, with a capped DfT contribution of ££170 million.

"In November 2004 Merseytravel advised the Department that the public sector cost was £325 million. The Department's contribution was then presented as £204 million.

"That was for a reduction in scope, compared with the scheme we approved. If the northern loop was still included, that would have added around £25 million to the costs, bringing the cost increase for the original scheme to over 50 per cent.

"In February 2005 Merseytravel submitted a claim for £4.2 million towards the preparatory costs incurred. This was in addition to the £204 million contribution it was seeking from the Department.

"In February 2005 it also became clear that Merseytravel would seek additional funding from the Department if its proposal for a finance lease did not proceed as proposed. This assumed the Department would pay all its contribution upfront and allowed Merseytravel, in effect, to take advantage of the leasing company's tax allowances, providing Merseytravel with an extra £30 million but at a cost to the Government and taxpayer. The Department advised Merseytravel that this was an unusual arrangement for the public sector, which would need careful consideration within the Government. We have concluded that we cannot approve it.

"The Department told Merseytravel in March 2005 that under the new approach to approvals a final decision on whether to fully approve the scheme would not be made until the prices and risk allocation were firm, based on negotiated terms. Merseytravel advised the Department in May 2005 that, following negotiations with the preferred bidder, the total public sector cost was £315 million. But with the proposed local contribution of £77 million, the Government's contribution would be £238 million.

"Last summer Merseytravel was confident of delivering the scheme for the agreed Government contribution of ££170 million. Since last November, when Merseytravel put forward a revised public sector cost of £325 million, the Department has kept closely involved with the way the costs have developed. Merseytravel has managed to bring the costs down at the margin, reducing the total funding requirement by £10 million. However Government's contribution remains at some £238 million -- 40 per cent more than the original capped figure of ££170 million.

"I appreciate that Merseytravel has made every effort to keep costs under control. However, it is clear the costs remain significantly higher than those previously approved, and that this scheme is an expensive way of delivering these transport costs for Merseyside. Whilst we support tram schemes, we cannot do so at any cost. In the light of all the information the Secretary of State has therefore concluded that we cannot approve the proposal for Line 1."

18. The final paragraph of the letter said:

"The £170 million that we committed to Merseytram Line Line 1 remains available if the scheme can be delivered at that cost. If it cannot, a great deal can still be done for Merseyside through other transport improvements; the Department would welcome a discussion with Merseytravel to develop a good value package of improvements, especially for improved public transport for the areas that would have been served by the tram. The funding will be there for the right proposals."

19. That final paragraph of the letter left the door ajar. It is common ground that the proviso required the scheme to be delivered at a cost of £170 million to the Department. On 21st July 2005, after further discussions, the Department wrote to the claimants saying:

"You have provided us with a lot of information over the past few weeks on your proposals for taking forward Merseytram Line 1 with the Departmental contribution capped at ££170 million in outturn prices. You have made a good deal of progress. At the meeting with Derek Twigg yesterday, we promised to write setting out what assurances we would need before finally approving the scheme.

"Your most recent proposals, set out in Nick Painter's note of 4 July, proposed that the two major elements to fill the funding gap will be a revised leasing structure which you estimate will deliver £24 million; and a new Merseytravel borrowing facility for up to £30 million.

"On the leasing proposal, we are still considering the draft Heads of Terms received from Nick Painter on 14 July, but should be in a position to respond very shortly. Our intention would be that, as long as the final arrangement remains within the parameters set out in the draft Heads of Terms, the Department would not need to approve the lease itself. We will confirm the position in the next few days. Before Full Approval, we would accordingly require you to write to us, certifying that the detailed contracts remain within the parameters of the Heads of Terms.

"I can confirm that we would be willing to make all of our contribution as capital grant, as you have requested; and that we will use the best endeavours to meet your proposed timing for the draw-down of our payments, subject to you promptly submitting properly certified claims once milestones have been achieved.

"On the proposed borrowing, we note that you still hope to obtain additional Objective 1 funding; but failing that, you propose that the borrowing will be repaid from future Mersey Tunnel toll revenues. As you know, we are concerned to have assurance that the full range of liabilities that Merseytravel is proposing to take on are recognised and accepted by Merseyside districts. These include not only the liability associated with this proposed borrowing facility, but also QRA risks, cost risks associated with delay and other unforeseen problems, and the risks being assumed under the revenue risk-sharing arrangement, if revenues turn out to be lower than expected.

"You have provided us with a copy of a letter from the chief executive of Knowsley providing support for the proposed borrowing; but this only covers one element of the Merseytravel's liabilities, and sets conditions on the impacts on the districts.

"You have suggested that, in addition, you can provide a binding commitment that the PTA will not seek any further funding from the Department. This is helpful, but we also need to see that the districts stand behind this. I attach a draft of a letter that would give us the degree of commitment we require. It is up to individual authorities to decide who should sign the letter.

"In summary, to give us the assurance that Line 1 can be delivered with the Departmental contribution capped at ££170 million in outturn prices, and subject to our confirming the position on the lease, what we need is:

"(1) confirmation that the lease remains within the parameters of the Heads of Terms (once the details of the lease have been negotiated).

"(2) a letter from you binding the PTE and the PTA not to seek any further contribution from the Department, and to meet any costs of Line 1 above the ££170 million departmental contribution;

"(3) letters from each of the districts as in the attached draft."

20. The draft letter for the districts to send was in these terms:

"The district of [blank] is committed to Merseytram Line Line 1, and undertakes to work with Merseytravel to facilitate delivery of the project on time and to budget.

"[Blank] recognises that the Government's contribution to the project has been capped at £170 million in outturn prices, and that accordingly the risk for all capital costs above this figure lies with Merseytravel. In addition, Merseytravel is exposed to risk that the revenues from the operation of Line 1 fall short of the expected level.

"[Blank] recognises that, in the event that Merseytravel's overall expenditure exceeded the resources so far allocated to the scheme, the PTA would ensure that additional resources would be made available to secure the completion of Line 1."

21. The claimants provided the required confirmation in respect of the lease and complied with the second condition in a letter dated 25th July which said:

"Thank you for your helpful letter dated 21 July 2005 regarding the above.

"We are writing to confirm that Merseytravel, the Passenger Transport Authority and Executive, will not seek any further contribution from the Department for Transport beyond £170 million out-turn figure for Merseytram Line 1. Furthermore, Merseytravel will ensure that any costs of Line 1 above the £170 million capital grant are met locally.

"We trust this provides you with the assurance required from Merseytravel for the Department to give Full Approval to Merseytram Line 1.

"We would like to place on record our gratitude for the continued and constructive support provided by you and your colleagues to deliver this project."

22. Letters complying with the third condition were sent out by Knowsley, St Helen's and Sefton. No letter was sent by Wirral, and Liverpool's letter was qualified as follows:

"The Merseyside districts have considered the options available in respect of delivering Merseytram Line Line 1 and have agreed to commission an independent due diligence exercise to be carried out by Investec consultants on the scope of the proposals. Subject to a satisfactory report in response, the City of Liverpool would reaffirm its commitment to Merseytram Line Line 1, and undertakes to work with Merseytravel to facilitate delivery of the project on time and to budget.

"The City recognises that the Government's contribution to the project has been capped at £170 million in outturn prices, and that accordingly the risk for all capital costs above this figure lies with Merseytravel. In addition, Merseytravel is exposed to risk that the revenues from the operation of Line 1 fall short of the expected level.

"We further recognise that, in the event that Merseytravel's overall expenditure exceeded the resources so far allocated to the scheme, the PTA would ensure that additional resources would be made available to secure the completion of Line 1."

23. Investec reported at the beginning of September and between 14th and 23rd September each of the districts met to consider its attitude to the funding of Line 1. Knowsley resolved:

"(i) That the Council reaffirms its complete support for the Merseytram Project, provided that the total cost of the Project has a neutral effect on the Merseyside Passenger Authority levy; and

"(ii) That an approach to Government for further financial assistance for the Merseytram Project be supported".

24. St Helen's said:

"St Helen's remains supportive of Merseytram and of integrated transport systems for Merseyside.

"However, we remain concerned that the costs of the tram have risen significantly and the implications for Council Tax increases, resulting from the increased costs of the tram, are unacceptable.

"It is our opinion that Merseyside authorities should request further assistance for Merseytram from the Government, to fund the additional costs of £67 million in order to avoid the Council tax burden. When the tram was first approved, councils were assured that the costs of the tram would be neutral for Council Tax payers."

25. Wirral issued the following statement:

"Whilst being supportive of the principle of the Tram and the benefits it would bring to Merseyside, the political leaders in Wirral share the views expressed by other local authorities in Merseyside that the Tram project, as currently proposed, would place an unreasonably high burden on Merseyside council tax payers and therefore they would be unable to support the project in its current form."

26. Sefton resolved:

"... that Sefton MBC advise Merseytravel (MPTA) that they cannot support the Merseytram Line 1 in the light of the potential impact on the Council Tax for Sefton residents."

27. Liverpool resolved:

"1. Alongside other local authorities in Merseyside, Liverpool City Council reaffirms its support for the Mersey Tram Project.

"2. Note that the funding gap for the project is still £67 million.

"3. The Council resolves that support for the Mersey Tram Project requires Merseytravel not to increase the levy, or the burden to Council tax payers or any additional tunnel fee income to the project to close the gap.

"4. Liverpool City Council supports an all Merseyside approach to Government to fund the £67 million gap to provide this much needed transport project."

28. On 26th September 2005, the section 151 officers of the five districts met with the claimants:

"... to seek to agree the net financing requirements of the Tram project following concerns raised at the Merseyside Chief Execs & Leaders meeting on 23rd September."

29. In a jointly agreed note, they concluded that there was a funding gap of £56.8 million to £65.2 million. Under the heading "Funding the Gap", The section 151 officers said:

"Merseytravel have assumed borrowing requirements of £40 million in the Best Value Performance Plan (BVPP), financed from tunnel tolls. The BVPP has not formally been shared with the Districts and assumes levy increases which average around 6 per cent over five years.

"Even with borrowings of £40 million, this will still leave a gap of between £16.8 million to £25.2 million. Whilst it is noted that there are longer term aspirations to increase ERDF support, it is agreed that it is not possible to build in such an assumption at this stage. This leaves only two sources for funding the excess over £40 million, namely increased Government support and/or additional Prudential Borrowing. All of the above, together with the running costs of the Tram, would result in an annual cost of up to £6.5 m p.a. by 2009/2010. This would have to be funded by a combination of tunnel toll income (see above) and levy increases, unless reductions in spending could be identified elsewhere in Merseytravel's budget."

30. The section 151 officers' conclusions were:

"There is no issue between Merseytravel and the five districts over the funding gap. Whilst this is yet to be finalised over the next few weeks, it is agreed that this will be between £56.8 to £65.2 million.

"Beyond this, the five Merseyside districts are being asked to agree:

- Merseytravel borrow £40 million and this to be repaid using Tunnel Tolls; and.

- the balance, if the Government does not agree to increase its contribution, is funded by Merseytravel.

"In effect, this would mean, ultimately, a full year annual cost of up to £6.5 million."

31. On 27th September, the Minister, Mr Twigg, met representatives of the claimants, Liverpool and Knowsley, at Brighton. The Department's notes of the meeting record that Ms Ramsey, the chief executive of Knowsley, told the Minister that there was a funding gap of somewhat less than £60 million. The claimants would take a loan of £40 million. She asked the Department to meet the remaining funding gap of 19 million. The Minister replied that:

"... the Department would not provide this, and the risk for the project cannot lie with Government. This is why he wanted written confirmation from the LAs that they would underwrite the risk of the entire project."

32. After some discussion, Mr Howarth:

"... suggested that Liverpool and Knowsley councils could agree between them to underwrite the risk of the project...Derek Twigg said that Liverpool and Knowsley needed to discuss that further - but he would still require written confirmation that the two authorities will be prepared to underwrite the risk of the entire project."

33. The Department's notes of the meeting record the Minister's concluding words as:

"Derek Twigg concluded the meeting by reiterating that the Government's position had not changed: £170 million is still available for the tram project but there is no more Government money than this available. The Department must receive a written undertaking from Local Authorities that they will underwrite the risk of the entire project - although the possibility of only Knowsley and Liverpool doing this together was going to be discussed by those two Councils."

34. There is a dispute between the parties as to whether the Minister made it clear at that meeting that Liverpool and Knowsley's support would have to be unlimited as to potential amount. That dispute is of no consequence because it is accepted that the Department e-mailed Ms Ramsey the following day saying:

"Following the meeting yesterday, we thought it would be helpful to clarify what undertaking Ministers would be seeking from Liverpool and Knowsley, if you agree between you to underwrite the Mersey tram project.

"I attach a draft letter, which you will see is a modified version of the one you previously provided."

35. That draft letter was in these terms:

"The district of Liverpool/Knowsley is committed to Merseytram Line 1, and undertakes to work with Merseytravel to facilitate delivery of the project on time and to budget.

"Liverpool/Knowsley recognises that the Government's contribution to the project has been capped at £170 million in outturn prices, and that accordingly the risk for all capital costs above this figure lies with Merseytravel. In addition, Merseytravel is exposed to risk that the revenues from the operation of Line 1 fall short of the expected level.

"Liverpool/Knowsley recognises that, in the event that Merseytravel's overall expenditure exceeded the resources so far allocated to this scheme, either the PTA would ensure that additional resources would be made available to secure the completion of Line 1; or failing that, Liverpool and Knowsley would jointly ensure that sufficient additional resources would be provided for that purpose."

36. On 14th October, the Department wrote to the chief executive of Liverpool. That letter summarised the history and said this as to the commitments sought in the letter of 21st July 2005:

"It has subsequently become clear that confirmation on the third point will not be forthcoming from all Merseyside districts. On 27 September, George Howarth proposed that Knowsley and Liverpool might underwrite the Merseytram project in its entirety. We would be prepared to accept such an agreement, provided that it was unconditional and that all costs could be met by those Councils jointly and severally. This means that the two districts would need to support any additional funding that Merseytravel needs at this stage for a contingency provision, and also any costs that materialise above the contingency level, and any other shortfalls in funding for the project.

"On 28 September, we advised on the nature of the undertaking we would be seeking from both Liverpool and Knowsley, if you were both prepared to agree to underwrite the Merseytram project. We have reviewed the draft that we provided then to ensure that it is clear about the commitment that is needed. We would also need confirmation from the two authorities that they agreed how any costs resulting from this commitment would be shared between them. This needs to be a precise and unambiguous agreement which is not subject to further negotiation. I attach a revised letter, reflecting these points, which would need to be sent to us jointly by the two councils.

"Neil Scales [the chief executive of Merseytravel] wrote to me on 7th October setting out the outstanding issues for delivery of the project. He informed us that Merseytravel was progressing the steps necessary to resolve these, and to ensure satisfaction of the outstanding conditions set by the Department, by 31 October. If that date is not achieved, the agreement reached so far on price and other key contractual terms would be jeopardised. We will therefore be expecting to receive the attached joint letter from you and Knowsley by that date, so that the funding can be confirmed.

"When Derek Twigg met the Merseyside representatives on 27 September, he said that we would also need confirmation that the PTA had formally endorsed the £40 million loan that Merseytravel proposed as part of the funding package for Line 1, and which would be repaid from the Mersey Tunnel toll revenues. I am therefore writing in parallel to Neil Scales to request that confirmation of the £40 million lone loan is also received by 31 October."

37. The first two paragraphs of the draft letter were the same as in the previous draft but the third paragraph was replaced by two new paragraphs as follows:

"Taking account of the Government's capped contribution of £170 million and such other resources as are committed by Merseytravel to Line 1, now or in the future, Liverpool and Knowsley undertake that they will jointly provide sufficient resources to Merseytravel to secure the completion of Line 1.

"To that end, Liverpool and Knowsley have agreed the proportions in which any costs which become payable as a result of, but without prejudice to, this undertaking would be shared between them. These are as follows ..."

38. Negotiations then took place between the claimants, Liverpool and Knowsley, and there were further discussions with the Department. On 28th October Knowsley resolved:

"(i) That approval be given to underwrite, jointly with Liverpool City Council, a contingency sum of up to £25 million on the Merseytram Line 1 project, subject to:

"(a) the Council's share of the underwriting with Liverpool being based on relative population figures; and:

"(b) a detailed tripartite funding agreement being put in place between the Council, Liverpool City Council and Merseytravel which explicitly limits the Council's potential contribution and clearly identifies the terms and conditions under which such a contribution would be called upon..."

39. Subsequently the contingency sum was agreed at £24 million of which £18 million was to be provided by Liverpool and £6 million by Knowsley. Liverpool's Executive Board considered a report from its officers, including the section 151 officer, at a meeting on 4th November. The conclusions in this lengthy report were as follows:

"10.1: There is no doubt that the counsel has, through its actions, demonstrated a clear commitment to supporting the Merseytram Line 1 project.

"10.2: The Council's historical support for Merseytram has been subject to three key qualifications:

- there would be no direct or indirect cost to the Council;

- works would be completed by 14 September 2007 to avoid construction works during the European City of Culture Year; and.

- the design and quality would be commensurate with the historic fabric and architecture of the City.

10.3: The events of recent months have resulted in the Council now being requested entirely to forgo the first principle and to depart from the second. There is also a possibility that the desire to control costs could impact on Merseytravel's ability to ensure the quality of the system which both the council and, indeed, Merseytravel would wish to secure.

"10.4: It is clear from the experience of other light rail projects from around the world and from recent experiences of Manchester and Leeds that there is a significant risk that the costs of the project will exceed Merseytravel's construction estimates.

"10.5: The Secretary of State has made it clear to the Council (and Merseytravel) that he is not convinced that the costs of the tram would outweigh the social, economic and regeneration benefits which it is bound to deliver, and that Merseytravel Line 1 is an expensive way of delivering transport benefits for Merseyside. The Secretary of State also stated that whilst he supports tram schemes, he 'cannot do so at any cost'.

"10.6: This is the reason why the Secretary of State has sought to put the onus on the five Merseyside authorities, and most recently, just the Council and Knowsley to agree, unequivocally, to underwrite any shortfall in funding for the Line 1 project irrespective of whether it exceeds the £25 million suggested by Merseytravel.

"10.7: Three of the five Merseyside authorities have decided that they cannot agree to risk their Council taxpayers' money and assets. This leaves the Council and Knowsley to decide whether the overall benefits of Merseytram Line 1 justify the unquantified risks.

"10.8: As will be seen from the risk analysis, the section 151 officers have agreed that there is currently an expected shortfall of £65 million.

"10.9: This figure could increase or decrease as the funding picture becomes clearer. In order to obtain a better understanding of the true estimated project costs, the amount of secured funding and levels of risk, it will be necessary for Merseytravel to be willing to make a full disclosure of the documentation related to the project. It has so far been unwilling to do this and has, indeed, suggested that the Council should rely on Merseytravel's assurances that the costs will be tightly controlled and that the Council's potential expense will be limited to a maximum of £25 million. Merseytravel has supported this proposition by preparing and submitting a draft funding agreement which limits the Council's exposure to £25 million. However, this would be unacceptable to the DfT. The DfT has indicated that it is not prepared to rely upon this as the MPTA would need to stand behind it and three of the five MPTA authorities have refused to make any further financial commitment to the tram.

"10.10: The Merseytram project is clearly stretching Merseytravel's finances, indeed they have made it clear they are at the full extent of their borrowing. Members should give careful consideration to the weight to be attached to any Undertaking received from Merseytravel. This is because there has been an absence of transparency and willingness on the part of Merseytravel to disclose information to the Council.

"10.11: At this moment in time, officers do not know the full extent of Merseytravel's potential financial exposure. If costs begin to spiral out of control and Merseytravel does not have sufficient funds available, the fact that an Undertaking put in place which caps the Council's risk will be meaningless. There would inevitably be pressure applied to the Council to step in and bail out the project.

"10.12: The DfT has requested an unequivocal assurance from the Council (and Knowsley) that it will underwrite the full cost of any shortfall in funding for the project. The Council should therefore as an absolute minimum satisfy itself about the likely risk and potential future liability.

"10.13: In view of the unidentified and, as yet, unquantified risks, officers are of the view that it would be premature for Members to agree unequivocally to the assurance sought by the DfT, in the letters of 14 and 21 October 2005 as clarified by that of 27 October.

"10.14: Merseytravel should be informed of the need to make full disclosure of the true costs of the project (so that the Council can make its own assessment of the likely risk and exposure).

"10.15: If Members are minded to agree to give the commitment requested by the Government, they should, at the very least, make any such decision conditional upon a proper, independent due diligence of the Merseytram Line 1 project funding and contractual structure.

"10.16: To undertake a proper due diligence exercise, the Council would need to engage the services of a professional team, including financial advisors, accountants engineers and lawyers to review the project documentation, and to advise on any risks and the likely expense faced by the Council.

"10.17: This is absolutely necessary because of the potential adverse effect upon the future finances of the Council must be completely understood by Members before taking a final decision.

"10.18: A due diligence exercise is likely to take at least several weeks. Merseytravel will no doubt seek to argue that it does not have the luxury of time and that any delay will endanger the programme and result in an increase in the costs of the project.

"10.19: Time spent now may well enable both the Council (and indeed Merseytravel) to avoid some costly mistakes which once the construction contract has been let, will be extremely difficult, if not impossible to rectify."

40. In correspondence, the claimants vigorously disputed much of the detail in the Liverpool officer's report.
41. Liverpool's Executive Board resolved on 4th November 2005 that:

"(i) approval be given to underwrite, jointly with Knowsley Borough Council, a contingency sum of up to £24 million on the Merseytram Line 1 project subject to:

"(a) the Council's share of the underwriting with Knowsley Metropolitan Borough Council being based on relative population figures; and.

"(b) a detailed tripartite funding agreement being put in place between the Council, Knowsley Metropolitan Borough Council and Merseytravel with explicitly limits the Council's potential contribution to its agreed share of £24 million and clearly identifies the terms and conditions under which such a contribution would be called upon ...

"(iv) the City Council's support is also conditional on the following being agreed by Merseytravel:

"(a) a joint member project board be appointed from Merseytravel, Knowsley MBC and City Council;

"(b) a joint officer project board be appointed to manage the project from Merseytravel, Knowsley MBC and the City Council;

"(c) we all commit to full transparency on all projects and contract documentation; and:

"(d) Merseytravel withdraw their access proposals to the King's Dock Arena and the Conference Centre site and they be negotiated between Merseytravel and the City Council."

42. The claimants, Liverpool and Knowsley, had all kept the Department informed of the progress of their negotiations. On 27th October, the Department had written to Ms Ramsey saying:

"Your letter of 26th October asks whether an arrangement by which the underwriting by Knowsley and Liverpool was capped at £25 million would satisfy the Department's requirements for the release of the £170 million Government funding. I am writing to inform you that it would not."

43. The letter then referred to the meeting at Brighton on 27th September and continued:

"On 21st October I further noted that it was for Merseytravel and the two districts to satisfy themselves with regard to the possible costs of the project, including the appropriate level of contingency, and the other sources of funding.

"This remains our position. It is clear from my letter of 14th October that capping the extent of Knowsley's and Liverpool's underwriting would not meet our requirements.

"Your letter does not give any indication as to who would provide the underwriting for any cost overruns in excess of £25 million. We have been clear that this must come from the districts. An undertaking from Merseytravel alone, even if it were forthcoming, would not be sufficient, as it is apparent that at least two of the PTAs constituent district councils do not support underwriting Merseytram, and we could not therefore have confidence in such an undertaking.

"As previously made clear, we will therefore need to receive from you and Liverpool underwriting letters exactly in the form provided with my letter to you of 14th October. This is the only basis on which the Government's funding will be released. To meet Merseytravel's contractual timetable, these letters need to be received by 31st October."

44. Copies of that letter were sent to Liverpool's chief executive Sir David Henshaw and to Mr Scales. In an undated letter received on 4th November, Mr Twigg said to the Chairman of the PTA:

"Our position has not changed since July when my officials wrote to Merseytravel setting out the basis on which the Government would release £170 million for Merseytram. Despite this clear position, last week there seemed to be some uncertainty about our requirements. I needed to make sure immediately that everyone understood what is needed.

"In July we made it clear that it would not be sufficient for Merseytravel to give an undertaking to underwrite the costs of the project. We need to have a commitment from the districts that they will stand behind Merseytravel. Ultimately the districts can act as funder of last resort to Merseytravel, through an increase in the levy. We need assurance that the districts recognise and accept this position.

"If the districts are not prepared to deliver that commitment now, then we cannot have confidence that they would do so in the future if the project needs additional funds.

"In the first place, we asked for all the constituent members of the PTA to make this commitment. But when it was clear that not all of them would do so, we were willing, at the suggestion of Knowsley, to accept assurances from just two - Liverpool and Knowsley - to underwrite any funding gap.

"I am aware that Merseytravel is now suggesting that Liverpool and Knowsley might lay off their underwriting risk above the contingency level on Merseytravel. However, I wish to make it clear that the funding guarantee from Liverpool and Knowsley to the Department must be unconditional, and in precisely the form that my officials advised on 14th October 2005, and reiterated on 27th October 2005 ...

"We had asked for the required underwriting letters from Liverpool and Knowsley, plus confirmation from Merseytravel on the lease and the £40 million loan, to be provided by 31st October.

"Given what you say in your letter, I recognise that you will not be able to get an answer from Liverpool before their meeting on 4th November 2005.

"I am therefore prepared to hold open the offer of the £170 million until 7th November as you requested, this will be on the basis that we receive the necessary undertakings from Knowsley and the necessary confirmation from Merseytravel by the end of this week, and that Liverpool inform me by noon on Monday, 7th November, of the outcome of their meeting. I will consider the way forward in the light of that, but clearly it is in everyone's interest to see this matter brought to a conclusion very soon."

45. On 15th November, the claimants sent the Department a revised draft funding agreement under which Liverpool and Knowsley would underwrite the first £24 million of any overspend. There would also a bank guarantee to cover a further £24 million of any overspend. On 17th and 18th November, Knowsley and Liverpool confirmed that they would not enter into an unlimited and unconditional agreement as required in the Department's letter of 14th October.
46. Finally, on 29th November 2005, the Minister wrote the decision letter which is under challenge in these proceedings. It said:

"On 13th June this year, the Secretary of State said that the £170 million Government funding that had originally been approved for Merseytram remained available if the scheme could be delivered at that cost.

"Since then we have had regular discussions to secure the necessary funding commitments from the Merseyside districts, over which Merseytravel has powers to levy funds, to give confidence that the scheme would be delivered without further requests for Government funding. Unfortunately, the required assurances have not been forthcoming. The Secretary of State and I have therefore decided that this scheme cannot proceed.

"Merseytram Line 1 was given provisional approval in December 2002, at a public sector cost of £225 million and with a cap of £170 million on central Government contributions. Costs subsequently increased, and Merseytravel advised the Department in May 2005 that the total public sector cost was £315 million - an increase of 40 per cent. This was for a scheme that was smaller in scope than the one we had approved.

"This led to the Secretary of State's announcement on 13th June 2005 that the Government would not increase its contribution to the project. However, our position has remained clear that the previously committed £170 million was available if the scheme could be delivered at that cost.

"Since June the Department's key concern has been to ensure that there would be no further requests for Government funding. To this end, the Department needed assurance that the districts, as the ultimate funders of any shortfalls, had properly considered the risks, and accepted the consequences of the Government's contribution being capped. This logically meant that there should be no cap on the contribution from local sources. I made clear in July 2005 that we would need written undertakings from the Merseyside district to this effect.

"Since then the Department has tried to help the authorities find a way forward. In September 2005 it became clear that not all of the Merseyside districts would be prepared to give such undertakings. We agreed to consider a proposition that Liverpool and Knowsley, as the principal beneficiaries of the project, would provide assurances that they between them would meet any cost overruns or funding gaps. We have also agreed to requests to extend the deadline for a decision.

"We have also said that our requirements would be satisfied by an arrangement under which the two districts would enter a back-to-back agreement committing Merseytravel to take the risk above a certain level, as long as the districts' commitments to the Department were unconditional. This approach could address district concerns about the prudence or lawfulness of providing unconditional commitments to the Department, provided that they satisfied themselves that they could rely on the agreement with Merseytravel.

"The Merseyside authorities have now had four months to deliver these commitments, but they have not been prepared to do so. What the districts have offered is a capped commitment whereby Liverpool and Knowsley would bear costs up to £24 million. Above that level, they have asked us to rely on assurances from Merseytravel.

"However, Liverpool City Council has recently received written legal advice that it would not be prudent or lawful for Liverpool to rely on Merseytravel assurances about the risk of cost overruns without a proper independent due diligence exercise.

"If Liverpool's own legal advice is that it cannot currently rely on Merseytravel assurances, then clearly it is not reasonable to accept the Department to do so.

"Liverpool's advice is consistent with our view that there is nothing inherently unlawful in an unconditional district undertaking. What is preventing the districts from providing the commitment letters we have requested is that they cannot be confident in Merseytravel's assurances.

"Our requirements have been clear since July. We have now had months of discussion with Merseyside. The authorities have had plenty of time to undertake the necessary due diligence work. However, it is unfortunately clear that the districts are not prepared to give us the assurances we need; so we cannot be confident that there will be no further requests for funding. The Secretary of State and I have therefore decided that the scheme cannot proceed ..."

The claimants grounds

47. In his skeleton argument on behalf of the claimant Mr Pannick, Queen's Counsel, summarised the three grounds of challenge as follows:

"(1) Legitimate expectations:

"The Secretary of State has unlawfully breached a legitimate expectation that he will provide £170 million towards the cost of the project if Merseytravel satisfies the four conditions specified in the letter of 19th December 2002. The four original conditions have been satisfied (or would be if the Secretary of State had not required all the five district authorities to give unqualified policy support to the project, or alternatively required that two district authorities undertake to meet any possible cost overruns however large). The Secretary of State has failed to recognise that there is a legitimate expectation and he has failed to identify any compelling public interest which justifies breaching that expectation.

"(2) Unfairness/Unreasonableness

"The Secretary of State has acted in a substantively unfair or unreasonable manner. The concern of the Secretary of State is that he should not have to contribute more than £170 million. But the project is fully funded, and makes proper provision for contingencies. In any event, Merseytravel has accepted that the Secretary of State will not have to provide further funding, and has given the Secretary of State assurances that it can and will meet any unexpected cost overruns. To add the further condition requiring the district authorities to give policy support to the project or to underwrite the project is substantively unfair or unreasonable.

"(3) Frustrating the statutory scheme

"The Secretary of State is frustrating the statutory scheme by requiring the five district authorities to give policy support to the project or requiring two districts authorities to underwrite the project to satisfy his concern that he should not be asked to provide more than £170 million. It is Merseytravel and not the constituent district authorities which has the relevant statutory functions, including the responsibility for deciding whether to implement this project and whether it is financially sustainable. The Secretary of State is unlawfully conferring on the constituent district authorities the responsibility for deciding whether this project should proceed, when the statutory responsibility belongs to Merseytravel."

48. I will deal with these three grounds of challenge in turn.

(1) Legitimate expectation

49. Both the nature of the claimants' expectation and the manner in which the defendant was alleged to have breached that expectation proved to be somewhat elusive. In the claimants' original grounds for judicial review they said:

"In essence, in the present case, the Department has engendered a legitimate expectation, which it has broken unfairly and for no valid reason. In particular, the Department has broken its clear promise to release £170~million in grant funding for Merseytram Line 1 on the terms set out in the provisional funding letter [dated 19th December 2002] and the letter of 21st July 2005, terms which were attainable and on which it was reasonable for Merseytravel to rely (and on which it did rely to its detriment by spending more than £50 million). The breach consisted in adding an unattainable requirement that Knowsley and Liverpool should provide an unqualified and uncapped undertaking to fund any overspend. There was no good reason, still less any statutory duty, compelling the introduction of that new requirement.

"The provisional funding letter and the Department's letter dated 21st July 2005, read with the attached original comfort letter, constituted clear and unqualified representations of the only remaining conditions to be satisfied in order to secure the release of the Department's £170 million grant contribution.

"Those representations were directed at Merseytravel and/or it was reasonable for Merseytravel to rely upon them.

"Merseytravel did rely upon those representations. They substantially satisfied the conditions and would have been in a position to fully satisfy the conditions by the end of November 2005, but for the subsequent change by the Department of the conditions which required to be satisfied."

50. That allegation was clearly misconceived since the defendant had not added a further requirement. He had merely stated that he was prepared to consider an alternative proposal that had been put forward by Mr Howarth when it had become clear to all parties that the original conditions could not be met. See, for example, the letter dated 14th October 2005.
51. In his oral submissions, Mr Pannick contended that, properly understood, the fourth condition in the letter dated 19th December 2002 was requiring assurances, not from the section 151 officers of all five of the districts which would be (indirectly) contributing to the scheme through the levy from the PTA, but only from the section 151 officers of those authorities which would be directly contributing to the costs of the scheme, for example, by way of grant or some form of guarantee.
52. In 2002 it was not known which, if any, of the districts would be prepared to make a direct contribution to Line 1. In the event, only Liverpool and Knowsley were prepared to do so. Secondly, Mr Pannick submitted that, "the authority" referred to in the 2002 letter was the PTA, not the section 151 officers' own districts. Thus the districts' section 151 officers were to consider the question of affordability from the point of view of the PTA, not whether in the event of cost overruns any increase in levy from the PTA would be affordable for their own districts.
53. He submitted that the third condition in the letter of 21st July 2005 was a change from that position in that it required the districts to recognise that, in the event of cost overruns, the PTA would ensure that additional resources (which might well include an increase in the levy) would be made available to secure its completion. The claimants' submission at the hearing was that, in the light of the fourth condition in the 2002 letter, the defendant should in November 2005 have asked the section 151 officers of Liverpool and Knowsley for an assurance that any cost overruns would be affordable by the PTA.
54. Had that question been asked, it was submitted that those officers would have answered it in the affirmative, provided Liverpool and Knowsley were prepared to underwrite a contingency of up to £24 million.
55. I accept that the 2002 letter would have been capable of giving rise to a legitimate expectation. However, I do not accept that the fourth condition should be, or was ever, construed as contended for by Mr Pannick. It is difficult to see why the defendant should have wished for assurances from the districts' section 151 officers about questions of affordability from the PTA's point of view rather than assurances from them about the issue of affordability for their own councils. If the defendant had wanted assurances about affordability from the PTA's point of view, then he would have asked for those assurances from the PTA's chief financial officer (who must have the same minimum qualifications and fulfils the same functions as a section 151 officer in the districts).
56. The defendant's concern throughout has been to ensure that the districts publicly acknowledge that, if there are cost overruns, they will be prepared to accept the financial consequences in terms of an increased levy from the PTA and will not seek further assistance from Central Government. In short, although the defendant never put it so crudely, he was making it clear that mere expressions of support from the districts were not enough. He wanted a public statement of their willingness, if necessary, to put their money where their mouth was.
57. In any event, it is of no consequence whether the claimants' submissions as to the proper interpretation of the fourth condition in the 2002 letter are or are not correct. Whichever way the condition is interpreted, none of the section 151 officers gave an assurance that they had considered the impact of potential cost overruns on the future finances of the PTA or their own authority and were satisfied that the impact would be affordable, either for the PTA or for their own authority. Mr Pannick referred to the joint note of the meeting on 26th September 2005 signed by all of the five section 151 officers but, however benevolently that note is construed, it is not an assurance that the impact of potential cost overruns would be acceptable to either the PTA or the districts.
58. I have referred to the districts' resolutions and statements between 14th and 23rd September, see above, which make it plain that the cost overruns then envisaged were not acceptable to the districts. It will be recalled that at the meeting at Brighton on 27th September the two authorities present, Liverpool and Knowsley, did ask the Minister for a greater contribution from Central Government.
59. In any event, any expectation that might have arisen as a result of the 2002 letter would have been brought to an end when the final bid was rejected on 13th June 2005. Thereafter all parties including the claimants agreed to, and did, proceed on the basis of the conditions that were set out in the letter dated 21st July 2005. See the letter of thanks from Mr Scales to the Department dated 25th July 2005.
60. It is not in dispute that condition 3 in the letter dated 21st July 2005 was never met. Although the claimants submitted that the extent of the failure was limited in that only Wirral declined to provide a letter of assurance, that overlooks the fact that Liverpool's letter was qualified and subject to a satisfactory response from Investec. More importantly, it also overlooks the resolutions passed and the statements made by all five of the districts between 14th and 23rd September. Two districts stated that they were unable to support the Line 1 project because of its cost implications for their residents, and the three districts who still supported the project did so only upon the basis that the Government should provide additional financial assistance.
61. In short, while they supported Line 1, the districts were not, insofar as any additional costs were concerned, prepared to put their money where their mouth was.
62. Thus it was plain to all of the parties by the time of the meeting on 27th September 2005 that there was no prospect of the third condition in the letter of 21st July being complied with either in spirit or to the letter. No doubt it was for these reasons that Mr Howarth put forward his alternative suggestion that Liverpool and Knowsley should step into the breach. Whether the Minister made it plain at the meeting on 27th September that he would expect them to do so on an unconditional basis as to the amount of any potential liability is of no consequence because the undertaking that the defendant was seeking from Liverpool and Knowsley was spelt out in both the e-mail sent to Ms Ramsey the following day and the letter of 14th October.
63. While the claimants contend that the defendant's requirements of Liverpool and Knowsley were unreasonable and/or unlawful, see below, it is common ground that they were not met. The two councils made it clear that they were not prepared to provide assurances in the form sought by the defendant. It follows that there could have been no breach of any legitimate expectation based on the letter of 14th October 2005, and Mr Pannick did not submit that there had been such a breach. For these reasons, the challenge based on legitimate expectation must fail.

(2) Unfairness/unreasonableness

64. Although "unfairness" was alleged, no procedural unfairness was identified and this round of challenge is in reality a perversity challenge. Mr Pannick submitted that in his letter dated 28th November 2005, the defendant had explained that The Department's:

"... key concern has been to ensure that there would be no further requests for Government funding."

65. The claimants had given the defendant an undertaking that Merseytravel would not seek more than £170 million from the Department: See its letter dated 25th July 2005. Mr Pannick referred to the claimant's evidence which demonstrated that Merseytravel was satisfied that the project was fully funded and that this included very substantial contingency figures. In the unlikely event that these proved to be inadequate, the PTA had sufficient resources available to it to meet any conceivable overspend without increasing the levy. In the last resort, the PTA had power to increase the levy so as to fund any shortfall, hopefully with, but if necessary without, the consent of the five districts.
66. Against this background, it was submitted that the defendant's fears were unreasonable. They were doubly unreasonable because the Department had deliberately not taken any view on whether the funding arrangements to meet any possible cost overruns were adequate.
67. Mr Linnard, the Director of Regional and Local Transport Policy in the Department, explained in his witness statement dated 17th January 2006 that:

"The Department could not be confident that the final package put forward was sufficient. Since June 2005, when Merseytravel's November 2004 bid was rejected, the Department had deliberately not taken a view on the risks and possible cost overruns. That was a matter for the districts which would have to bear any such cost overruns. The Department therefore could not agree the Claimants' assertion that the claimed £48 million contingency (if available) would meet all conceivable funding shortfalls. The Department was aware that there were risks, not least the delay to the start of the project and the time limit on making use of benefits of the lease arrangement. If the Districts were confident that the available funding was sufficient to meet all eventualities, they should have been able to give the assurances the Department was seeking."

68. He had previously explained in respect of the £24 million that was proposed to be underwritten by Liverpool and Knowsley that;

"The Department did not itself take a view as to the adequacy or otherwise of the£24 million contingency because:

"(A) Since the decision of 13th June 2005, which reiterated that Government's contribution was limited to £170 million, the onus was on the Districts to satisfy themselves that Merseytravel had sufficient resources to fund the scheme;

"(B) The Districts had engaged Investec to perform due diligence;

"(C) It would have been expensive and time-consuming for both the Department and Merseytravel if the Department had undertaken a parallel exercise to that being done for the Districts by Investec".

69. Mr Pannick submitted that it was incumbent upon the defendant to carry out at least some evaluation, the level of detail being for him to determine, of the adequacy of the funding arrangements that had been put in place by the claimants so that he would be in a position to take a view on a properly-informed basis as to whether there really was any risk that there would be further requests from either the PTA or the districts for more Government funding.
70. The first part of this submission ignores the reality of what had occurred since the 2002 letter. The second part of the submission fails to take account of the defendant's underlying policy objective in requiring assurances from five and then two of the districts.
71. Dealing with these matters in turn, in 2002 the Department had set a cap of £170 million (75 per cent of the public sector costs then estimated at £225 million at 2006 prices) on Central Government's contribution to Line 1, and made it clear that any excess costs over the £225 million would have to be met locally. In November 2004 the Department had been asked to contribute more than £170 million. It had refused. In July 2005 it had reiterated its position that there was a cap of £170 million on the available section 56 grant and sought letters from the claimants binding them not to seek any further contribution from the Department and letters from the districts recognising, in effect, that, if there were cost overruns, they, the districts, would have to pick up the bill through increases in the levy from the PTA unless the PTA found alternative means (for example, reallocating its income from the Mersey tunnels and ferries) to fund the completion of Line 1. The claimants had given the assurance sought in the second condition in the letter of 21st July 2005, and three of the five districts had given unconditional assurances in terms of the third condition.
72. Notwithstanding those assurances, by late September 2005 the districts had made it plain, either that they did not support Line 1 because the financial burden would be too expensive for their council tax payers, or that they did support Line 1 but only upon the basis that Central Government would make a larger contribution than £170 million.
73. On 27th September, the Minister was asked, not by the PTA, but by two of the districts, for an additional £19 million contribution to the funding gap. A reasonable minister was certainly entitled to conclude, in the light of this experience, that an assurance from the PTA alone that it would not seek additional funding from the Department would be insufficient and that some form of assurance from those districts who might have to pay an additional levy if there were cost overruns was also required.
74. By that stage, it was plain that no such assurance could be expected from three of the five districts, see their resolutions and statements above. In practical terms, the question for the defendant was whether there had been such a change in circumstances since the most recent request for additional funds at the meeting on 27th September 2005 that he could be satisfied that there was no real risk of a repetition of the earlier repeated requests for additional funds from the Department.
75. The answer to that question was very much a matter of judgment for the defendant, and the issue in these proceedings is not whether, in the light of the additional information provided after 27th September 2005, he might have been satisfied that there was no risk of repetition, but whether the additional information was so compelling that any reasonable Secretary of State would have been bound to have been so satisfied.
76. That is a very high hurdle and the claimants are not able to surmount it. I have set out the conclusions of the officers, including the section 151 officer, advising Liverpool's Executive Board on 4th November 2005. While I appreciate that the claimants strongly disagreed with the contents of the Liverpool officers' report, it nevertheless demonstrates that in November 2005 there was at least room for different views about the extent of the financial risks and the adequacy of Merseytravel's proposals for meeting them. Although Liverpool's Executive Board was prepared to underwrite its share of a contingency sum up to £24 million, it was prepared to do so only upon certain conditions. Those conditions were the subject of detailed negotiations between the solicitors appointed on behalf of Liverpool, BLP, and Merseytravel, DLA.
77. It is unnecessary to rehearse the detail of their negotiations. It is sufficient to note that BLP submitted a revised third draft of the funding agreement between Liverpool and Merseytravel on 17th November 2005. The revised draft was submitted on the basis that BLP was still awaiting instructions from Liverpool as to whether it could be issued so it was submitted simply on a solicitor-to-solicitor basis.
78. DLA's response to the revisions was emphatic, to say the least. DLA questioned whether the revised draft had been submitted in good faith. It was contended that the general effect of the revisions was to make the £24 million contingency cover "unworkable", or "a complete sham", and it was made clear that if Liverpool adhered to the revisions:

"... there is no realistic prospect of reaching agreement ... within a timescale consistent with proceeding of the project."

79. In a letter to the defendant's solicitors dated 27th January 2006, BLP said:

"... as with most legal negotiations with Merseytravel, the parties started off a little way apart but were on converging paths with both client organisations and lawyers committed to reconciliation of the respective positions. This has been the way of negotiations between the parties and there was no reason to anticipate that the parties would not, eventually, reach common agreement."

80. I do not doubt that this was BLP's view. But the questions remain: when would agreement have been reached? And upon what basis? The former question is far from academic since the Department had been told by the claimants that substantial tax advantages (worth between £21 million and £22 million through capital allowances) would be lost if the works were not completed by the end of March 2009 and that to meet this deadline advantage had to be taken of limited production slots for the new vehicles required for Line 1; hence the repeated references to deadlines in the correspondence from the Department.
81. Whether Liverpool's concerns as reflected in the revised draft of the agreement were or were not well-founded and whether they would or might have been overcome by Merseytravel, and if so within what timescale, is not the issue.
82. The question is whether the funding arrangements put in place by the claimants were so self-evidently satisfactory that any reasonable Secretary of State would have been reassured that there would be no repetition of the earlier requests for additional funds from Central Government. The answer to that question in the light of, amongst other things, Liverpool's unresolved concerns must be: no.
83. The claimants' submission that it was unreasonable for the defendant not to carry out his own assessment of the adequacy of the funding arrangements, and in particular the arrangements for meeting any cost overruns put in place by the claimants, cuts across the defendant's underlying policy objective.
84. As Mr Linnard explained in his witness statement:

"Since 2002, the Government's objective in relation to the conditions for approving Merseytram Line 1 has been clear and consistent: the Government was prepared to make £170 million available but no more, and it needed confidence that this limit would be complied with. Government also needed to be sure that the project would not be left unfinished, if costs rose.

"In order to provide the required level of confidence, the Department sought assurances from both Merseytravel and the Districts. The Department did not ignore Merseytravel assurances, as has been suggested, but it did not consider them to be sufficient on their own because:

"(A) Merseytravel was the promoter: an independent view was needed of the costs and risks to the project;

"(B) The Department recognised the statutory position that the PTA could raise any additional funds through the levy on the Districts, who could thus ultimately bear the costs of any overruns.

"The assurances sought from the Districts thus served two purposes:

"(A) They required the Districts to satisfy themselves about the costs and risks of the project; and:

"(B) They demonstrated local commitment to supporting Merseytram Line 1 through the levy if necessary."

85. If that underlying policy was lawful, see ground (3) below, it was neither unfair nor unreasonable for the defendant to say to those districts who would ultimately bear the burden of any cost overruns: it is for you to satisfy yourselves both as to the extent of the risk and the affordability of any cost overruns.
86. Having made it clear that it was for those who would have to bear the risks of any additional costs to undertake their own assessments and to satisfy themselves that any risks were affordable, it would have been wholly inconsistent for the Department to carry out its own parallel assessment. If such an assessment had been undertaken, it is difficult to see how the Department could have justified a refusal to share its own findings with the two district councils who were at risk.
87. If the Department's own assessment had been favourable, then those districts might have used it as an excuse for seeking additional funds from the Department if in due course the Department's assessment proved to have been unduly optimistic and the districts found themselves liable to meet substantial contingency payments. It would have been even more difficult to justify a refusal to disclose an unfavourable assessment whilst leaving the two districts exposed to substantial risk in ignorance of the Department's view. What if the Department's parallel assessment did not accord with the districts' own assessments? There were therefore sound reasons for the defendant not to second guess the districts' assessments of the risks and the affordability of any possible cost overruns since the essence of the defendant's approach was that the risk of any cost overruns should be borne locally and not by Central Government. I therefore reject the second ground of challenge.

(3) Frustrating the statutory scheme.

88. In the claimants' detailed Statement of Grounds, it was contended that:

"The demand for an unlimited undertaking from Knowsley and Liverpool, and the rejection of any undertaking from Merseytravel, is inconsistent with the statutory scheme which gives Merseytravel, not Knowsley and Liverpool, responsibility for developing, funding and managing public transport on Merseyside. PTAs are distinct public authorities with independent borrowing powers and powers to set an annual levy to be paid by local Councils. The levy must be set at a level which enables the Authority to meet its liabilities and expenses. It is not subject to veto by any of the districts. The statutory scheme is designed to ensure that investment and funding decisions on passenger transport services and facilities are taken on a pan-county basis in metropolitan areas rather than district by district. The effect of the Department's demand is to circumvent that statutory scheme. It means that the decision over the fate of Merseytram Line 1 has been delegated to the local Councils."

89. THE WITNESS: At that stage, it was not apparent that the claimants were contending that condition 3, in the letter dated 21st July 2005, was inconsistent with the statutory scheme and, therefore, unlawful. Indeed, the whole thrust of the detailed grounds was that the terms set out in that letter were attainable and that since it was reasonable for the claimants to rely upon them, they had created a legitimate expectation which had been breached by the addition of the requirement that Liverpool and Knowsley should provide unlimited undertakings (see above).
90. In the claimants' skeleton argument dated 24th January 2006 and in Mr Pannick's oral submissions before me, it was contended that the Department had frustrated the statutory scheme:

"... by requiring letters of comfort from all five district authorities (which effectively gave them a veto if they were not in favour of the project) or alternatively underwriting from two of the district authorities when it is Merseytravel which has the relevant statutory functions including the responsibility for deciding whether to implement this project and how to fund it."

91. The first question to be considered is whether it is now too late for the claimants to challenge the legality of the third condition in the letter of 21st July 2005. On behalf of the defendant Mr Donaldson, Queen's Counsel, contended that it was. All parties including the claimants had not merely accepted the terms in that letter but had acted upon them until it had become clear, in late September 2005, that condition 3 would not be met by the five districts.
92. I accept that submission. There is no suggestion that condition 3 was challenged at the time. On any fair reading the claimants' detailed grounds were based on the premise that the requirements contained in the letter dated 21st July 2005 were both reasonable and lawful and that the defendant had "moved the goalposts" by adding a requirement that Liverpool and Knowsley should give unlimited undertakings. There was no suggestion that the imposition of condition 3 frustrated the statutory scheme until the claimants' skeleton argument was served by which time it had become plain that the original proposition that there was an additional (as opposed to an alternative) requirement could not be sustained on the facts. In these circumstances, including in particular the fact that all of the parties had acted in good faith for some two months on the basis of condition 3, it is far too late for the claimants now to allege that it was unlawful, some six months after thanking the Department on 25th July 2005 for its "continued and constructive support" in the letter of 21st July.
93. Moreover, it became clear during the course of Mr Pannick's submissions that the claimants had not fully considered the implications of their novel submission that condition 3 in the letter of 21st July 2005 was unlawful. The claim form sought a quashing order in respect of the refusal letter dated 29th November 2005 and appeared to proceed upon the premise that this would then leave the offer of a grant in the letter of 21st July 2005 "on the table". In his reply Mr Pannick fairly conceded that condition 3 was not severable from the remainder of the letter of 21st July. That concession was plainly correct since it is clear that the defendant regarded condition 3 (whether it was lawful or not) as an important and integral part of the Department's offer to provide grant aid in the sum of £170 million. At no stage was there an indication that any grant under section 56, much less a grant in the sum of £170 million, would be made on an unconditional basis.
94. Mr Pannick accepted that the inevitable consequence of a declaration that condition 3 was unlawful would be a declaration that the decision contained in the letter dated 21st July 2005 was itself unlawful. It would follow that there would have been no further (lawful) offer of a grant under section 56 following the Department's letter of 13th June 2005 rejecting the claimants' November 2004 bid.
95. Quite apart from the fact that such a conclusion would mean that all of the parties would have been induced to waste a great deal of time and money in seeking to negotiate a solution since July 2005, it is difficult to see how a decision that effectively replaced the refusal letter dated 29th November 2005 with the earlier refusal letter dated 13th June 2005 would materially assist the claimants' position.
96. I will, nevertheless, consider the substance of the claimants' contention. Although section 56 empowers the defendant to make grants on such terms and conditions "as [he] thinks fit" it is common ground that he must exercise his power for a purpose which promotes rather than frustrates the policy and objects of the 1968 Act read as a whole, see Padfield v Minister of Agriculture, Fisheries & Food, (1968) AC 997.
97. Setting the statutory position of the PTA to one side for a moment, it is difficult to see why a condition which requires those local authorities who stand to gain most benefit from a particular public passenger transport scheme to "put their money where their mouth is" should be regarded as frustrating the policy and objects of the 1968 Act. Requiring such local authorities not merely to express their policy support for a scheme but to pay for some proportion of its cost (25 per cent) and to accept responsibility for any cost overruns is at least capable of ensuring (a) that there is close local scrutiny of expenditure upon the scheme and (b) that the Department, having invested a large amount of Central Government money, will not then be confronted with a partially completed scheme to which the local authorities are not prepared to make any further contribution.
98. I recognise that views may differ as to the desirability in terms of transportation planning of adopting such an approach to the funding of light rail schemes, particularly if one is seeking to at least double light rail journeys between 2000 and 2010. But it is impossible to see how it could be said to be outwith the terms of the very broad discretion conferred upon the defendant by section 56.
99. Does the statutory position of the PTA as an independent body corporate, with its own statutory powers and duties alter that position? In my judgment the answer is no, because the defendant in deciding whether or not to give a grant to a scheme promoted by the PTA and PTE was not required, as a matter of law, to shut his mind to the fact that (a) the members of the PTA are appointed by the five districts, (b) a substantial part of the PTA's income (currently 40 per cent) is derived from the levy on the five districts and (c) reallocating the PTA's independent income received from such sources as the Mersey tunnels and ferries (28 per cent), for example from other subsidised public transport services in Merseyside to the funding of Line 1, might well have significant local implications for the five districts; see, for example, Liverpool's resolution dated 23rd September 2005.
100. Mr Pannick submitted that the councillors appointed to the PTA were not appointed as their council's mouthpieces. Once appointed they were expected to, and did, form an independent and pan-county view of Merseyside's passenger transport needs.
101. While I do not doubt that that is so, it is at least possible that their "pan-county" view of Merseyside's passenger transport needs might be strongly influenced by the views of those districts appointing them. In deciding whether to require any and if so what assurances from the districts in addition to the PTA as a condition of making a grant under section 56 the defendant was not obliged to close his eyes to that possibility.
102. It will be noted that between them Sefton, St Helens and Wirral appoint 10 out of the 18 members of the PTA. Those three Councils have all stated publicly that if Line 1 is to proceed it must have a neutral effect on the levy and/or that it should not proceed because it would place an unreasonably high burden on their council tax payers in its current form.
103. While the PTA undoubtedly has power, as a matter of law, to increase the levy without the consent of the five districts, would the members of the PTA appointed by those three districts vote to exercise that power? Perhaps they would, taking an independent view. But, equally, they might not; their districts having made it clear that any additional cost should be borne by Central Government. Similar considerations apply to any decision to reallocate the PTA's independent income from other transport schemes within Merseyside towards the funding of Line 1.
104. If a practical illustration of the problem faced by the defendant is required, it is provided by the meeting on 27th September 2005. Although the PTA had given an assurance that it would not ask the Department for additional funds, and did not do so, that did not inhibit the districts from making such a request notwithstanding the assurances, either conditional or unconditional, that four of them had given. Mr Donaldson referred to section 113 of the 2000 Act, which provides as far as relevant:

"(1) The duties imposed on a Passenger Transport Authority for a passenger transport area by sections 108(1)(a) and (3), 109(1) to (3), 110(1) and 111(3) shall be performed by -

(a) that Authority, and

(b) the councils for the metropolitan districts comprised in the area, acting jointly."

105. Section 108 requires the PTA to produce the local transport plan.

"(1): Each local transport authority must -

"(a) develop policies for the promotion and encouragement of safe, integrated, efficient and economic transport facilities and services to, from and within their area, and

"(b) carry out their functions so as to implement those policies."

"(3) Each local transport authority must prepare a document to be known as the local transport plan containing their policies under subsection (1)."

106. In the case of Merseyside, the PTA is the Local Transport Authority for these purposes, see subsection (4).
107. Sub-sections 109 (1)-(3) deal with the review of LTPs. Sub-sections 110(1) and 111(3) are irrelevant for present purposes. Section 112 requires the PTA to have regard to any guidance concerning the content and/or the preparation of LTPs which is issued by the defendant. The Department's current guidance emphasises the need for LTPs to be prepared through close co-operation and partnership between PTAs and metropolitan district councils. Mr Pannick pointed to the policy support for Line 1 in the 2000 LTP and to the fact that the District Councils' policy support had continued in the draft of the 2005 review of the LTP. He also pointed to the distinction between paragraph (a) in section 108(1), which is concerned with policy formulation, which section 113 makes a joint concern of both the PTA and the district councils, and paragraph (b) in that subsection which is concerned with the implementation of policy, and which is the sole responsibility of the PTA acting through the PTE.
108. I accept that the statutory scheme leaves the implementation of the LTP's policies in the hands of the PTA and the PTE. But their statutory duty to implement local transport policy cannot sensibly be considered in a vacuum. Implementation costs money; and in the case of a policy to construct a new light rail scheme, a substantial amount of money.
109. Any legal analysis of the respective powers and duties of the PTA and the districts should not become too divorced from reality. The defendant was entitled to have regard to the possibility that since the districts were paying a substantial proportion (40 per cent) of the piper's income they might wish to call the tune as to whether and if so on what terms particular policies should be implemented.
110. In addition to contributing 40 per cent of the PTA's income by way of the levy the districts have a keen interest in how the locally generated 28 per cent of the PTA's income (principally from tolls from the tunnels and the ferries) is spent locally. The claimants' submissions as to the respective roles of the PTA and the districts ignore these practical considerations.
111. I am satisfied that the conditions imposed by the defendant on the offer of grant assistance under section 56 of the 1968 Act did not frustrate the purpose of the statutory scheme under that or any other Act but merely reflected the practical realities inherent in the relationship between the claimants and the five districts. I therefore reject ground (3) of the claimants' challenge.
112. It follows that this application for judicial review must be dismissed. I realise that this decision will be a huge disappointment for the claimants who have spent well over £50 million in promoting Line 1. But the question for this court is not whether the defendant's approach to the funding of Line 1 lived up to the brave promises in the Department's 10-year plan to double light rail passenger journeys and to provide funding for up to 25 new light rail lines in our cities and conurbations by 2010, but the much narrower question; whether it was unlawful. It is for the electors to deliver their answer to the former question through the ballot box. For the reasons set out above the court's answer to the latter question must be no.
113. MR DONALDSON: Your Lordship will be relieved that, at this late hour, we are not going to ask your Lordship to make any decision on any ancillary matter this evening.
114. MR JUSTICE SULLIVAN: It is a relief, yes.
115. MR DONALDSON: But perhaps I can mention, briefly, the two matters which are outstanding. Whether or not they will have to come back to your Lordship remains to be seen.
116. The first is costs. As your Lordship will recall, Mr Pannick quite properly agreed at the last occasion that the claimants must pay the Secretary of State's costs of these proceedings. I put down a marker that there might be a question about the basics, in other words whether they should be on the standard basis or the indemnity basis.
117. MR JUSTICE SULLIVAN: I do not think you actually said what the marker was but it was not too difficult to work out what it might be.
118. MR DONALDSON: Exactly. My Lord, we are agreed that that matter should stand over and if it is necessary to come back to your Lordship on it, then we will restore it.
119. MR JUSTICE SULLIVAN: We ought to set up some sort of mechanism rather than just leaving it to float away so that I make an order as to costs, say, on a standard basis unless within a certain amount of time there is an application to vary that. Otherwise it would that mean people have to come back.
120. MR SHAW: I am perfectly content with that working presumption, with liberty to apply.
121. MR JUSTICE SULLIVAN: I would have thought that is better.
122. MR DONALDSON: If your Lordship would like to put a time limit to that, shall we say 14 days.
123. MR JUSTICE SULLIVAN: Yes, something like that. And I would have thought that the parties could also give consideration as to whether any such application would have to be made orally or whether it could be dealt with by an exchange of written representations for example. I am not necessarily encouraging one way or the other but that is a way of proceeding.
124. MR DONALDSON: The parties will think about these matters.
125. MR JUSTICE SULLIVAN: As far as costs are concerned there is no issue that the claimants must pay the defendant's costs to go for detailed assessment if not otherwise agreed. If I do not say any more than that, there will be a standard assessment and we will insert a liberty to apply within 14 days in respect of that.
126. MR DONALDSON: For variation to indemnity costs?
127. MR JUSTICE SULLIVAN: Yes.
128. MR DONALDSON: My Lord, the second matter is the claim for damages. It appeared to us, for reasons which may be obvious to your Lordship, that the result of your Lordship's decision on legitimate expectation is that even in private law that claim could not succeed. My learned friend has somewhat less backup behind him today than he had on previous occasions and feels somewhat inhibited about necessarily addressing that question today. I have agreed that he should have time to advise his clients on the point in the light of your Lordship's judgment.
129. MR JUSTICE SULLIVAN: Mr Shaw, could we adopt possibly a similar approach in respect of your damages claim, that is to say we dismiss it? As I understand it, it was hived off. I cannot quite remember what the procedure was.
130. MR SHAW: It was adjourned on 21st December by Mr Justice Silber with liberty to apply.
131. MR JUSTICE SULLIVAN: Yes. But I am reluctant, again, to leave it floating off into the blue yonder. One way of dealing with it, as I say, would be to formally dismiss it but give you liberty to apply within a certain time. I would think you might want, say, 14 days after receipt of the final version of the transcript, for example. I merely make that as a suggestion, I do not know that any particular timescale is critical.
132. MR SHAW: I am content to accept that suggestion. It seems sensible to us not to leave loose ends unless necessary and we can use that as a working presumption as well.
133. MR JUSTICE SULLIVAN: I would rather make orders that, effectively, put the onus on the parties to come back to the court that means that if they do not do so after a certain amount of time we can close our files, as it were, rather than placing the onus on us to go chasing people around and saying: have you actually really concluded this? Or what is going to happen about this thing that has been adjourned?
134. MR SHAW: I agree. Since you mention the question of the transcript, might I make one observation -- uncontroversial -- by way of housekeeping. I understand that appeal papers have been lodged this morning. DLA, those behind me, have arranged with the shorthand writers that the draft transcript should be made available within apparently a couple of hours of now --
135. MR JUSTICE SULLIVAN: What a marvellous machine.
136. MR SHAW: -- rather than the normal, I understand, 10 days. It strikes me as ambitious but those who work for Wordwave tell me it can be done, no doubt for a price. Of course it then needs your approval.
137. Could I ask, and we would be very grateful, if you could fit that task in between your other commitments as soon as possible?
138. MR JUSTICE SULLIVAN: Yes. You do not want me to do that within the next two hours?
139. MR SHAW: No, no. As soon as possible given your other commitments.
140. MR JUSTICE SULLIVAN: Of course.
141. MR SHAW: I understand the transcript will be available this evening in draft form.
142. MR JUSTICE SULLIVAN: If necessary I shall simply look at it over the weekend and check it through because fortunately, for those preparing the draft, I have filleted out from the mass of documents two little files which contain all the relevant quotes and things so that it is possible to check anything against those, although simply checking the accuracy of the quotes is quite an undertaking. But I will do that and certainly by Monday you will have the approved version, if not before.
143. MR SHAW: We are very grateful and for your Lordship giving judgment within a week of the end of argument today.
144. MR JUSTICE SULLIVAN: Mr Shaw, you effectively have an expedited transcript so you do not need any more time for lodging grounds of appeal and so forth?
145. MR SHAW: No. I understand they have been lodged already.
146. MR JUSTICE SULLIVAN: They have been.
147. MR SHAW: At the moment we have a note of the brief reasons given a week ago and we will obviously supplement when the approved transcript is available.
148. MR JUSTICE SULLIVAN: Yes.
149. MR DONALDSON: I suspect "replace" in fairness to his Lordship.
150. MR JUSTICE SULLIVAN: Yes. Anyway, I quite understand that that will go ahead. Are there any other matters of procedure?
151. MR SHAW: Not insofar as I am concerned.
152. MR DONALDSON: Nor on my part.
153. MR JUSTICE SULLIVAN: Then the application for judicial review including the claim for damages is dismissed. The claimants are to pay the defendant's costs, those costs to be the subject of a detailed assessment unless otherwise agreed. There is liberty to apply (a) to the defendant within 14 days if the defendant wishes to contend that the detailed assessment should be conducted on anything other than a standard basis and (b) to the claimant within 14 days of receipt of the approved final version of the transcript if the claimant wishes to contend that the claim for damages should not have been dismissed.
154. MR DONALDSON: My Lord, I have a grace note to add to that. It would be sensible if the time limits were, in fact, aligned. My learned friend is in fact going to see the transcript this evening. If we said 14 days so that -- if both of us took up the liberty to apply it would be the same timetable.
155. MR JUSTICE SULLIVAN: Is there going to be any problem about that?.
156. MR SHAW: I do not anticipate a problem. We should simply perhaps say 14 days as of today.
157. MR JUSTICE SULLIVAN: I think that is a sensible suggestion because then we know after 14 days that if we have heard nothing, fingers crossed, we do not have to do anything else.
158. Thank you both very much for your submissions and, Mr Shaw, if you would also thank Mr Pannick as well.