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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Chester City Council & Anor v Arriva Plc & Ors [2007] EWHC 1373 (Ch) (15 June 2007) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2007/1373.html Cite as: [2007] EWHC 1373 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/06/2007

MR JUSTICE RIMER :

Introduction

1. The claimants are Chester City Council ("the Council") and Chester City Transport Limited ("CCT"). The Council owns all the issued shares of CCT, a bus company providing services in and around the City of Chester. CCT trades as "ChesterBus". The defendants are Arriva plc, Arriva Cymru Limited and Arriva North West Limited ("Arriva"). The claimants seek declarations, injunctions and damages founded on their assertion that, in breach of section 18 of the Competition Act 1998, Arriva has abused what is said to be its dominant position in the relevant bus market by threatening predatory behaviour directed at driving CCT out of business.
2. The litigation follows the Council's announcement in August 2006 of its decision to sell CCT by way of a tender. Arriva wished to tender but was not prepared to do so on the terms stipulated by the Council. Arriva was, however, resolute that it wished to provide its own bus services on the commercial routes then served by CCT and on 10 September 2006 it registered duplicate services on all CCT's commercial routes, registrations which on their face declared an intention to operate those services from 7 January 2007. On 11 September 2006 Arriva followed those registrations with a written offer to the Council to buy the assets and undertaking of CCT. As the offer was not made in accordance with the Council's tender terms, the Council refused to consider it. The Council further took the view that Arriva's threatened route duplication was predatory, that its tactics would jeopardise the process of the sale of CCT and that the implementation of what it regarded as a threat to compete with CCT on all its routes would put CCT out of business. On 10 October 2006 the claimants issued proceedings in the Chancery Division and sought interim relief against Arriva restraining it from operating the registered services. Arriva gave undertakings not to do so pending an expedited trial.
3. The claim raised a number of issues. In particular, it raised a factual dispute as to Arriva's intentions with regard to its September registrations. Arriva's position is that it never intended to operate those services in competition with CCT: it says that its intention at the time of their registration was only ever to operate them in succession to CCT either (i) following an acquisition of CCT's assets and undertaking; or (ii) following CCT's demise as a trading company by January 2007 by reason of insolvency. Arriva's position was and is that there was nothing predatory towards CCT about its intentions and it appears to marvel at the thought that anyone could have thought otherwise. The claimants' case is that this is disingenuous nonsense and that at the time of the September registrations Arriva intended to do just what the registrations appeared to declare, namely to operate competing services as from 7 January 2007 on the same commercial routes as CCT at the same times and with the same bus numbers; and they say all the evidence is consistent with that. In addition to this factual issue, the claim raised issues as to whether, even if the claimants were right, Arriva's actions threatened an infringement of section 18 of the Competition Act 1998. That raised issues as to whether Arriva was dominant in the relevant market and, if so, whether it was threatening to abuse its position as such. The claimants' position was and is that Arriva is dominant and was abusing its position. Arriva's position was and is that it is not dominant and that no question of alleged abuse arises.
4. The expedited trial came on for hearing on 8 December 2006. It was adjourned on its first day. The lead up to that was that on 27 November 2006 Arriva had notified the Council that it had de-registered most of the services the subject of the September registrations and now intended to operate an admittedly competing service on just three of CCT's routes with effect from 21 January 2007. Arriva concedes that, had it entered the market in January 2007 and operated the routes the subject of its original registrations in competition with CCT (whose demise by reason of insolvency has not happened and does not appear to be threatened), it would not have been economic to do so and would have been loss-making: that is because there were not enough passengers to go round. As for the three routes the subject of the revised registrations (1, 1A and 15A), those are CCT's most profitable routes, which account for the bulk of its revenue from its commercial services and which Arriva intend to operate with increased frequency and at the most profitable times. Arriva was unready to deal at the trial with the claimants' evidence in response to its late change of stance, and also asserted that the claimants would have to amend their particulars of claim in order to advance the amended claim they were proposing to make. The result was that the trial was adjourned.
5. Arriva has continued its undertakings in the meantime and the adjourned trial took place before me over 12 days in February and March 2007. The issue as to Arriva's intentions with regard to the September registrations has remained a central issue, even though, as matters stand at present, Arriva has no continuing proposal to operate all those routes. On one view that issue might be thought to have disappeared as a result of Arriva's change of stance. But its investigation is relevant to the question of the justification for the bringing of this claim in the first place (and so at least goes to costs) and also to the whole picture as to Arriva's intentions with regard to its proposed operations in the Chester bus market even though now those intentions are, again as matters stand at present, confined to competition with CCT on just three routes. The claimants assert that this revised stance, involving the cherry-picking of the three best routes, is just as predatory as the original one and that it also constitutes a threatened abuse by Arriva of its dominant position, the abuse being said to lie in "flooding" the bus routes and selling below cost. They do not allege that Arriva will charge lower fares than CCT. But they do allege that, as regards the three routes, the fares charged will be insufficient to cover Arriva's costs, and that as a result Arriva will make a loss. Arriva defends its revised registrations. It asserts that it will cover its costs on the three routes and make a profit. It resists all suggestions that anything it has done was intended to be predatory or amounted to an abuse of its alleged position of dominance in the relevant market. It continues to deny that it was or is so dominant. If it was and is not dominant, the claimants have no case.
6. Some abuses by those in a dominant position are exploitative, excessive pricing being a typical example. Other abuses are exclusionary, being directed at driving others out of business. Predation is an abuse of the latter type. For example, the dominant undertaking might offer goods at uncommercially low prices and so cause a competitor to withdraw from the market, following which the dominant undertaking will raise its prices and recoup the losses it incurred in the predation exercise. The guidance from the Office of Fair Trading ("the OFT") is that "Predation occurs in the bus industry when a dominant bus operator tries to drive a rival from the market by either flooding a route (or routes) with buses, or charging such low fares that the smaller company cannot afford to stay in the market, or both. This may amount to a breach of the Chapter II prohibition of the Act relating to the abuse of a dominant position" (OFT, Frequently asked questions on competition law and the bus industry, July 2006).
7. Arriva rightly regards this claim as raising serious charges against it. But its position is that the claimants are using these proceedings in order to be shielded from what is no more than healthy competition. If the order sought is made, Arriva will be barred from competing with CCT in Chester. It will, in addition, face the potentially serious consequences of an investigation under the parallel jurisdiction of the OFT, possibly resulting in a fine for any proven breach of section 18. And whilst Arriva will have been removed from the playing field, any other bus company which has the fortune not to be regarded as dominant in the relevant market will be at liberty to compete with CCT in whatever manner it likes. Arriva says none of this is in the interests of the Chester bus-travelling public, who will have been deprived of the benefits on the three routes that (as compared with CCT) Arriva can provide, namely modern, new, quieter, safer buses offering a more frequent service. Competition law is, Arriva says, about protecting consumers' interests and offering them benefits, yet the claim is directed at denying those benefits to the consumers of Chester. It admits that the three routes on which it wants to compete are CCT's most profitable ones: but, it asks rhetorically, what bus company would not want to compete on such routes? It claims it can run these routes profitably and wants to do so. Even the claimants' expert acknowledges that traffic on the routes would be likely to increase by 14% as the result of the better quality service that Arriva can offer as compared with CCT.
8. The claimants do not, I presume, underestimate the potential seriousness of the claim they make. But they say that, for all Arriva's righteous huffing and puffing (of which there was much at the trial), its conduct in effecting the original and the revised registrations was and is manifestly anti-competitive and that competition law entitles them to be shielded from the threat it represented. They say that Arriva intended and intends to drive them from the market by abusing its dominant position.

The Competition Act 1998

9. Chapter II of the Competition Act 1998 is headed "Abuse of Dominant Position". Section 18, sub-headed "The prohibition," provides as follows:

"18. Abuse of dominant position

(1) Subject to section 19 [which has no application in this case], any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.

(2) Conduct may, in principle, constitute such an abuse if it consists in –

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.

(3) In this section –

'dominant position' means a dominant position within the United Kingdom; and

'the United Kingdom' means the United Kingdom and any part of it.

(4) The prohibition imposed by subsection (1) is referred to in this Act as 'the Chapter II prohibition'."

Burden of proof

10. Mr Sharpe QC, for Arriva, emphasised that the burden is on the claimants to prove every element of their case. It is not for Arriva to disprove any of them. That burden is one according to the balance of probabilities. In applying that standard it is, however, settled that it is necessary to factor into the assessment the seriousness of the particular allegation being considered, the short point being that the more serious the allegation, the less probable it is that it is well founded and therefore the stronger must be the evidence to make it good (Re H and Others [1996] AC 563, at 586, per Lord Nicholls of Birkenhead). The Court of Appeal, in R (on the application of AN) v. Mental Health Review Tribunal (Northern Region) [2005] EWCA Civ 1605, at paragraph 64, went further and referred to cases in which "proof of an allegation may have serious consequences even though it cannot be said that the matter alleged is inherently improbable." The court's view was that a like approach to the application of the standard of proof applies in that situation too so that "[t]he more serious the consequences, the stronger the evidence required in practice to prove the matter on the balance of probabilities." I confess to a personal difficulty as to how, in the ordinary run of cases, that principle is supposed to operate. Is stronger evidence required to make good a £100,000 claim than a £10,000 one? It is, however, fairly said by Mr Sharpe that the allegations levelled by the claimants against Arriva include the assertion that its intent behind the September registrations was a predatory one directed at wiping CCT out, which is a serious allegation, and I accept that I must take due account of that in deciding whether that allegation is made good. I accept also that the consideration of whether Arriva occupies a dominant position requires a careful and detailed inquiry. I further accept that as the essence of the claim is that Arriva has infringed the prohibition in Part II of the Competition Act 1998 in a manner which could, in another arena, attract severe financial penalties, I should only find the case proved if it is supported by strong and compelling evidence. This is in line with the approach adopted by Blackburne J in Ineos Vinyls Limited and Others v. Huntsman Petrochemicals (UK) Limited [2006] EWHC 1241, paragraphs 210 and 211, applying the principle explained by the Competition Appeal Tribunal in Napp Pharmaceutical Holdings Ltd v. Director General of Fair Trading [2002] CAT paragraph 109. Mr Brealey QC, for the claimants, did not question this approach as to the application of the standard of proof.

The Transport Act 1985

11. The purpose of the Transport Act 1985 was to achieve the privatisation of a large part of the bus industry in the United Kingdom, including the transfer of the operations of the National Bus Company to the private sector and the privatisation of the many local authority bus companies. It did not prevent local authorities from continuing to operate bus services through wholly-owned commercial subsidiary companies, but it imposed restrictions on the financing and operating areas of such companies in order to ensure that they could not compete unfairly with privatised area operators.
12. There is no need to refer to the Act in detail but I must refer to some of its provisions. Section 3 established traffic commissioners for each traffic area. Section 6 deals with the registration of local bus services. In order to run such a service, the operator must be the holder of an unconditional PSV operator's licence or else of certain other permits; he must register particulars of the proposed service with the traffic commissioner for the relevant area; and the period of notice specified in relation to the registration must have expired, that period being now a minimum of 56 days. When Arriva made its September 2006 registrations, it gave rather more than 56 days' notice.
13. Any such registration can be varied or cancelled on application by the operator, which is what Arriva did when it made its revised November 2006 registrations. The scheme is, therefore, that any holder of a requisite licence can register any service and then vary or cancel it. The legal barriers to entry into the bus market are therefore minimal. Arriva says this makes the market for bus routes very contestable since any profitable route is prey for a new entrant, which can enter the market with ease and challenge the incumbent. It says it follows that it is more difficult for any one bus operator to establish dominance. That is a point to which I shall have to return.
14. Section 63 of the Act imposes a duty on the county council of any non-metropolitan county to secure the provision of public transport services in the county in order to meet requirements that would not otherwise be met. This obligation introduces the dual type of service that a bus company such as CCT may be providing: (a) "commercial services", under which the operator expects to make a profit; (b) socially necessary services provided under tenders invited by (in the present case) the Cheshire County Council for so-called "tendered services": for example, a school service for children. The operator tendering at the lowest subsidy will usually win the contract.
15. Section 73 imposes restrictions on what a local authority bus company can do and in relation to its borrowing powers. Under section 73(3), the controlling authority (in this case the Council) must exercise their control of their subsidiary bus company (in this case CCT):

"… so as to ensure that the company –

(a) does not engage in activities in which the controlling authority have no power to engage or permit any body corporate which is its subsidiary to engage in any such activities;

(b) does not –

(i) borrow money from any person other than the controlling authority; or

(ii) permit any body corporate which is its subsidiary to borrow money from any person other than the company, any other subsidiary of the company, or the controlling authority;

with the exception in each case of borrowing by way of temporary loan or overdraft; and

(c) does not –

(i) raise money by the issue of shares or stock to any person other than the controlling authority; or

(ii) permit any body corporate which is its subsidiary to raise money by the issue of shares or stock to any person other than the company."

16. Section 79 was the source of extensive cross-examination of the claimants' witnesses. Relating it to this case, section 79(4) enables the Council to make loans to CCT but, by section 79(5), any loan must be "made on terms, both as to rates of interest and otherwise, no more favourable than the terms on which the authority making the loan would themselves be able to borrow at the time when the loan is made." Section 79(8) empowers the Council, with the consent of the Secretary of State, "to provide financial assistance by way of grants, loans or guarantees for any associated company [eg CCT] which has incurred losses affecting the viability of its business." But by section 79(9), that power:

"… may only be exercised for the purpose of any plan approved by the Secretary of State for improving the efficiency of the company's operations and its commercial performance generally so as to enable it to carry on business without further assistance from the Authority or council concerned or from any other council who are a member of the company."

17. Finally, section 79(10) empowers the Council:

"… where on the winding up of any associated company the assets of the company are not sufficient to meet the company's liabilities, to make to the creditors of the company such payments as may be necessary to meet the balance of those liabilities (and may accordingly give to the persons dealing or proposing to deal with any such company such guarantees with respect to the exercise of their power under this subsection in relation to that company as they think fit)."

18. In the initial wave of privatisations following the Act, the majority of bus services were sold to management and employee teams or locally based groups. This was followed by a period of industry consolidation, resulting in a position in which now over 67% of the market for bus services in the United Kingdom is served by five groups: (i) First Group plc (20.9%) ("First"); (ii) Stagecoach Group plc (16.3%) ("Stagecoach"); (iii) Arriva (14.3%); (iv) Go Ahead (9.8%); and (v) National Express (6%). As for local authority bus companies, there were 51 in October 1986 but now there are just 16. This has been a consequence of competitive pressures from the large national groups and also the restrictions on the manner and extent to which a local authority can provide financial support for its bus company. In practice, the inability of local authority bus companies to borrow or raise money otherwise than from their parent local authorities – which face many other competing demands in all the areas in which they operate – means that bus companies such as CCT can usually only use the resources they generate internally to invest in new vehicles and network expansion and to withstand competition from other operators. In addition, local authority bus companies are limited by section 73(3)(a) of the Act to providing services for the districts of their parent authorities.

The claimants

19. The City of Chester has an area of about 280 square miles and a population of about 118,000. The Council incorporated CCT in 1986 under section 67 of the Transport Act 1985 in order to operate local bus services within, to and from Chester, for which the Council is the district council. CCT acquired the bus undertaking formerly operated by the Council. It is a "public transport company" as defined in section 72 of the Act. This followed an order made by the Secretary of State for Transport under section 66(2) of the Act removing the Council's powers to provide services directly.
20. CCT is managed by a board of directors comprising three full-time executive directors, an employee director and six non-executive directors, of whom five are representatives of the Council (including one Council officer) and the other is an external appointments representative of the community. Representatives of the Council meet regularly with the CCT board in discussions centred largely on financial and strategic issues.
21. CCT's managing director is Stuart Hyslop, who gave evidence. He has considerable experience in the bus industry. He started in 1973 as a conductor, and then a driver, for Rotherham Corporation. He worked his way up through various operational management positions with West Yorkshire Passenger Transport Executive and Darlington Borough Council before becoming Chairman and Managing Director of Darlington Transport Company Limited in October 1986 (a company owned by the Borough Council). He became Chairman and Managing Director of Chesterfield Transport Company Limited in October 1993. Following Stagecoach's acquisition of that company, he became Divisional Manager of the Stagecoach Group's Kingston upon Hull Division in August 1995. In March 1997 he became operations manager of a small private sector bus and coach operator, Skills Motor Coaches. He was appointed Managing Director of CCT on 23 March 1998. He has, therefore, had experience in both the public and the private sector.
22. CCT's current network comprises 13 commercially operated services within Chester itself and the towns and villages within a 20-mile radius. It also operates a number of services under contract to Cheshire County Council ("the County Council") which the County Council procures under section 63 of the Act, by which it has power to subsidise socially necessary services which are not provided by any operator on a commercial basis. It owns at least 80 vehicles (the evidence appeared to identify different numbers; Mr Hyslop favoured 84 and Mr Brealey favoured 81) and has about 150 employees.
23. In recent years CCT's commercial performance has been poor. Since Mr Hyslop has been managing it, its policy (agreed with the Council) has not, however, been to maximise profits. Rather, its objective has been to optimise the services it provides without further investment from the Council, in particular to the locally disadvantaged areas, whilst aiming at a target of 5% profitability per year, although it has not achieved that.
24. From 1998 up to CCT's year ended 31 March 2005, CCT achieved either a small operating profit or an operating loss, the latter being financed from its reserves. In its year to 31 March 2006 it made a rather larger loss. Its performance in recent years has put it at or near the bottom of the league represented by the 16 Council-owned bus companies. The following references are to its loss or profit respectively made in its years ended 31 March: (i) 2000, a loss of £82,808; (ii) 2001, a loss of £108,256 (iii) 2002, a profit of £3,215; (iv) 2003, a loss of £47,823; (v) 2004, a profit of £16,598; (vi) 2005, a loss of £62,174; and (vii) 2006, despite a turnover of £4.2m, a loss of £226,048. The 2006 performance is acknowledged to have been very poor and as mainly attributable to wage, fuel and other costs which had not been budgeted for, as well as declining patronage. That result was despite CCT's best efforts to minimise its losses, including re-tendering for certain services and pulling out of others.
25. As at March 2006, CCT was therefore trading at a loss. Since then stringent steps have been taken to reverse its fortunes, including cutting loss-making services (in particular the Cliveden/Lache route), restricting wage increases to 3% and surrendering certain loss-making tender contracts to the County Council. In addition, following the giving to senior citizens of free bus travel with a pass, CCT's revenue from such concessions has increased. It is unnecessary to detail how this has been achieved. As compared with the previous year, CCT's return from the County Council per passenger is marginally less than it had previously recovered from both passenger and the County Council; but as the bait of free travel has encouraged more senior citizens on to the buses, the overall return has been significantly greater than before. As a result, since 31 March 2006 CCT has (apart from on isolated occasions) operated within its £100,000 overdraft and at better than break even; and, during the year to 31 March 2007, it headed for a profit. Its management accounts to December 2006 showed an operating profit of £210,411 in the first 35 weeks of the financial year and a net profit after depreciation of £74,130. As for the Council, its overall gross budgeted expenditure for the year ending 31 March 2007 was about £65m, all of which was committed to expenditure on its primary functions. There was no provision in the budget for further investment in CCT by the Council, which is limited in the extent to which it can raise further funds: every £75,500 increase in its budget not covered by central government or other external income represents an increase of 1% in overall council tax rates.

The defendants

26. Arriva plc is quoted on the London Stock Exchange. It operates bus and rail services in the United Kingdom and seven other European countries. In the year ended 31 December 2005, it had a turnover of £1.626m, earning a profit on ordinary activities before taxation of £127.4m. It is the third largest bus operator in the United Kingdom, with a market share measured by turnover of some 14.3%. It is the largest bus operator in the London area and has regional bus companies in various areas of England and Wales with more than 5,000 vehicles in service. In the year ended 31 December 2005, its UK bus operations had a turnover of £697.5m and made an operating profit of £68m. Arriva's UK bus business then owned some 6,000 vehicles and employed some 17,700 staff.
27. Arriva plc runs eight regional bus operations through wholly-owned regionally based subsidiary companies. The largest outside London is Arriva North West and Wales ("ANWW"), which operates in North Wales, Merseyside, Cheshire (including in and around Chester), Lancashire and South Manchester. It operates the majority of inter-urban routes around Chester. Robert Hind is ANWW's managing director. As he explained in his letter of 15 September 2006 to the Council, ANWW

"… is currently the principal bus service provider throughout Cheshire, Wrexham, Flintshire and the Wirral, and operates the majority of inter-urban links to and from Chester, as well as many local routes between the City and Deeside. In fact, in a radius of 15 miles from Chester its four garages operate over 250 buses in the area."

28. In his evidence, Mr Hind underlined ANWW's strength in the area by saying that as at September 2006 it ran 1,319 buses with an annual turnover of £133m. An investment to run the same commercial routes that CCT was running (a reference to the routes the subject of the September registrations), and requiring a fleet of 22 buses, was insignificant. ANWW's operations are carried on by various Arriva subsidiaries, including Arriva Cymru Limited ("ACL"), the second defendant, and Arriva North West Limited ("ANWL"), the third defendant. The registrations which have caused this litigation were made by ACL. Save where the context shows otherwise, subsequent references in this judgment to "Arriva" are to ANWW.
29. Mr Hind is central to the story in relation to this matter. Like Mr Hyslop, he has considerable experience in the bus industry. It dates from 1968. He worked for Leicester City Transport, a local authority bus operator from 1981 to 1989, becoming managing director in 1984. He was managing director of a Derby bus company from 1989 to 1994, a company which had been a local authority one and in respect of which he led an employee buy-out. He has been managing director of ANWW since 1994.

The 2003 TAS report

30. As a best value authority subject to the provisions of Part I of the Local Government Act 1999, the Council has a duty to keep its functions under review. It has, therefore, kept under review whether its continuing ownership of CCT was the best way of delivering effective bus services to the population of Chester or whether its performance could be improved by its transfer to the private sector. To that end, in 2003 the Council commissioned The TAS Partnership Limited ("TAS"), specialist consultants in public transport, to review the options for CCT, including a possible sale.
31. TAS's recommendations were contained in a draft report dated December 2003. There were three authors, of whom the lead author was Chris Cheek. They included Andy Foster, who was called by the claimants to give expert evidence before me. Arriva made much at the trial of the assertion that Mr Foster's close association with the claimants rendered him unfit to be their expert witness, a matter to which I shall return.
32. TAS found that over the six years from 1997/98 to 2002/03 CCT had made modest operating profits in three years and operating losses in the others, the losses coinciding with competition from South Lancashire Travel, which ran services in Chester for 18 months (CCT saw South Lancashire off, but at the cost of a huge toll on its finances). In addition, its operating profits had never exceeded 1.6% of turnover, whereas (in 2001/02) the average for the municipal sector was 5.2% and, for all major bus operators outside London, 11.0%. CCT's depot in Station Road, Chester was in poor repair and was on a key redevelopment site. A new depot, following redevelopment, would cost £3m. The Council had to date formulated possible options: (a) construction of a new depot and continuing with CCT; (b) a sale of CCT; and (c) a sale of a minority share in CCT. TAS reviewed CCT's business plan. They foresaw concerns about the medium-term prospects for it, saying in paragraph 3.3.10:

"… there is a risk bus patronage on the CCT network may be expected to fall over the period 2002/03 to 2009/10 by up to 27%, taking levels down from the current 4.15m passenger journeys to 3.0m. In order to preserve viability, the company would need to increase fares by over 65% in real-terms (75% in cash terms) above current levels. Some mitigation of fares increase might, however, be achieved by reductions in commercial mileage."

33. Their conclusions were that, in addition to these concerns, they did not consider CCT's current commercial network to be correctly configured to deliver market growth and modal shift; that there was no overwhelming case to show that service provision was markedly better in Chester because of the presence of CCT; that if its operations were taken over by, say, Arriva, First or another large operator, the likely outcome would be a revision of the existing network with resources concentrated on higher frequencies on a simplified core network, although it was unlikely that this would leave any significant areas unserved; that a trade sale of CCT was a high-risk strategy, involving (a) a failure to achieve fair value for its assets, and (b) a destabilisation of the existing bus network from intensive competitive attack, risking the continuing viability of CCT; and that the spiral of decline would inevitably continue unless there was a radial change of policy. Their recommendation was that the Council should proceed with the relocation of CCT to a new depot site and to review its ownership options from a position of relative strength rather than weakness. TAS made further recommendations to this end, involving a sharp refocus of commercial strategy and a radical new approach to the network. The evidence of Jim Cassin was that he accepted the TAS report in its entirety. He is the Strategic Director (Resources) for the Council. He has worked in local government finance since 1975, qualifying as a Chartered Institute of Public Finance accountant in 1979. He is the principal financial adviser to the Council and was a Council nominee on CCT's board until May 2006.

The 2006 TAS report

34. In 2006 the Council sought further advice from TAS on the future of CCT. TAS produced a draft report in March 2006. Mr Foster was the team leader. TAS considered the various options open to the Council. The first was that of retaining ownership of CCT. If CCT was to survive and prosper there would need to be a structured relationship between the Council and CCT which defined the financial and social objectives of CCT; and there would need to be a reconfiguring of its current service network to improve its market and financial performance, including further simplification of routes and fares and an increase in promotional activity. TAS had recommended the simplification of routes in its 2003 report, but its view in this draft report was that:

"3.2.3 The company has implemented some elements of the recommendations made but was not persuaded to adopt the radical approach that we believe is necessary to reverse passenger decline. The period in which the changes were implemented was also accompanied by substantial staffing difficulties, resulting in very poor service reliability. The combination of partial implementation of simplification proposals, community resistance to some elements of change and the reliability problems has negated the benefits of improvements and marketing made, and the passenger and revenue has continued downward."

35. The message there was clear: CCT had not been as radical in implementing TAS's proposals as it should have been. That, linked to the other matters mentioned, had led to the decline in its fortunes. The Council's option of retaining CCT was not without risk: CCT's current financial performance was unlikely to enable it to renew its assets on an ongoing basis; it was vulnerable to competitive attack, a sustained effort from a competitor with significant financial resources being capable of rendering it insolvent relatively quickly; and the small scale of its business meant that economies of scale would be difficult to achieve. Other options TAS considered were (i) a trade sale (a sale of CCT's assets other than the current depot), which it did not recommend; (ii) an open tender sale of the shares of CCT; (iii) a partnership approach with a private sector company; and (iv) a merger with other similar businesses. In the event an open tender sale was the option the Council chose. With some prescience, TAS noted the risks inherent in it:

"3.4.2 … a business sale by open tender has potentially serious consequences for a business in the short term, which could seriously impair its viability. The past history of trade sales by local authorities in similar circumstances has occasionally proved disastrous and provided the Councils concerned with little or no return on their assets.

3.4.3 The territorial nature of the bus industry means that existing operators in the Chester area (First and Arriva) would be very alert to a third party acquiring ChesterBus and presenting a threat to its current network. Based on previous experience, there is a significant risk that the sequence of events would follow the previous pattern.

3.4.4 Following an invitation to tender, First or Arriva could register bus services in competition with all, or a significant part of, the ChesterBus network. After the required 56 days notice period, competitive services would commence, so threatening to undermine the viability of the company – which, with a weakening financial position, would be unable to sustain such competition for very long.

3.4.5 Any potential bidder from outside the area would therefore either substantially reduce their offer price or withdraw from the deal, as the value of the business to any potential purchaser would be significantly reduced. At its most extreme, the business would be forced into administration.

3.4.6 We believe there is a real and significant risk of the company's operations and value being undermined in this way. Although aggressive competition within the bus industry may have diminished since the early post-regulation period, recent political comments on the lack of competition may encourage some operators to again take a more aggressive stance."

36. The claimants assert that TAS's prediction in paragraph 3.4.4 is almost exactly what Arriva has done. First, by contrast, has (unlike Arriva) been prepared to accept the Council's tender conditions and has made a bid for CCT. The effect of these proceedings has been to put that bid on ice.
37. TAS's final report was produced on 27 March 2006. It was headed "Options for the Future of Chester City Transport". TAS referred to their 2003 report and their recommendations for the adoption of a radical new approach to the network. They said that:

"1.2.4 CCT implemented some, but not all, of the recommended service improvements, generally in a diluted form. It also avoided the more radical changes. The depot relocation has not yet proceeded.

1.2.5 Some changes were introduced in April 2005, after extensive public consultation, but retained much of the previous network's complexity. In consequence the previous patronage decline continued exacerbated by, we believe, service unreliability through staff shortages in the months after introduction."

38. TAS then considered the options open to the Council. These included (i) ceasing trading, involving a closure of CCT and the sale of its assets, although TAS's view was that "this extreme action should be avoided if possible"; (ii) business development. This was along the lines of the 2003 recommendations, involving a move to a new bus depot at Bumpers Lane and the taking of significant steps to improve performance and viability. But the adoption of this course would require time, it would be unlikely to yield fruit before 2007/08, during which CCT would be at continuing risk of a competitive strike from another operation. CCT's profit was largely derived from the secured services operated for the County Council and its local services in Blacon, and even a limited assault on Blacon, using just three or four buses, would remove the profit from CCT's services in this area. (Blacon is served by the routes the subject of the revised route registrations that Arriva made in November 2006). TAS's assessment was that the continued operation of CCT was no longer the best option for the Council; (iii) partnership with the private sector: TAS had strong doubts as to whether this was the best way forward; (iv) merger with a neighbouring local authority bus company, an option which TAS considered might be attractive to the Council if it wished to retain a degree of ownership; (v) full disposal of CCT, either by way of a trade sale of its assets or an open tender sale of its shares. Each option carried the risk that First and Arriva would be "likely to be keen to prevent a third party from acquiring CCT, presenting a threat to their current networks." TAS's experience told it that there was a "significant risk that one, or both, … could register services against CCT and within 56 days be competing on some or the entire network. Any other potential bidder would therefore either substantially reduce their offer price or withdraw from the deal. Meanwhile, the value of the business would be significantly reduced and in the extreme, the business could be forced into administration…." (vi) a closed list sale of CCT. This meant identifying potential purchasers of CCT without disclosing the identity of the bus company that was for sale, and requiring interested parties to enter into a confidentiality agreement as a condition of further participation in the bid process. This "would ensure that operators were unable to compete with CCT and undermine its financial viability during the sale process." TAS assessed this as a viable option.
39. TAS's overall recommendations were that they did not believe that the further development of CCT's business was a viable option and that the best way forward was either a full disposal of CCT by way of the "closed list" option or else a merger with another local authority. TAS expressed the view that in the early stages of any sale of CCT it was likely that there would be expressions of interest from many bus operators; but that the most likely buyer for CCT was Arriva or First, which already had operations in the Chester area. This prediction also proved accurate. When, rather later, CCT was put up for sale a number of companies expressed interest. But only Arriva and First made bids.
40. Mr Hyslop, CCT's managing director, had been shown TAS's 2003 report in early 2004. The Council did not show him the 2006 report. He only saw it in about August or September 2006, after the Council had decided to put CCT up for sale and had invited expressions of interest from possible purchasers.

Arriva's interest in acquiring CCT

41. Mr Hind had had an interest in an acquisition of CCT by Arriva for some time. He had written to Mr Neilson of the Council on 3 April 2002, referring to a meeting he had had in 2001 with regard to CCT, and proposing another meeting to discuss the matter. By 2006 Mr Hind remained as interested as ever in CCT. On 22 May 2006 he wrote to Paul Durham, the Chief Executive of the Council, suggesting a joint venture with them, saying:

"The industry is facing ever-increasing costs, particularly in fuel and insurance, and I am sure that all operators are having to address their overheads rather than opt for high fare increases or service cuts.

While Arriva is a major operator in and around your area, it may not be possible to consider the outright purchase of your operations, even if this [is?] something your Council wanted, but there may be opportunities to consider common ground and what might be achieved by some sort of joint venture."

42. Mr Hind explained in his oral evidence that in referring to Arriva as "a major operator" he was referring to the fact that Arriva runs the majority of services into and out of Chester from points outside Chester. He said his allusion to any problem with a purchase of CCT was something the Council might have had. He was twice asked in cross-examination if he had there had in mind the possibility that a purchase of CCT by Arriva would result in a reference to the Competition Commission. His first answer avoided the question. His second was to the effect that at the time he was not thinking that far ahead. He gave no satisfactory explanation of his point that an "outright purchase" might not be possible. His evidence was that, despite his and Mr Durham's "mutual efforts", no meeting could be arranged. One of Mr Hind's suggestions was a joint venture with CCT. Mr Hind's evidence is that, by September 2006, he had formed the view that, by January 2007, CCT would have ceased trading by reason of insolvency. This letter, in particular the joint venture suggestion, reflects no indication that he had any such thoughts as at its date.

The proposed sale of CCT

43. On 8 June 2006 the Council's Cabinet, having considered the TAS report and recognised CCT's weak financial position, resolved to put CCT up for sale (the 2006 accounts had not yet been produced – they were not signed until November 2006, but the Council had an idea of the poor performance for the year). The Council proposed to exclude the Station Road depot from the sale, which it needed for its redevelopment plans. In deciding to sell, the Council focused not merely on a wish to receive the benefit of the proceeds of sale. It also had the objective of seeing a thriving bus service in Chester. It hoped to secure improved bus provision for Chester through investment in better buses and by securing the ongoing provision of bus services in and around Chester. Overall responsibility for managing the proposed sale was delegated to Mr Cassin. The decision to sell was kept confidential and not made public until August 2006, although Mr Hyslop learnt of it shortly after the decision had been made. He was not told of it, but he explained in his oral evidence that he learnt of it from the internet. According to Mr Hyslop, the making of the Council's decision had been posted there in terms which, whilst not expressly saying what was happening, were sufficient to enable him to work it out.
44. In July 2006, the Council retained DLA Piper UK LLP ("DLA") as its solicitors on the proposed sale. TAS was also retained. Mr Cassin's evidence was that, from the outset, the Council and the CCT board had concerns about the risk that either Arriva or First would, upon learning of the sale opportunity, launch a competitive attack on CCT with a view to securing CCT's market share for themselves and thwarting any new entrant to the market. Mr Hyslop also foresaw the possibility of such an attack. With that in mind, TAS and DLA advised on the options for the sale procedure and the terms for entry to it that might be sought from prospective bidders. Mr Cassin accepted that CCT was the largest bus company in Chester itself (measured by reference to the number of buses there and passengers carried), but he also regarded it as a relative minnow when compared with the might of Arriva and First.
45. On 13 July 2006 the Council and CCT issued a short joint press release stating that they had "met and reaffirm their commitment to maintain and develop bus services in Chester and to safeguard the interests of the Bus Company workforce …. a series of meetings have been planned over the next few months to take matters forward." It did not say that CCT was to be sold.
46. On the same day TAS sent standard-form letters, signed by Mr Foster, to 19 potential purchasers, including Arriva. They were to the effect that TAS was advising an unidentified local authority in relation to the sale of its unidentified bus company. They said that "The council views a sale of the business as the best way to improve the company's future viability, through access to new capital, potential economies of scale and a re-invigorated management focus." They invited initial expressions of interest. TAS would then send to those expressing interest a confidentiality agreement, which would have to be signed and returned before a full memorandum of information about the bus company was despatched. That memorandum would contain details of its territory, financial performance, network description, fleet profile and other relevant information. On an uncertain date in July Arriva replied, confirming its interest.
47. On 21 July 2006 there was an article about CCT in the Chester Chronicle. It opened by saying that an earlier Chronicle article speculating that CCT might be sold had resulted in the issue of the statement of 13 July 2006 to which I have just referred. The article referred to CCT's loss of £62,174 in 2005 after depreciation but said "it continues to make an operating profit." It said that an insider had told the Chronicle that the Council had approached Arriva and Warrington Bus with a view to a sale but that neither was interested. At least as regards Arriva, that was inaccurate; and there was no evidence as to any Council approach to Warrington Bus. The same source was reported as saying that "there was a danger an outside company would move in and cherry pick the profitable routes leaving tax payers to subsidise the loss-making services. There was also a fear among drivers about job losses in the event of a buy-out." The article then said that the press statement which had been issued was aimed at steadying the ship, and it quoted it. The article continued, perhaps a little darkly, by saying that "The council cabinet made a decision to pursue an option recommended by consultants." It did not say what that decision was. Mr Hyslop said there had been a meeting with the Council on 21 July 2006, when he was formally told of the decision to sell.
48. A copy of the Chronicle article was provided to Mr Hind on the same day, 21 July 2006. In paragraph 6.2 of his witness statement of 1 November 2006, he described the press release as saying that it "reported a continuing loss". It did not, and nor did the Chronicle article but Mr Hind explained himself in cross-examination by saying that that was his interpretation of it. Mr Hind did not know what CCT's performance for 2006 had been. He said it was apparent to him that a sale of CCT was being mooted. He contacted Mr Durham of the Council to discuss a possible acquisition, but was unable to arrange a meeting.
49. On 16 August 2006 the Council issued a press release announcing the sale. It stated that the Council had told the CCT staff it intended to sell CCT "in a bid to secure much needed new investment and the long-term future of the company's staff and services." It stated that it had invited bids from interested parties; and that "[t]he council had not taken this decision lightly. It has kept the prospects of the company under review for a number of years and feels that the company is now at the point where the prospects for investment and continued development of bus services in Chester would be better served by new ownership."
50. The press release referred to the Council as having invited bids from interested parties, a reference to Mr Foster's letters posted in July 2006. As I have said, Arriva had responded, expressing an interest, and on 16 August 2006 TAS wrote to Arriva identifying the company as CCT and enclosing a confidentiality agreement that it (like any other interested party) was required to sign as a condition of participation in the sale process, which was to be by way of tender. The deadline for returning the agreement was 5 September 2006, following which the information memorandum would be released.
51. Clause 7 of the confidentiality agreement imposed a covenant on the would-be bidder (described in the agreement as "the bidder") that, for a period of 12 months from the date of signature, it would not run any bus services within the Council's area except (subject to compliance with clause 8) (a) those registered before the agreement was signed, (b) those not directly competing with CCT's services for more than 1km of route, or (c) those involving minor changes to services already registered. Clause 8 was to the effect that the three exceptions would not apply unless notification of the bidder's intentions had been given to the Council at least five working days in advance of the registration of such services or change and the bidder could show that it had considered any comments made in writing by the Council or CCT. These restrictions applied to any bidder, whether it made a bid or not, and not just to one that was dominant in the relevant market. The agreement also imposed wider obligations of confidentiality for a period of 24 months. These provisions reflected that during the sale process each side would reveal to the other confidential information relating to its business.
52. Mr Cassin explained that these provisions derived from TAS's advice. The Council's concern was that potential bidders might use confidential information disclosed to them in the course of the bidding process to compete on CCT's more profitable routes rather than for the purpose of assessing the opportunity to purchase CCT. There was a particular concern that companies like First and Arriva, already active in the Chester market, might "cherry-pick" the most profitable routes, and TAS had drawn attention to that concern in its 2006 report. The idea behind the confidentiality agreement was, therefore, that bidders who received information confidential to CCT should commit themselves to preserve its confidentiality and not to compete with CCT's route network. The intended objective was to prevent any bidder from wrecking the sale process once it had obtained the type of confidential information that would enable it to do so. The Council's original intention was that the sale process would be completed by 22 December 2006.
53. Of the 19 potential bidders to which TAS had written, 12 (including Arriva) expressed interest in receiving the confidentiality agreement for review, of which eight then qualified for participation in the sale process by signing it. The letter to TAS arrived on the desk of Mr Applegarth (a solicitor and commercial director with Arriva) and he discussed it with Mr Hind over the next few days (they work in different offices). Mr Hind did not see the terms of the agreement until much later, but relied on Mr Applegarth's advice. The outcome was that Mr Hind wanted to take part in the sale process, but not on the terms of the confidentiality agreement, clause 7 of which he regarded as imposing anti-competitive constraints upon it. He therefore refused to commit Arriva to it. Mr Hind said he regarded the terms as a naked attempt to suppress competition such as he had never encountered before. His stance meant that Arriva could not receive the information memorandum about CCT or, therefore, participate in the sale process
54. On 25 August 2006 Mr Applegarth had a telephone conversation with Mr Stockton of TAS. The purpose was to discuss Arriva's concerns about clauses 7 and 8 of the confidentiality agreement: Arriva wanted to take part in the sale process but not on those terms. Mr Stockton explained that their purpose was to protect CCT and to ensure that the sale process was not undermined by competitive action planned as a result of the release of commercially sensitive data. He sent an email to Mr Applegarth following the conversation, offering him the opportunity to discuss the matter further with Mr Painter of DLA. Mr Hind did not know if Mr Applegarth had taken that offer up.
55. Mr Hind was still not prepared to deal on the Council's terms. He requested a meeting with the Chief Executive of the Council, Mr Durham. It took place on 1 September 2006. Mr Cassin was also present. Mr Hind had prepared an aide-memoire. It listed all CCT's commercial services, together with some degree of detail about them. It listed negative factors about CCT and positive factors about Arriva. It referred to Arriva as having four depots within a 15 mile radius, a reference to those at Hawarden, Wrexham, Winsford and Birkenhead. Under the heading "Process" Mr Hind listed "1. exclusivity; 2. January 1 2007 implementation; 3. register services now." By that he meant that he wanted CCT to deal with Arriva exclusively, and outside the sales process; he would register CCT's routes; and, on the footing that the Council were prepared to play ball on Arriva's terms, there would then be a seamless transfer of the services from CCT to Arriva in January 2007. I should explain that Arriva had no intention of buying the shares of CCT, it merely wanted to acquire its assets and undertaking; and, if it were to be successful in doing so, a separate registration of the routes by Arriva would anyway be necessary. The Council was, for its part, prepared in principle to dispose merely of CCT's assets and undertaking: it was not insisting on a sale of the company itself. But it was only prepared to consider any offer from Arriva if Arriva first complied with the terms of the bidding process, which required a signing of the confidentiality agreement.
56. The meeting was cordial and Mr Cassin told Mr Hind that he wanted Arriva in the bidding process. Mr Hind's stance was that Arriva's offer could not and would not be beaten so that the process was a waste of time. Mr Cassin's stance was, by contrast, that by now the bidding process was underway, the Department of Transport would not allow the Council to sell otherwise than by a competitive process and, in effect, that those who had signed up to the confidentiality agreement were entitled to the information memorandum and ought to be given a fair crack of the whip and allowed to bid. Mr Cassin was obviously right as to the approach that the Council should maintain and Mr Hind was obviously wrong. Mr Hind acknowledged in his evidence that he would "not be happy" to have learnt, for example, that the Council had done a secret deal with First. The outcome of the meeting was that Mr Hind knew that the Council remained resolute that it was not prepared to deal exclusively with Arriva and that the bidding process would go ahead.
57. On 7 September 2006 the Council sent an email to Arriva extending until 8 September 2006 its time for signing the confidentiality agreement, that signing still being a necessary preliminary to participation in the sale process. The email also attached a revised version of the agreement, which was said to have followed discussions with the OFT: it reflected, as Mr Cassin confirmed in evidence, that the Council were plainly anxious to accommodate Arriva's concerns about the stringency of the non-competition clause so as to enable it to take part in the bidding process. The revised version reduced the covenant period from 12 months to the shorter of six months and the duration of the sale process. A new clause 7.2 was introduced which was to the effect that Arriva should not be liable for any breach of clause 7.1 (as the main part of clause 7 was now re-numbered) if it could establish that it did not use any confidential information disclosed to it in assessing, planning or implementing any new or varied service whose operation would otherwise constitute a breach of clause 7.1, but nothing in clause 7.2 prevented the Council from excluding Arriva from further participation in the sale process by reason of the operation or variation of any such a service. That was a reference to clause 11, dealing with breaches of the competition covenant and the confidentiality obligations. Clause 11.1 purported to legislate as to the extent of the damages that would be recoverable by CCT and the Council; and clause 11.2 enabled the Council to debar Arriva from further participation in the sale process.
58. In summary, the revised agreement imposed no bar on Arriva from competing in Chester during the shorter of six months or the sale process, provided it could prove it was not doing so by using any confidential information that had been provided to it by CCT; and no bar on competition in Chester after the shorter of those two periods. It had, therefore, moved a considerable distance in Arriva's direction: it was, in effect, now only seeking to keep Arriva off CCT's turf during the currency of the bidding process. What, one might ask, was unfair or unreasonable about that?
59. Mr Cassin suggested in his evidence that the essence of the revised confidentiality agreement had been achieved "with the assistance" of Mr Bowden at the OFT. Arriva made something of this at the trial and so I should record the facts. Mr Cassin did not himself speak to Mr Bowden: Mr Painter of DLA did, but he did not give evidence. I infer that Mr Bowden was not shown the proposed re-draft. Mr Painter's note of the conversation records that he had sought guidance as to a form of words which would not involve a breach of Chapter I of the Competition Act 1998 by restraining competition but would at the same time prevent competitors who had had access to CCT's confidential information from targeting CCT during the sale process. The note shows that Mr Bowden was a long way from expressing approval of the proposed re-draft. He is not a Competition Act adviser and he explained to Mr Painter that the Competition Act branch would not give informal advice on its validity from a competition viewpoint. The most he was prepared to do was to say that "he could not believe that such short term restrictions, to protect a vendor during sale process, would ever form a priority for investigation by the OFT" (an observation falling short of an assurance that it involved no breach of the Competition Act); and that "he could not imagine the OFT having a problem with this approach [ie that adopted in the re-draft]." That was not advice that the re-draft was Competition Act compliant.
60. Arriva did not, however, appear to interpret the re-draft as making any material concession in its direction. It regarded it rather as an arrogation by the Council to itself of the power to license competition with CCT by any bidder during the restricted period: and the inference is that Arriva wanted to be free to compete with CCT at any point, including during the bidding process. Mr Hind's decision, based on Mr Applegarth's advice, was that he was not prepared to sign even the revised form of agreement, innocuous though it might be thought to be. I find, however, that even before receipt of the revised form of agreement on 7 September 2006 Mr Hind had determined to make duplicate registrations of all CCT's commercial routes and then to write the follow up letter to the Council that he did. I come now to these matters.

Arriva's September 2006 registrations and purchase offer

61. On 10 September 2006 (a Sunday, but apparently that was no problem) Arriva lodged with the Department for Transport its application for the registration of services matching all CCT's current services. The proposed start date was 7 January 2007. The earliest start date permitted under the regulations is 56 days from the date when the Traffic Commissioner accepts the registration, so Arriva was giving longer than the minimum notice. The applications were in respect of routes 1, 1A, 3, 3A, 4, 5, 5A, 9, 10, 15, 15A, 15B, 21, 25, 28 and 35. The timetable was to be the same as CCT's. Theoretically it would mean, for example, that on 7 January 2007 two 1A buses would arrive at the same bus stop at the same time, one being a CCT bus and the other an Arriva bus; and the passengers could take their pick. The making of such duplicate registrations, and carrying them into execution, is an unsubtle way of waging a bus war although Arriva disclaims all suggestions that it was harbouring bellicose intentions. (I comment that Arriva intended only to make registrations matching CCT's commercial services. Route 28 was a tendered service, and perhaps also one or two others. Arriva accepts that any registration of tendered services was a mistake).
62. On 11 September 2006 Mr Hind wrote to Mr Durham. The letter is important. Mr Hind thanked Mr Durham for the meeting on 1 September. He recorded "how important it is for to Arriva to find a long-term stable solution to the effect on its business of the CCT sale." He said Arriva wanted to provide Chester's local network and saw considerable potential to improve the current levels and quality of the bus service. It also wanted to work closely with the Council. He emphasised Arriva's strength in the market. He then said (and for ease of future reference I have numbered the paragraphs, although they were not numbered in the letter):

"1. Arriva is currently the principal bus provider throughout Cheshire, Wrexham, Flintshire and the Wirral, and operates the majority of inter-urban links to and from Chester, as well as many local routes between the City and Deeside. In fact, in a radius of 15 miles from Chester its four garages operate over 250 buses in the area.

2. It is therefore crucial to Arriva that the sale of CCT does not result in any part of its present network becoming vulnerable to, or even weakened by, the outcome of that process. In fact, Arriva sees the sale of CCT as a unique opportunity to strengthen the bus network in Chester by providing a fully inclusive local and regional pattern of services which give a freedom of movement that hitherto has not existed, because Arriva would be in a unique position to offer co-ordinated frequencies, common and attractive ticketing and an extensive range of journey opportunities.

3. It is because we see so many opportunities to provide such a vastly improved situation for the travelling public of Chester that we feel we would be unnecessarily constrained, firstly, by signing the confidentiality agreement, and secondly by participating in the formal process you are proposing to effect the sale.

4. We believe, as I discussed with you, that Arriva can provide the best outcome for the City Council, the staff at CCT and most importantly all present and future bus users by combining CCT's commercial operations with the Arriva network without increasing overheads (thus protecting bus passengers from unnecessary cost increases), and provide a seamless transition without any disruption to the network or its customers.

5. We have decided therefore, to register the commercial services currently operated by CCT to commence on 7 January 2007. A list of the routes we propose to run is appended to this letter. We have not at this time registered any of the services that CCT operates under contract to a third party, but would of course do so if and when we were able to reach a suitable agreement with yourselves.

6. We would wish at this time to make a formal proposal to your Council in respect of CCT's assets and staff. Arriva is willing to acquire the operating assets and assume the liabilities of the existing staff on the following basis:"

63. Mr Hind then set out the terms of Arriva's offer, which was by way of an asset purchase. They included a proposal to buy all CCT's buses at market value, less any capital financing; a takeover of all staff apart from CCT's three directors (Mr Hyslop, the managing director; Mr Pointon, the finance director; and Mr Ridge, the engineering director); an assumption of responsibility for all CCT's bus operations; and the provision of easy access vehicles on all CCT's commercial local services. Mr Hind explained that as Arriva would absorb the CCT business into its own operations in the Chester area, it would not require any additional operating base. This meant there could be an immediate release of the Station Road and Bumpers Lane properties for redevelopment. Mr Hind followed the offer with the statement that "We believe this sort of arrangement can create a smooth and efficient transition and can meet all the aspirations of [the Council] for [CCT] and employees."
64. As regards paragraph 2, the point it is said was being made was that, whilst CCT was disabled from competing outside its immediate area, any commercial enterprise that acquired CCT would not be so disabled and would be in a position to use its foothold in the Chester market as a springboard from which to challenge Arriva. Arriva therefore wanted to get its own foothold into that market and so forestall that risk. That, it is said, was a legitimate stance for it to adopt. As I follow it, that would only make commercial sense if Arriva started running bus services in Chester. Paragraph 3 appears to lack any identifiable rational basis. Paragraph 4 is said to reflect Mr Hind's confidence that he expected Arriva's bid to be the best on the merits, offering the best option to the bus-travelling public. As for paragraph 5, the point is made that that was not the statement of a predator, who would have given the minimum 56 days' notice. The notice actually given was said to be a generous period within which CCT could consider the Arriva offer; and what was being offered was, so paragraph 4 said, "a seamless transition without any disruption to the network or its customers", with Arriva stepping in on 7 January 2007.
65. There might well have been a "seamless transition" if the Council had accepted the offer and both sides had worked towards a takeover on 7 January 2007. But there was no certainty that the Council would climb down from its previous unambiguous stance, exempt Arriva from the terms of the bidding process and deal with it exclusively. And, subject to one qualification, why should it? The qualification is that Arriva had now played a high card (perhaps a trump) – namely, its apparently unqualified statement of intention, evinced by its registrations, to compete with CCT on the streets of Chester as from 7 January 2007. As it was put at the trial, that stance would be regarded as a gun to the Council's head: "deal with us - or else"; and the "else" was something that was predictably likely to scare off other bidders for CCT. That would have been obvious to Mr Hind, although he denied it in his oral evidence, also denying that Arriva had adopted an aggressive stance. Unless Arriva was in fact intending to compete with CCT, it made no sense for it to make the registrations at the time it did; and the letter offered no other explanation for the registrations. Mr Hind said nothing to the effect that the implementation of the registrations in January 2007 was only conditional upon Arriva first doing deal with the Council. I find that that they were not so conditional. It was an aggressive tactic of the type in which the Arriva group had engaged before (see paragraph 1.3 of the Report of the Monopolies and Mergers Commission on Arriva plc and Lutonian Buses Ltd, 1998, Cmnd. 4074).
66. It is apparent, and not surprising, that Arriva knew that its registrations and letter were going to provoke a reaction. They would be seen as the adoption of an aggressive stance and Arriva was quick to consider how best to handle it. On 11 September 2006 it was already preparing for the expected fall-out and was proposing to produce a written "question and answer" sheet explaining its position. Julie Jobling, in Arriva's public relations department, sent an email to Mr Hind, Mr Applegarth and Mr Craven on the topic. It read:

"Bob/Chris, attached is a draft Q & A relating to [CCT]. Bob [Mr Hind] is keen to be proactive, however I think we can manage this verbally rather than through a written statement. We've just had Coach and Bus Week ask us if we are interested in buying ChesterBus. When we can agree the final Q & A, I suggest Bob calls CBW to talk them through. This clearly will break the news and, as Transit are going to press this week, suggest we tip them off on the basis that we are aware the story is 'out there' and didn't want them to read out perspective elsewhere first."

67. Mr Hind's oral evidence was that that email was unconnected with Arriva's actions of 10 and 11 September 2006. He said it was merely catering for the expected press interest as to whether Arriva wanted to buy CCT. I do not accept that explanation. I agree the email was in part about such press interest. But the "This clearly will break the news …" was, I find, obviously a reference to Arriva's registrations, which were also the "this" that had to be "managed" and were to be the subject of the tipping off. The draft Q & A had already anticipated the registrations, referring to an intention to make them on 12 September 2006 (they had in fact been made on 10 September); and one of the expected questions was "Isn't this an aggressive approach? Other operators are likely to back off if you register these services." As I have said, Mr Hind refused to accept that the move was an aggressive one, but it is obvious that that is how it would be seen, I find he knew that and that is why the question was raised. His letter to the Council had said nothing to dispel the thought that Arriva had made an unqualified declaration of intent to enter the Chester market on 7 January 2007. The draft answer was a paternalistic one to the effect that Arriva's stance was not aggressive because it knew what was best for the Council, Chester and its people.
68. Mr Hyslop's evidence was that on 13 September 2006 Rob Bennett of Transit Magazine telephoned him. Mr Bennett told him he had received a call from Mr Hind informing him that Arriva was seeking to circumvent the CCT sale process by registering all CCT's commercial services. Following this call, Mr Hyslop's unchallenged evidence was that he telephoned Mr Hind (whom he has known for about 25 years), who confirmed that all CCT's commercial services would be duplicated by Arriva with effect from 7 January 2007. He did not suggest that Mr Hind also confirmed that he was "seeking to circumvent the sale process". Arriva's actions promptly reminded Mr Hyslop of what he regarded as the like predatory actions (so found by the OFT) taken by United Automobile Services Limited and Stagecoach in 1994 upon the announcement of the sale of Darlington Transport Company Limited (Mr Hyslop's former employer) in 1994. He said in his witness statement that "These examples of registering duplicate routes, on the same routes and at the same time as those operated by the target company and, undermining a sale process by registering, and publicising the intention to operate, the competing services well in advance of the requirement to apply for service registration, are well known throughout the bus industry." On the following day, 14 September 2006, Mr Hyslop had a meeting with Mr Cassin, whom he told of his suspicions as to Arriva's motives and explained the parallel with the Darlington case. Mr Hyslop was given a copy of Mr Hind's letter of 11 September 2006.
69. The Bennett story appeared in Transit Magazine and in the Chester Chronicle on 15 September 2006. Ms Jobling's email had referred to Mr Hind as "keen to be proactive" and Mr Hind accepted that he contacted Mr Bennett, although only "after they [Transit] had approached us …." He gave him a telephone interview. The Transit article was headed "Arriva swoops in on Chester Bus in attempt to dodge sales process." The article reported that Mr Hind had told Transit that registrations were to be submitted for an 18-bus network of routes that would exactly mirror those run by CCT. Mr Hind was quoted, apparently verbatim, as saying "Arriva is the principal operator running buses into and out of Chester to other parts of the globe. To hold secure the long term future of our business in the area we have taken the decision that we want to run the local services too, and the city council's decision to sell has created that opportunity." The article continued:

"Hind said that the group has written to the local authority outlining its position. It has told the council that it would be interested in acquiring certain assets, mainly vehicles and staff, if the council comes to the table. However, it would not be interested in acquiring either of the two depot sites occupied by ChesterBus. 'We don't need their properties, we could absorb it into our existing sites,' said Hind. Hind said that registering the commercial network had been done 'in anticipation of some sort of deal', but if talks between the two sides came to nothing the competing service would begin operation anyway. He acknowledges that the decision could be interpreted as irresponsible, but believes that it is actually in the best interests of staff, passengers and local taxpayers. 'We want to ensure that the staff are accommodated, and we can offer benefits to passengers from extending our daily and weekly ticket range in the area,' he said, adding that Arriva was providing the best exit for the council too. 'We are saying to them, we'll take the vehicles and staff off your hands, leaving you to redevelop the depot sites. It seems sensible to us, it's the most efficient and cost-effective solution as we won't inherit the overheads of the existing operation or the start-up costs of someone moving into the area.' Hind pointed out that the commercial routes occupy only 25% of ChesterBus's fleet, and that if it was successful in acquiring the assets of the company it would look at taking on its tendered bus contracts too." (My italics)

70. The Council did not itself respond to Mr Hind's letter of 11 September 2006. It had already made it clear to Arriva that it was not going to consider its overtures other than through the tender process, with the conditions of which Arriva was refusing to comply. But DLA did respond. On 15 September 2006 they wrote to Arriva asserting that it was dominant in the relevant market, with a market share exceeding 46%, and that its threats amounted to exclusionary behaviour in the nature of an abuse of section 18 of the Competition Act 1998 - by flooding routes with buses so that a smaller company could not stay in the market. They invited protective undertakings failing which they threatened High Court proceedings for an injunction. Mr Hyslop's evidence was that he regarded the Arriva registrations as being "explicable only in terms of a predominant motive of depriving CCT of the revenue necessary to support its business." His position was that CCT's financial performance was enjoying a material turn around as compared with its previous year, and that it was heading for a profitable year. His further assessment was that, if Arriva competed with CCT on all its commercial routes, CCT would lose some £700,000 of its revenue, which would spell disaster.
71. Arriva's riposte to DLA's letter, on 18 September 2006, harmonises ill with its present case that it never had any intention of competing with CCT. It was written by Mr Applegarth. He wrote that the correct interpretation of Mr Hind's letter was that Arriva was "seeking to preserve, through legitimate competition, their business." (My italics). To what "competition" could Mr Applegarth have been referring if not with CCT? Mr Applegarth did not give evidence, but Mr Hind said he was "sure at 18^th September Mr Applegarth was fully aware that we did not have any intention of competing with CCT." If so, what was Mr Applegarth talking about? Continuing with the letter, Mr Applegarth accepted that Arriva was a "sizeable operator" but denied it was dominant – he said it was CCT that was dominant in the Chester bus market. He said it was "only abuse (or possibly threatened abuse) of a dominant position that is prohibited by the legislation." He said that, if Arriva were dominant, there was no evidence that its actions were likely to be anti-competitive; and he defended Arriva's right to effect the registrations that it had. None of that was relevant if Arriva had no intention of competing with CCT, so why say it? What Mr Applegarth did not say was that the Council had misunderstood Mr Hind's letter and that (as Mr Hind now claims) Arriva would only be operating the Chester routes as from 7 January 2007 in circumstances in which CCT would not be doing so, namely those in which (a) it had by then purchased CCT's undertaking; or (b) CCT had by then ceased trading by reason of insolvency, as Arriva claimed to know it would. No undertakings were offered.
72. On 18 September 2006 Ms Jobling of Arriva sent an email to eight Arriva personnel, including Mr Hind, David Martin, the chief executive of the group and Mike Cooper, the head of UK regions to whom Mr Hind reports. It referred to the Transit article and summarised it. It referred to the comparison made in Transit's Business Comment section with the notorious Darlington case in 1994. It recorded that the article had said that "if talks with the Council came to nothing the competing services would begin operation anyway." In cross-examination, Mr Hind denied that he had told Mr Bennett that and the sense of his denial was that the statement was untrue. He said it was merely an incorrect inference that Mr Bennett had drawn. Mr Hind said that he had read the Transit article "a few times" and did not think that this particular observation was being attributed to him.
73. I regard that as a remarkable statement, which I do not accept. Mr Hind's position was, apparently, that as this observation (unlike others) was not in quotation marks, it would not be read as coming from him; and so any reader would think it was no more than an editorial contribution which might or might not be correct, but either way neither he nor Arriva needed to worry about it. I regard that as nonsense. Quotation marks or not, it is obvious that the article – including this remark - was purportedly based on what Mr Hind had told Mr Bennett. That is how any ordinary reader would read it, that is how Mr Hind must have read it and, I find, that is how he did read it. Had that remark not been true, Mr Hind could have engaged no feet fleet enough to inform the other recipients of the email of the error in the article as to Arriva's intentions, since it would have conveyed an entirely wrong message, in particular to CCT; and, when writing to Transit in response to the article, as he later did, he would also not have failed to take the opportunity to correct what it had said. I find that the reason he did neither of those things is because the statement was correct and accurately recorded Arriva's intentions: namely, that whether or not Arriva came to terms with the Council, its buses would be on the streets of Chester on 7 January 2007. In fact, as I shall explain, that is also the case that Arriva now seeks to make as to its then intentions so it is odd that Mr Hind was keen to distance himself from this observation in the Transit article.
74. Consistently with that intention, Mr Hind sent an internal email to Mr Martin and Mr Cooper on 22 September 2006. It read:

"You will have seen the first wave of media coverage about our move for Chester and generally, I think, it has been positive. It remains to be seen what effect it has on the process (other than the threat of a High Court injunction, we have had no reply from [the Council]) and what effect it has on potential bidders. One of the journals informed me that [the Council] expected the whole process to be completed by 31 December so I expect we may hear something within the next 3 or 4 weeks. In the meantime, I have briefed the T & G full-time office who is very supportive and I have written to Christine Russell (Chester's MP) to keep her appraised.

Obviously we are in the middle of budget preparation and we have re-allocated existing work between our depots at Chester [ie Hawarden], Wrexham and Birkenhead so that Chester does not take the full impact of an additional 19 PVR from January 7. We will need to start recruiting in October to meet this deadline. Needless to say this whole issue will remain very high profile and I think it is imperative that we appear on the streets of Chester at the beginning of 2007 with new low floor vehicles. I need 22 of them. I believe Bob McCleod has stock – can I have them please?"

75. To the question in cross-examination what effect he thought Arriva's actions would have on potential bidders (a matter to which Mr Hind was sufficiently sensitive to cause him to raise it in the email), Mr Hind said he never thought it would have any effect. He said he could not see how Arriva's actions could deter bidders who were genuinely interested in acquiring CCT. He said Arriva never had any intention of competing with CCT. That is of course Arriva's case, but it appears that no-one at Arriva, Mr Hind included, had troubled to tell anyone else about that; and Mr Hind chose to leave uncorrected Transit's statement to the world that (in effect) it did intend to compete. I do not accept Mr Hind's evidence on this point. It is obvious that Arriva's threatened actions would have been perceived as likely to have an effect on a bidder's consideration of the opportunity to acquire CCT. Mr Hind was aware of that, otherwise he would not have mentioned the point.
76. To the further question whether that email reflected that Arriva intended to be on the streets of Chester on 7 January 2007, Mr Hind responded that he was still hoping to do a deal with the Council. One implication of that answer was that, if no deal was done, there would be no Arriva presence in Chester in January 2007. Mr Hind explained that the bodying process for the vehicles would have to start in October 2006, but that if the operation were to be aborted the vehicles could be allocated elsewhere in the Arriva group. I do not accept Mr Hind's evidence that the only circumstance in which he contemplated using these buses in Chester in January 2007 was if he had first done a deal with the Council. If that had been his intention, he could and would have done the straightforward thing and told both the Council and the world about it. I have no reason to believe he had even told Mr Applegarth, whose letter was entirely inconsistent with the thought. And why, if Mr Hind did not then intend to be on the Chester streets in January 2007, did he say that Arriva would "have to start recruiting in October"? If he did a deal with the Council, he would not have needed to recruit, since he would be taking over the CCT staff.
77. On 26 September 2006 Mr Hind wrote to Transit about its article. His letter was published on 29 September 2006. Its only point appears to have been to put the headline ("Arriva swoops in on Chester Bus in attempt to dodge sales process") into a context more favourable to Arriva, although Mr Hind did not say that it was misleading (probably because it was not). He wrote that "the fact is that we have given [the Council] another route for consideration, one which we feel is a good deal for the City, bus passengers and for staff at ChesterBus." He then expanded on the quality of what Arriva could bring to Chester. He said nothing to the effect that the remark that Arriva intended, failing agreement with the Council, to be on the streets of Chester on 7 January 2007 was incorrect. That was the opportunity to do so if he regarded it as inaccurate, as he now claims he did. He did not take it. Nor did he telephone Mr Hyslop to tell him that that statement in the article was incorrect and that he had nothing to fear from competition from Arriva if it was unsuccessful in acquiring CCT's assets and undertaking. I find he did neither of those things because there was nothing in the Transit article that required correcting. It correctly recorded what he had told Mr Bennett and what Arriva's then intentions were: namely, (a) to acquire CCT's assets and undertaking if it could, but (b) if it could not, to provide its own bus services in Chester from 7 January 2007. The email of 22 September 2006 shows that was just what Mr Hind had in mind.
78. As I explain below, the claimants commenced their proceedings on 10 October 2006 and followed them with an application for interim relief. The supporting evidence included CCT's draft accounts for the year ended 31 March 2006, which showed the large loss for the year of £226,048. Those draft accounts led to an issue which was the subject of much investigation at the trial, and I will come to that later. What is of relevance at this stage is that, having seen the draft accounts, Mr Hind wrote to Mr Durham on 17 October 2006. His letter was headed "without prejudice", but he still chose to exhibit it to his own evidence and no objection appears to have been raised. He wrote:

"We think it is fair to say that the difficult financial position of CCT (evidenced quite clearly by the draft 2006 accounts and the Information Memorandum, now provided as exhibits to the court evidence) has not been caused by any action of this group. Indeed, until the new registrations we made in September 2006 come into force in January 2007, no action of this group can in any way have contributed to CCT's difficulties, as our respective operations in the City have continued largely as they have been for many years."

79. Translated, that meant (i) CCT was apparently in a rocky position, but Arriva had not caused it; and (ii) Arriva would only cause CCT any difficulty when it started to compete on 7 January 2007. The letter continued a little later:

"We would also draw to your attention that our actions in registering in competition with CCT were not those that would have been taken in a predatory 'bus war' of the type occasionally seen between operators in the early to mid 1990s, and referred to in Mr Hyslop's evidence. If we had wished to take such action, we would have registered to operate only the most profitable of CCT's services, and the period between application and registration would not have been so long as the period from September to January.

We registered as we did in the belief that in that period:

- the sale process would reveal no offer comparable with the terms we were prepared to make; and

- the Council would recognise in the period before January 2007 that CCT does not have the financial ability to continue to operate, because of market forces independent of Arriva;

- you would wish to reach agreement with Arriva on acquiring the PSV assets and employees of CCT and continuing to provide all of its current services. This, our registrations would permit us to do."

80. Those observations are interesting. First, Mr Hind admitted that Arriva had effected its September registrations "in competition with CCT", an odd admission from someone who claims he never intended so to compete. Secondly, he said that if Arriva had wished to act in a predatory way, it would have registered "only to operate the most profitable of CCT's services." That is just what Arriva later did in November 2006, and there is no doubt that it intends, if not restrained, to compete with CCT on those services. Mr Hind now denies that there is anything predatory about Arriva's revised intentions. Thirdly, as to the second claimed reason for the original registrations, Mr Hind there articulated, apparently for the first time ever - and to anyone - that he contemplated a cessation of trading by CCT by January 2007, a point made only after he had seen CCT's draft 2006 accounts.
81. Mr Hind's explanation in his evidence of the decision to make the September 2006 registrations is worth quoting. It is consistent with my finding that Arriva intended to be on the streets of Chester in January 2007 even if it could not first do a deal with the Council, but it puts a different slant on it, one foreshadowed by the letter of 17 October 2006. He said this in his first witness statement of 1 November 2006:

"7.1 Faced with [the Council's] attitude, we had to consider our options. We could have joined in the bidding process, especially if the confidentiality agreement was modified (as having taken the advice of the OFT, [the Council] subsequently modified the confidentiality agreement) but we were also concerned that any successful bid on our part would run the risk of a referral by the OFT to the Competition Commission unless the OFT was convinced that CCT would no [sic] effective competition to any bidder. A realistic alternative was simply to enter the market and this required notice. We elected to do this with no expectation that we would be competing against CCT because by our calculation CCT was insolvent and would be unlikely to be trading on 7 January 2007 (the date after which we would have started our operations)."

82. When asked whether a possible reference to the Competition Commission had been in his thoughts at the time of his letter of 22 May 2006 to the Council, Mr Hind gave answers I found to be less than straightforward, and I have referred to them. By September 2006, he claims to have adopted the view that a successful acquisition of CCT could result in a reference to the Competition Commission and so the decision had been made simply to enter the Chester market, a decision declared by the September registrations. It is worth noting that, apart from the aide-memoire prepared for the meeting of 1 September 2006, not a single piece of paper was generated by way of explanation of Arriva's or Mr Hind's thought processes leading to the registrations.
83. On one interpretation, Mr Hind's quoted explanation can be read as meaning that, by 10 September 2006, Arriva had abandoned any thoughts of acquiring the assets and undertaking of CCT, in case it led to a reference to the Competition Commission. It is obvious, however, that it had not, since I see no reason to interpret the letter of 11 September 2006 as other than a genuine offer to buy. I have also already found that Arriva's further intention was to be on the streets of Chester on 7 January 2007 even if it could not do a deal with the Council. All the evidence is consistent with that.
84. Save that Arriva is sensitive to the suggestion that its September registrations amounted to a threat (which I find they did, and that Mr Hind knew and intended it), most of this is in fact admitted. But Arriva's point (made for the first time, albeit a little obliquely, in Mr Hind's letter of 17 October 2006) is that the suggestion that it had any intention of competing with CCT as from 7 January 2007 is misconceived. That is because, as Mr Hind claims to have perceived matters as at early September 2006, either (a) Arriva would have acquired CCT's assets and undertaking by January 2007 ("outcome A"); or (b) CCT would anyway have ceased trading by then by reason of its insolvency ("outcome B"). Although Mr Hind's evidence does not in terms make the point, it was presumably also part of his claimed vision that in the meantime – whatever CCT's financial position might have been – no-one else would have been prepared to buy CCT. So, on any footing, as from 7 January 2007 Arriva could serve the citizens of Chester with its own bus services – free from competition from CCT, whether under the ownership of the Council or anyone else. Of course if CCT had ceased trading at, say, early December 2006, there would inevitably have been a hiatus in the provision of bus services to the citizens of Chester, even if (as Mr Hyslop said could be done) the traffic commissioner would in such event have permitted Arriva to advance the commencement of its services. That point seems to have been overlooked in Arriva's Defence (served on 20 October 2006) which asserted in paragraph 5 that "In the reasonable belief that CCT would no longer be operating any services by January 2007, Arriva registered the said services to commence on 7 January 2007 in order to provide, in the language adopted in the letter [of 11 September 2006], 'a seamless service without any disruption to the network or its services.'" No-one reading that letter would understand that thoughts of CCT's expected insolvency underlay any of it; and the "seamless" transition point does not work in relation to it.
85. I do not accept Mr Hind's evidence that, as at September 2006, he believed that CCT would have ceased trading by 7 January 2007 by reason of its insolvency. It is uncorroborated by any other witness or by any documentary evidence; and (subject only to the budget which Mr Hind prepared, to which I shall come) it is inconsistent with all the documentary evidence in the case. I regard it as untrue and as advanced by way of an ex post facto justification for, and exculpation of, a course of conduct which was, on face of it, intended to be directly competitive of CCT, and which, if implemented, would in practice have been likely to eliminate CCT. Despite Mr Sharpe's efforts to persuade me otherwise, the facts are that Mr Hind had not a shred of material on the basis of which he was in a position to form his claimed view as at September 2006. He had not seen any accounts for CCT since its 2005 accounts and he had no detailed knowledge of its then current trading position, which was in fact positive and profit making. He regarded its commercial routes as extremely profitable and he wanted Arriva to step in and take them over (whereas Arriva was earning about £84,000 per bus, he had apparently – on the basis of a budget referred to in an email to which I shall come, but which Arriva did not produce in evidence – estimated CCT to be earning at least £100,000 per bus; and in cross-examination, by when he had learnt rather more about CCT, he acknowledged an estimate of about £110,000 per bus); and he knew that the new concessionary fare scheme would have been producing increased revenue for CCT. He claims to have formed his view as to CCT's imminent insolvency essentially on the basis of the Council's decision to sell it. He said he drew the inference that things were far worse at CCT than he had thought, and that "it seemed a very peculiar time to be selling, to be honest." None of that justified any assessment as at September 2006 that CCT was about to cease trading on the grounds of insolvency. On the contrary, CCT was being marketed for sale as a going concern and he had no knowledge of the Council's reasons for deciding to sell it. Companies facing a forced cessation of trading by reason of insolvency such as Mr Hind claims to have foreseen in September 2006 are not usually put up for sale as a going concern; if there is any hope of rescue they tend nowadays to go into administration. Directors of such companies who have a proper sense of responsibility tend not to be willing to court the risk of accusations of trading whilst insolvent. Mr Hind was in no position to form a view that CCT was about to go bust and I find he did not do so. In line with Arriva's way of doing things, there is no contemporaneous internal Arriva paper suggesting that he ever did.
86. Mr Hind's evidence about his intentions as at September 2006 was anyway inconsistent with the case he made in his quoted paragraph 7.1. To the question what he would have done if the Council had responded to his letter of 11 September 2006 by saying they would not deal with Arriva unless it were prepared to take part in the bid process, he replied that it was a hypothetical question and he did not know what his response would have been. But if his evidence in the quoted paragraph 7.1 is true, he must have known what it would have been: he would have stuck to the registrations in the belief that if outcome A did not happen, outcome B would. In relation to a like question as to his intentions as at 13 October 2006, he again said he had not made a firm decision to start operating on 7 January 2007: he said he did not need to do so until the beginning of November, a reference to his right until then to vary or cancel the September registrations. I do not accept that, which is inconsistent both with his email of 22 September 2006 and with his email to Mr Cooper a mere five days later on 18 October 2006. That email followed the issue of the present proceedings, an event which also gave Mr Hind the added benefit of learning from the claimants' supporting evidence information about CCT's operations he would otherwise not have had, and which he has not hesitated to use for Arriva's own commercial purposes, namely in assessing Arriva's prospects of making a profit on the three routes the subject of the revised November 2006 registrations. He wrote:

"The one thing we didn't mention last night was new vehicles for Chester. We have to resolve this, this week. Bob Mcleod has the buses – in fact they are all Euro 3 – he will have to find a home for them quickly, but I really believe we have to make an impact on January 7. As I mentioned at our budget meeting, we will always have the opportunity later next year to revisit their allocation to Chester if things go pear-shaped.

The information we have received from Chester City's solicitors suggests that the total commercial revenue for year ended 31 March 2006 was £2,090,768; for 19 PVR that equates to £110,040 per PVR. We used £100K in our budget presentation so we already have some headroom. Chester City has also showed that the three months April to June 2006 has generated £583,836 – annualised that would be £2,225,344, so it seems to be moving in the right direction. Mcleod is waiting for you to agree the release of the 22 vehicles needed and we are running desperately short of time. Can you sort it please."

87. That is from the same Mr Hind who said in evidence that, as at 13 October 2006, he had made no firm decision to start operating in Chester on 7 January 2007. I comment that he also appears to have omitted to tell Arriva's solicitors, Dickinson Dees LLP, what his claimed position was. Their letter of 12 October 2006, in response to the letter before action, was in terms which appeared to assert an unqualified – and allegedly justified – intention by Arriva to enter the Chester market "on the basis that the investment will be profitable from virtually the outset." That only makes sense in the context of an entry into the market in competition with CCT. If CCT had by then departed the scene, Arriva's ability to profit from a Chester operation would be of no interest beyond Arriva, its employees and shareholders. I do not overlook Mr Hind's evidence that he remained of the view that he foresaw a real possibility of a deal with the Council but that, if a deal proved impossible, he intended to reconsider the position. But that statement of intention is inconsistent with all the other evidence of an apparently unqualified intention to be on the streets of Chester in January 2007.
88. I therefore reject Mr Hind's evidence as to his claimed belief in September 2006 of CCT's imminent insolvency. I find that, at the time of the registrations, Arriva's intentions were (a) to acquire CCT's assets and undertaking if it could; but (b) if not, to compete with CCT as from 7 January 2007. I accept of course, as events proved, that Arriva did vary the registrations. I come later to my observations about that.
89. Arriva produced a 2007 budget for its September 2006 registrations on about 2 October 2006. Mr Hind had not at that stage seen any figures for CCT's operations save that which was in the public domain, which included no accounts more recent than the 2005 accounts. It forecast revenue of £1.6m for Chester for 2007 and profit of £207,000. Mr Hind said the revenue was estimated on a conservative basis, with the costs based on Arriva's operations at its Hawarden depot. The Chester exercise would represent merely a small part of Arriva's (ie ANWW's) total budget for 2007, estimated to be £150m. Mr Hind made the point that in an organisation the size of ANWW this was insignificant. It can perhaps be said that this budget was a lone indicator that Arriva had no intention to enter the Chester market in January 2007 in competition with CCT – since it assumes it would be picking up all the revenue. Mr Hind's evidence was, however, that it was prepared on the assumption that Arriva would be acquiring CCT's assets and undertaking. Set against all the other evidence, I do not regard it as providing any support for Mr Hind's claimed position. Nor did Mr Sharpe suggest that it was.

The proceedings

90. On 5 October 2006 DLA wrote a letter before action to Arriva. The proceedings were issued on 10 October 2006. The claim form sought a declaration that the September registrations breached section 18 and orders for their de-registration and damages. It was later amended to claim like declarations, de-registration orders and damages in respect of the original registrations in respect of routes 1, 1A and 15A, as amended by the revised registrations made on 23 November 2006. By a re-amendment made at the trial the Council abandoned an ill-pleaded claim that it had suffered, or might suffer, a loss of a capital nature in respect of the value of its shareholding in CCT as a consequence of Arriva's actions. That case had apparently been intended to be based on the suggestion that Arriva's actions had caused other interested parties to withdraw from the bid process; but any such suggestion was not pursued. There is no evidence suggesting that Arriva's actions did in fact cause any party so to withdraw.
91. In place of that claim, the Council obtained leave to make a brand new damages claim for wasted expenditure. That was based on the assertion that "As a result of Arriva's abusive conduct, potential bidders for CCT have withdrawn from the sale process. The one remaining bidder refuses to proceed until judgment in this Claim." The consequential delay in bringing the sale process to a conclusion was said to have caused – or to be likely to cause – expense by the Council said to amount to £72,067.53 comprising: (i) wasted legal expenses of £52,925.53 charged by DLA; (ii) wasted consultancy fees of £18.142 charged by TAS; and (iii) wasted disbursements of £1,000 incurred by the Council. The description of those costs as "wasted" is a little odd, but I understand its sense to be that they are costs that were, or would be, properly, and valuably, incurred but which would not have been incurred but for Arriva's alleged wrongdoing.
92. In fact, as emerged from a disclosure order made by Evans-Lombe J on 23 January 2007 (the making of which the claimants opposed), only one potential purchaser – namely, First - had made a bid for CCT, that bid having been described as an indicative one. By reason of the confidentiality surrounding that bid, I say no more about it than that (as was stated in open court) it was made in about early October 2006. No-one else (apart from Arriva) had ever made any bid. Despite this, in paragraph 62 of his witness statement made on 9 October 2006 in support of an interim injunction against Arriva, Mr Cassin had felt able to say that "three indicative bidders" had withdrawn following Arriva's actions, although "five bidders" remained in the sale process; and, in his second witness statement of 14 November 2006, that Arriva's offer was "… competitive (but at this stage no more valuable) with those made, at an indicative stage, through the formal bidding process." (My italics) At paragraph 25 of the same statement Mr Cassin again made a generalised comparison between Arriva's offer and the offers of others (plural) remaining in the sale process.
93. I regard that evidence as misleading. It is fair to acknowledge that the confidentiality agreement described a would-be bidder, and whether or not it actually made a bid, as a "bidder" and no doubt Mr Cassin was influenced by that. But anyone reading his first witness statement would interpret it as meaning that all eight entities referred to had at some point made a bid of some sort for CCT. The truth was that, apart from Arriva (whom Mr Cassin was not there including as a "bidder"), no-one apart from First ever made any bid. Mr Cassin explained in his oral evidence that the eight bidders to whom he had referred were those who had signed the confidentiality agreements. But that was merely the necessary prelude to the provision of information about CCT that would enable them to know whether or not to bid; and the request for such information could hardly justify the inquirer being classed as a "bidder". Anyone reading Mr Cassin's second witness statement would also understand him to have been making a comparison between the Arriva offer and at least two genuine bids from others. But there never were two such bids. Mr Cassin acknowledged that the statement in his first statement was misleading, and that he had made a mistake in his second statement. He accepted that his chosen wording was "not as tight as it should have been" but emphasised that there was no intention to deceive. Nevertheless I regard the manner in which he expressed himself as inexcusable. Arriva did not know what the position was at the time the two statements were made; and they were statements directed at obtaining allegedly urgent interim relief from the court.

The letter of comfort

94. A good deal of trial time was devoted by Arriva to a letter of comfort dated 18 October 2006 that the Council gave to CCT. I do not believe it to be of direct relevance to the main issues I have to decide (reflected by the fact that Mr Brealey devoted no time to it), but since Arriva made so much of it I should tell the tale. The background was that for its year ended 31 March 2006 CCT suffered a loss of £226,048. CCT's auditors were Baker Tilly. One of their tasks was to review CCT's going concern status. Their draft audit report produced on 6 September 2006 in relation to the draft 2006 accounts referred to the making of the year's loss and to the fact that CCT's current liabilities at the year end exceeded its current assets by £189,988. It stated that "[t]he conditions, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern."
95. Note 1 of the draft accounts referred to was to the effect that CCT relied on a bank overdraft facility of £100,000 in order to meet its obligations as they fell due; and that in 2006 the directors had reviewed the profitability of certain routes and had, where necessary, ceased to operate them to try and improve CCT's position. It continued: "As a result of this, the directors anticipate improved trading results for the forthcoming year with a breakeven position anticipated. On the basis of the above, and all other information available, the directors consider that the company will become profitable and continue to operate within the facilities currently agreed." The draft audit report reflects that Baker Tilly were not satisfied as to the justification for that opinion.
96. Mr Pointon, CCT's finance director and a chartered accountant, had a meeting with Mr Davies of Baker Tilly on 6 September 2006 to discuss the audit. Mr Pointon's evidence was to the effect that Mr Davies knew of the proposed sale of CCT and that Baker Tilly's inclusion of their note in the draft audit report was provoked in part by a concern of possible head-to-head competition with CCT during the sales process, although there is no suggestion that either Mr Pointon or Mr Davies had focused specifically on Arriva as likely to provide any such competition. Mr Pointon said that in that state of affairs Mr Davies suggested that the Council should provide a letter of comfort indicating that it would, if necessary, provide financial support to enable CCT to continue in business as a going concern. If such a letter were provided, Mr Davies would be prepared to recommend that Baker Tilly should issue their audit report without any expressed concern about CCT's ability to operate as a going concern. I understand that that suggestion was made on 6 September 2006, but Baker Tilly also wrote to CCT on 21 September 2006 requesting such a letter of comfort from the Council. Their request recorded their understanding that the Council was willing to issue a letter to CCT confirming that "… it will provide financial support to [CCT] to meet its financial obligations as they fall due. The issue of this letter of support will enable us to resolve the going concern issue and we plan to remove reference to going concern uncertainties from our audit report." Baker Tilly attached a draft two-line letter of confirmation from the Council to the required effect. The inference was that, if no such confirmation was produced, the going concern qualifications would remain in their audit report.
97. Mr Pointon made no note of his meeting with Mr Davies on 6 September 2006, Mr Davies did not give evidence and such note, if any, as he made of the meeting is not in evidence. The draft audit report did not itself suggest that the risk of head-to-head competition as a result of the proposed sale of CCT was any sort of an explanation of the form of the cautionary comment in the draft audit report, or even contributed to it. Accepting, as I do, that the sale was discussed at the meeting of 6 September 2006, I do not accept that it, or the suggested risk of such competition, was a reason for the form of that draft. Mr Pointon suggested that Baker Tilly had there simply used "a fairly standard form of words", a suggestion which, coming from a chartered accountant, I regard as unworthy.
98. Mr Cassin sought in his second witness statement of 14 November 2006, and in cross-examination, to play down the importance of Baker Tilly's request for a letter of comfort, but the attempt was unimpressive and it is obvious that the request related to a potentially serious matter. Mr Hyslop, CCT's managing director, a straightforward witness who could recognise and identify a spade when he saw one, had not failed to note its seriousness. In his witness statement of 9 October 2006 – made in support of the application for interim relief – he described Baker Tilly as proposing to raise a "going concern" qualification in their audit report unless the Council were to provide a statement to the effect that it would support CCT in meeting its financial obligations as they fell due; and he said that a qualified audit report would undoubtedly cause concern to potential bidders for CCT and to its suppliers.
99. There was, however, a problem in producing a simple letter of confirmation along the lines of the two-line draft proposed by Baker Tilly. That was because of the statutory restrictions imposed by the Transport Act 1985 upon the giving by parent councils of financial aid to their bus subsidiaries. Those restrictions resulted instead in a two-page letter from the Council dated 18 October 2006. It had been drafted by Mr Painter of DLA and, subject to one change, was signed in the form of his draft by Mr Cassin.
100. The letter was addressed to the directors of CCT. It opened by saying that the Transport Act 1985 prevented the giving of "an open-ended commitment of the type which your auditors have sought …." It explained that the Council was currently seeking a purchaser for CCT "… and as part of the assessment of the purchaser will seek to verify that it is able to finance [CCT's] activities on a going concern basis" [sic: presumably this should have read "and as part of the assessment of [CCT] the purchaser will etc …"]. It continued by asserting that the "remaining bidders are all companies of considerable financial strength and national repute, who we believe are unlikely to cause any solvency concerns." That statement therefore repeated the incorrect assertion that there were plural bidders for CCT - unless only Arriva were now to be regarded as a bidder and, in relation to this letter, Mr Cassin's evidence was that it was. I reject that evidence as inconsistent with the Council's stance at the time, namely that as Arriva was not playing by the Council's rules its offer was not being considered at all. Moreover, Arriva was not making an offer for CCT which involved a takeover of its liabilities, which was the context of the quoted statement: it was merely proposing to buy its assets and undertaking, although that would involve a TUPE transfer of the employee contracts. The second point to note is that the phrase "cause any solvency concerns" makes little sense. Did the writer mean raise any such concerns? This and the previous quote were taken from Mr Painter's draft, to which Mr Cassin does not appear to have applied any independent critical thought. The remainder of the relevant part of the letter deserves to be quoted verbatim, and for easy subsequent reference I will number the paragraphs:

"1. … However, if the sale proceeds as we expect, [the Council] would then cease to be able statutorily to underwrite [CCT's] financial obligations and indeed believe that it would be inappropriate for us to do so.

2. Pending the sale of the share capital of [CCT], however, [the Council] will provide the financial support to enable [CCT] to meet its financial obligations for the financial year to 31 December 2007. Whilst [the Council] would have power to finance [CCT's] ongoing liabilities and obligations through subscribing for share capital, it can only do so whilst it believes there is a reasonable prospect of receiving a return on that investment. Although this would be [the Council's] preferred option to finance [CCT's]] ongoing financial obligations, if required, this would have to be gauged at the time a request for further funding was received from [CCT].

3. The second option would be to make a grant or loan to [CCT] to restore losses or liabilities affecting its viability. Under Section 79(9) of the Transport Act 1985, however, such powers could only be exercised with the approval of the Secretary of State, where he is satisfied that it forms part of a plan for approving the efficiency and commercial performance of [CCT] and will enable [CCT] to carry on its business without further financial assistance from [the Council]. Again, therefore, this would have to be gauged at the time when a request for financial assistance was made by [CCT].

4. The one circumstance in which [the Council] can discharge [CCT's] liabilities, without taking into account wider commercial considerations or obtaining third party consent, is on a winding up of [CCT] when, under Section 79(10) of the Transport Act 1985, it can make payments directly to creditors to meet any balance of liabilities which cannot be met from [CCT's] assets. This is what the Council would ultimately commit to, if other means of funding liabilities affecting [CCT's] viability were not open.

5. Accordingly, whilst confirming that [the Council] will provide the financial support required to enable [CCT] to meet its financial obligations, in the year to 31 March 2007 and whilst it remains in its ownership, the manner in which such commitment is satisfied will be dependent upon the considerations set out above."