Neutral Citation Number: [2007] EWHC 2729 (Admin)
Case No: CO/3742/2007 & CO/3744/2007
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21/11/2007

Before :

THE HONOURABLE MR JUSTICE BEATSON
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Between :

	R (on the application of) CENTRO	Claimant	
	- and -		
	The Secretary of State for Transport
- and -
West Midlands Travel (“TWM”)                  

And in the application of:

R (on the application of) CENTRO
- and –
The Secretary of State for Transport
- and -
Go West Midlands Limited (“GO”)	Defendant

Interested Party

Claimant

Defendant

Interested Party	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -
MR C. BOURNE (instructed by Centro) for the Claimant
MISS J. SIMOR (instructed by The Treasury Solicitors) for the Defendant
MR R. GORDON QC (instructed by Reed Smith Richards Butler LLP ) for TWM
MR M. LAPRELL (instructed by Backhouse Jones) for GO

Hearing dates: 8 November 2007
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Judgment
Mr Justice Beatson: 

1.	These two applications concern the calculation of sums payable to bus operators in the West Midlands metropolitan area in respect of travel concessions to elderly and disabled passengers carried without charge. On 28 April 2006 Centro, the Passenger Transport Executive for the West Midlands, published its proposed arrangements regarding reimbursement to be paid to West Midlands Travel Ltd (“TWM”) and GO West Midlands Ltd (“GO”) in respect of their provision of free bus services to those entitled to concessionary fares. 

2.	TWM and GO considered that the claimant’s proposed reimbursement arrangements did not properly reflect the revenue they had foregone as a result of providing free transport to passengers who would otherwise have paid fares. They applied to the defendant under section 150(3) of the Transport Act 2000 for the modification of the proposed arrangements. TWM’s application was made on 28 April 2006. GO’s application was originally made on 14 July 2005 under section 98(2) of the Transport Act 1985. On 21 April 2006 a further (largely duplicate) application was made under section 150(3) of the 2000 Act. GO’s application covered part of the year 2005/6 as well as the year 2006/7. It is accepted that for the purposes of these proceedings nothing turns on the difference between the two statutes. 

3.	The defendant’s decision in the TWM case was originally issued on 8 February 2007. It was reissued on 1 May with a clarificatory addendum. The decision in the case of GO was also initially made on 8 February 2007. That decision related to a period from 1 April 2006. On 27 March the defendant reissued its decision, extending it so that the reimbursement rate related to a period from 24 July 2005.  In both cases the outcome was that a greater sum was payable to the operator than had been proposed by the claimant. In TWM’s case the difference is over £4 million. In GO’s case it is some £440,000. 

4.	Proceedings challenging the defendant’s decision in both cases were launched on 8 May 2007. Acknowledgments of service resisting the claims were served by the defendant and by TWM and GO. GO additionally sought to challenge the decision. On 26 June Collins J refused permission to both the claimant and to GO in respect of its challenge. The latter challenge is not now pursued. 

Legislative framework

5.	Section 145 of the Transport Act 2000 requires travel concession authorities to provide concessionary travel to elderly and disabled persons. Sections 93-105 of the Transport Act 1985 empower Local Authorities including Passenger Transport Authorities to set out travel concession schemes for the provision of travel concessions on journeys on public passenger transport services. The West Midlands Passenger Transport Authority has a scheme under the 1985 Act which is administered by the claimant which is thus a Travel Concession Authority for the purposes of section 145 of the 2000 Act. 

6.	Under both the 1985 Act and the 2000 Act the relevant authority is required to reimburse the operator which provides the concessionary travel for revenue forgone by it as a result of providing concessionary travel: see section 93(6) of the 1985 Act and section 149 of the 2000 Act. Section 149(2) states that, subject to regulations, the arrangements with respect to reimbursement shall be such as the Travel Concession Authority may agree with the operators to provide concessions or, in the absence of agreement such as may be determined by the authority. 

7.	Where an operator is dissatisfied with the authority’s reimbursement arrangements, sections 98(2) and 99(2) of the 1985 Act and section 150(3) of the 2000 Act make provision for the operator to apply to the defendant to modify the arrangements. In respect of applications under the 1985 Act, the Travel Concessions Schemes Regulations 1986, SI 1986 No. 77, make provision for the procedure to be used. No regulations material to the claims before me have been made under the rule making power contained in the 2000 Act. The defendant has, however, indicated in published guidance that it will follow the 1986 Regulations in the case of applications under the 2000 Act. 

8.	Regulation 4 of the 1986 Regulations provides:
“It shall be an objective (but not a duty) of an authority when formulating reimbursement arrangements to provide that operators both individually and in the aggregate are financially no better and no worse off as a result of their participation in the scheme to which the arrangements relate.”

9.	Regulation 5 provides:
“(1) Subject to regulations 4 and 12, and paragraph (2) of this regulation, reimbursement arrangements adopted by an authority shall be so formulated that the costs to operators of providing concessions are met by the payments made by the authority to operators pursuant to section 93(6) of the 1985 Act.
(2) In paragraph (1) of this regulation, the reference to the costs to operators of providing concessions is a reference to the aggregate of-
(a) The revenue by way of fares which the authority calculate that the operator has forgone or estimates that he will forego in consequence of the provision of the concessions in question, less any additional revenue from fares which they estimate he has received or would receive by reason of the availability of the concessions; and
(b) Any costs additional to basic operating costs which the authority calculate that the operator has necessarily incurred or estimate that he will necessarily incur in connection with providing concessions, less any reduction in basic operating costs which they estimate he has achieved or would achieve by reason of the availability of the concessions.”

10.	I have referred to the operators’ entitlement under the 1985 and 2000 Acts to apply to the defendant to modify the Authority’s reimbursement arrangements. For present purposes it suffices to set out the material parts of section 150 of the 2000 Act. These are:
“(3) An operator who considers that he may be prejudicially affected by the proposals may apply to-
the Secretary of State (in the case of arrangements determined by Travel Concessionary Authorities in England)…
for a modification of the proposed arrangements or proposed variations, on the grounds that there are special reasons why they would be inappropriate with respect to one or more local services provided by him.
...
(6) The Secretary of State … 
…
may appoint a person to determine an application under subsection (3) on his … behalf …
…
(8) On an application under subsection (3) the Secretary of State or … [a person appointed under subsection (6)(b) to determine the application]… may direct –
(a) that the arrangements, or varied arrangements, are to have effect with such modifications as are specified in the direction from the time so specified, and
(b) that the authority shall make a payment of an amount specified in the direction to the applicant.”

11.	The powers under section 98(2) are similar. The defendant is entitled to modify a reimbursement arrangement and to direct an authority to pay a specified amount to the operator where the defendant considers that the reimbursement arrangements are inappropriate in terms of discharging the authority’s duty to reimburse as laid down in section 93 of the 1985 Act, section 149 of the 2000 Act and regulations 4 and 5 of the 1986 Regulations. 

The facts

12.	The claimant has been operating concessionary fares since 1986. It has developed a methodology called SCEPTRE for calculating sums payable to operators providing bus services to those entitled to concessionary fares. SCEPTRE uses a system of on bus surveys to calculate the number of relevant concessionary passenger journeys. It uses a statistical model to calculate the percentage of journeys generated by the existence of the concessionary scheme. The factor varies according to rises or falls in fares. The operator is not reimbursed for journeys generated by the existence of the scheme because those journeys would not have taken place in the absence of the scheme. An operator is reimbursed for the percentage of journeys not generated by the scheme. The model thus seeks to identify the percentage of journeys not generated by the scheme and that percentage is the percentage in respect of which the operator is entitled to be reimbursed. It assumes that a rise in real fares is fully reflected by a rise in elasticity. There is an additional smaller payment for generated journeys. 

13.	Prior to July 2005 there was a fixed reimbursement rate for half fare concessionary schemes. On the withdrawal of that, as a transitional arrangement, the reimbursement figure for all operators was increased by an agreed adjustment to compensate for the loss of this. 

14.	The arrangements published by the claimant on 28 April 2006 pursuant to its duties under sections 93(6) of the 1985 Act and section 149 of the 2000 Act applied the SCEPTRE methodology to TWM and GO.

15.	In October 1986 the reimbursement rate set by the claimant was then 73%. Since then it has varied in accordance with changes in fare level. Since 2004 TWM and GO’s cash fares have risen sharply and the reimbursement rate has fallen. By the 2006-2007 year, on the SCEPTRE methodology, TWM’s reimbursement rate was 52.2% and GO’s was approximately 51.3%, ignoring the effect of the transitional arrangement to which I have referred. 

16.	TWM and GO’s applications to the defendant argued that the remuneration provisions set up by Centro were not accurate and did not leave them “no worse or no better off” as a result of the concessions. They submitted that the method used to determine the reimbursement rate was technically flawed because of the way the data is collected, and because it assumed that there is a direct correlation between real fare increases and passenger usage so that a rise in real fares is fully reflected by a rise in elasticity. The companies relied on the significant difference between the claimant’s methodology and the reimbursement factor identified in another method, “the toolkit”, which the defendant, in guidance published in November 2005, stated was a negotiating aid that can be used to calculate reimbursement revenues, additional capacity costs and reimbursement factors. 

17.	In the TWM case the sole issue on which the arrangements were challenged were generation/fare elasticities. In the GO case, as well as the issues of reimbursement rate and average fare which arose in the TWM case, GO also challenged the claimant’s use of a survey system to estimate volume.

18.	GO alleged that the use of the SCEPTRE methodology would cause it to incur losses of over £320,000 per annum. TWM considered that, applying the SCEPTRE methodology, the variability in the reimbursement rate would mean that the rate would fall during the course of the year to 53%. They each submitted substantial documentation in support of their applications.

19.	Pursuant to his powers under section 150(8) of the 2000 Act, the defendant appointed Mr Martin to deal with the applications by TWM and GO. The correspondence to the parties, however, is from the defendant department and sent in the name of the Secretary of State. 

20.	In both cases the claimant submitted extensive responses to the applications. The response to the TWM case is dated 14 August 2006 and that to the GO case is dated 4 September. These inter alia stated it considered SCEPTRE to be the most appropriate model. In its response to the TWM case the claimant stated it considered that the toolkit could be used to “validate” SCEPTRE, and in other correspondence it stated that the toolkit could be used “to undertake an assessment of the total reimbursement produced by using the SCEPTRE system” (letter dated 22 September 2006). The claimant informed the defendant that in the TWM case the toolkit methodology validated its SCEPTRE reimbursement calculation on the basis of £0.89 and an elasticity of -0.40 and in the GO case the toolkit methodology validated its SCEPTRE reimbursement calculation on the basis of £0.89 and an elasticity of -0.45.

21.	The claimant’s initial response to TWM’s application stated that it accepted that £1.05 is a reasonable prediction of the average adult cash fare that would be generated through the SCEPTRE system but did not accept that figure is the correct one to use within the toolkit calculation: see paragraphs 20 and 21. It proposed that under the toolkit, the appropriate average fare would be £0.89. It is clear from the correspondence between the defendant, TWM and the claimant that the primary focuses were the effect of the SCEPTRE system on elasticity and what fare is an appropriate average. 

22.	Mr Bourne accepted that in the GO case the initial focus was on the reimbursement rate and it was only later that the claimant raised the question of the appropriate average fare. The claimant’s reimbursement rate for GO was based on an average fare of £1.02 at the time of the decision which was an undiscounted cash fare whereas the TWM equivalent figure of £1.05 incorporated a small discount of about 2%. 

23.	The claimant’s response to the applications also requested an oral hearing.  GO’s appeal document contemplated oral presentation and sought directions from the defendant but TWM considered that it would be better to restrict consideration to written papers. On 8 September the defendant replied to the claimant stating he would have to decide whether he had sufficient information to determine the application or whether he considered a hearing would be necessary. In the course of the defendant’s consideration of the applications, the claimant, TWM and GO were asked to provide certain information to the defendant.

24.	The decisions were initially made on 8 February 2007. In both cases the defendant accepted the operators’ basic submission that the claimant’s SCEPTRE system applied excessive elasticities to price increases which had the effect of reducing reimbursement paid with the result that operators were no longer receiving reimbursement in respect of all non-generated fares. The decision in the TWM case states: 
“The professional advice I have received on fare elasticities casts doubt on the [claimant’s] approach to setting the generation factors/reimbursement rates applied. The [SCEPTRE] formula uses a short run elasticity, estimated in 1990, adjusted by the change in real fares, and this has the effect of nearly doubling the effective short run elasticity between 1990 and 2005 and reducing the reimbursement rate from 73% to 53%. … The limited evidence available suggests that over the last two decades a 10% rise in real fares has been associated with (only) a 2% rise in short run fare elasticity. The [claimant’s] methodology assumes that the rise in real fares is fully reflected by a rise in elasticity. It also means that ever increasing real fares will cause short run fare elasticity eventually to exceed recognised long run fare elasticities. This would conflict with the use everywhere else of short term elasticities and generation rates which fit with short run fare elastic responses. I am advised, therefore, that the [claimant’s] methodology for estimating fares elasticities is questionable; and it seems reasonable to infer that the elasticities which the PTE has build into its calculations are too high.”

25.	There is a similar paragraph in the decision in the GO case. For present purposes it is not necessary to set out substantial parts of the decisions. They first set out the main points made by both parties (running to some 7 pages in the GO case) and then set out the defendant’s consideration of the appeal. I deal with what is said about the claimant’s request for an oral hearing when I consider Mr Bourne’s submission that the defendant’s decision that one was not required was procedurally unfair. It suffices to make the following observations about the defendant’s consideration and decision in the two cases. 

26.	In the TWM case, where, as I have noted, the sole issue on which the arrangements were challenged were generation/fare elasticities, the defendant states:
 “inevitably, estimating what fares concessionary passengers would have paid in the absence of the scheme is at best an inexact science…”.
 
27.	The defendant states that the claimant’s calculation of average fares which would have been paid are more likely to be accurate than TWM’s because the level of discounts which TWM assumed were very small and out of line with assumptions made in most other areas. The defendant states “were the toolkit to be the basis of the reimbursement calculation for 2006-7, therefore, I would expect to see used as the average fare a figure of £0.89 as calculated by [the claimant] rather than the £1.05 [TWM] suggests. I would rather, however, approach this issue from the other direction.” 

28.	After setting out the reasons for inferring that the elasticities which the claimant has built into its calculations are too high, the defendant stated that:
“if reimbursement to the operator is to achieve the “no better and no worse off” objective, the reimbursement rate needs to be increased. It is difficult to know what figure to substitute, and this points to the need, as [the claimant] has recognised, for new work to be done on elasticities, perhaps not just in its area but also encompassing other… (and perhaps wider) areas. In fixing a rate of 62.5% for 2006/7 in this case, I have had regard amongst other factors to the rates determined in other cases which have come to appeal in the current year.” 
   A direction to this effect pursuant to the powers in section 150(8) was made.

29.	In the GO case, after setting out the reasons for considering that the elasticities which the claimant has built into its calculations are too high, the defendant stated that the only amendment to the arrangement considered necessary to improve the chances of the “no better and no worse off” objective being achieved is an increase in the reimbursement rate. Again, it is stated that it is difficult to know what figure to substitute and the reasons given for fixing a rate of 62.5% for 2006/7 are the same as in the TWM case. The decision does not indicate what average fare would have been chosen had the toolkit calculation been used.

30.	In the TWM case the claimant considered that what the defendant had said about the average fare meant that it had decided that this was to be £0.89. It sought clarification from the defendant. In the light of that an addendum to the decision was issued on 1 May making it clear that the decision was based on the £1.05 figure in the claimant’s original submissions. I have dealt with the amendment that was made to the initial decision in the GO case.

The grounds of challenge

31.	In the TWM case the claimant initially sought a declaration that the decision should be interpreted as requiring a reimbursement rate of 62.5% to be applied to an average fare of £0.89. It did so on the ground that the defendant had found that sum to be the appropriate discounted average fare for use in the application of the toolkit, any other interpretation would be irrational, and, if the second decision purported to change the substance of the first decision, it was ultra vires. Mr Bourne, however, did not pursue this. 

32.	In both cases Mr Bourne, on behalf of the claimant, submitted that the decisions are; irrational (a) by reason of disregard of relevant factors, and (b) by lack of adequate reasons. It is also submitted that the decisions are tainted by procedural unfairness, in particular the lack of a hearing. In the TWM case the claimant additionally submits that the decision is irrational by reason of internal inconsistency. The applications were resisted by Miss Simor on behalf of the defendant. Mr Gordon QC, on behalf of TWM, and Mr Laprell, on behalf of GO, also resisted the applications, primarily  adopting Miss Simor’s submissions.
 
Irrationality; disregard of relevant factors

33.	At the hearing the claimant’s case was put squarely on the basis of irrationality or Wednesbury unreasonableness. Mr Bourne submitted that it is clearly arguable that the decision made by the defendant was one which no reasonable decision maker could make and that permission should be given. In both the TWM and the GO cases this ground for review is stated to be “irrationality by reason of disregard of relevant factors” (TWM paragraph 60; GO paragraph 54A). The relevancy principle is, however, different from the Wednesbury unreasonableness or irrationality principle. This is seen from Lord Greene MR’s judgment in the Wednesbury case itself ([1948] 1 KB 223 at 234) and in Lord Diplock’s reconceptualisation in the GCHQ case [1985] AC 374 at 410-411. 

34.	Mr Bourne submitted that the defendant’s decision was arguably irrational because he disregarded a number of relevant factors, most significantly his own guidance on the subject. Mr Bourne submitted that the decision failed to take into account the recognition in the guidance that cash fares should be significantly discounted and that:
“… in the absence of any stronger case to the contrary, the toolkit is likely to be used by the Secretary of State in determining appeals against the reimbursement provisions as a means of insuring that all appeals are dealt with in a consistent manner using the same categories of information and the same methodology.”

35.	Mr Bourne also submitted that the defendant disregarded the results of the application of the toolkit to TWM’s case. Finally, he submitted that although the decision letter states that regard was had to decisions in comparable cases, the material put before the court by the claimant indicates to the contrary. 

36.	If this ground of the challenge is analysed as based on irrationality the claimant has to overcome a high threshold. This is because the issues for decision concerned the application of complex economic concepts in particular the elasticities applied to price increases to be used as part of the calculation of the reimbursement rate paid to transport operators providing travel concessions. It is clear that, when considering decisions of this nature in the context of judicial review, the court is particularly cautious and reluctant to intervene: see R v Secretary of State for the Environment, ex p Hammersmith and Fulham LBC [1991] 1 AC 521 and Nottinghamshire CC v Secretary of State for the Environment [1986] AC 240 where the extent of the judicial deference exhibited has been attributed by Lord Philips MR in R (Asif Javed) v Secretary of State for the Home Department [2002] QB 129 at 48-49 to the subject matter there, national economic policy. Similar reluctance is seen in the context of the review of the decisions of economic regulators. Thus, in R (London and Continental Stations and Property Ltd) v The Rail Regulator [2003] EWHC 2607 (Admin) Moses J, as he then was, stated (at [32]) that “it must be born in mind that the regulator was concerned with issues of economic policy and of economic theory and practice”. In that case the regulator was concerned with determining a method of compensating the operator for its loss of business in the future. Moses J stated that there was no way in which such damage could be measured with any exact precision, even after the event. One of the contentions in that case was the resolution by the regulator of rival arguments as to the appropriate method of calculating elasticities in relation to increased walking time in dispersed facilities see [101-105]. Moses J stated that in considering the various challenges to the regulators directions, the court must “bear in mind that he was reaching his conclusions in a field in which he was both expert and experienced. He was advised by experts.” Moses J stated (at [34]) that these factors demonstrate that the constraining role of the courts is modest. See also Sullivan J in GNE Railway v Office of Rail Regulation [2000] EWHC 1942 (Admin) at [39] and [44].

37.	The alternative analysis is in terms of disregard of relevant factors. If as a matter of statutory or regulatory interpretation, regard must be had to particular factors, the issue is closer to illegality and the threshold for intervention is lower. Even here, however, as is illustrated by the decision in R v Monopolies and Mergers Commission, ex p South Yorkshire Transport [1993] 1 WLR 23 considerations of the relative institutional competence of the court and the primary decision-maker may lead to judicial restraint. The Commission could only investigate the claimant’s acquisition of a number of bus companies operating in South Yorkshire if the area was “a substantial part of the United Kingdom”. In that case this question went to the Commission’s jurisdiction. Nevertheless, Lord Mustill, with whom the other members of the House agreed, stated that, because the criterion of substantiality was imprecise and included not only geographical extent but population and economic activities, the court was only entitled to interfere if the Commission’s decision was so aberrant that it could not be classed as rational. 

38.	Whichever way the claims in the cases before me are analysed, I have concluded that it is not arguable that the defendant’s decision is flawed. I first consider the challenge formulated as a disregard of relevant factors. 

39.	The claimant submitted that the appropriate methodology was the SCEPTRE technique that it had used for over twenty years. It urged this methodology on the defendant and, in the TWM case, agreed that a figure of £1.05 was a reasonable prediction of the average fare that would be generated under SCEPTRE. It did not accept that £1.05 is the correct figure to use in the toolkit calculation (paragraphs 20-21 of its response to TWM’s application). 

40.	In the GO case there was no agreement as to the average fare. The decision sets out GO’s submission that the claimant had wrongly discounted the average fare in an attempt to justify the use of the current elasticity value and the claimant’s submission that the average fare to be used within the toolkit is not the average cash fare foregone but a fare adjusted to reflect the proportion of passengers who would normally be expected to purchase discounted tickets. It is said that the flaw in the decision is that it is silent on this point.

41.	In both cases the defendant accepted the claimant’s submission that SCEPTRE should be used and rejected the operators’ submissions that the toolkit should be used. It is clear from the defendant’s guidance that it was not mandatory to use the toolkit. The guidance states that the toolkit cannot provide a definitive answer because there may be some uncertainty in its component factors; the elasticity, the number of concessionary trips, and the additional cost per generated passenger. The defendant, accepted the claimant’s submissions as to which method to use and, in the TWM case, that £1.05 was an appropriate prediction of the average fare under that method. In these circumstances it is not arguable that the claimant had no regard to the guidance or that in GO’s case the defendant’s decision was required to contain a finding about what the appropriate average fare would be under the toolkit methodology.

42.	The position is similar with respect to the submission that the defendant failed to have regard to the statement in the guidance that applications of the kind made by TWM and GO would be decided by application of the toolkit unless another method was shown to be preferable. First, it is clear from the guidance that it was not incumbent on the defendant to use the toolkit approach. Secondly, the claimant used and argued for the use of the SCEPTRE method in this case. Third, the terms of the determinations (see e.g. TWM pp 2,3,6,8, and GO pp 2 and 5) show that the defendant did have regard to the toolkit. 

43.	Mr Bourne also submitted that the defendant did not have regard to the output of the toolkit which he submitted validated the claimant’s calculations as to the appropriate reimbursement rate using SCEPTRE. This matter was, however, squarely before the defendant in the TWM case. The claimant submitted in its response to TWM’s applications that its calculations were validated by the application of the toolkit. The defendant’s response, in a letter dated 8 September 2006, rejected this submission. Mr Bourne submitted that, at that time, the defendant requested more information which the claimant supplied under cover of a letter dated 22 September, but thereafter this matter formed no part of the decision in February 2007. In the context of the defendant’s response reflecting the submissions of the claimant and stating what they would have to do to “validate” their preferred method, I do not consider it arguable that the defendant failed to consider the output of the toolkit on the claimant’s calculation. 

44.	In truth the defendant rejected the claimant’s use of the toolkit in this way. The defendant’s letter dated 14 August 2006 stated that what the claimant had done did not validate the SCEPTRE calculations. It stated that validation required ensuring that a properly calibrated model, based on observations, can produce the base (observed) data. 

45.	The defendant asked the claimant to provide the basis of the relevant calculation. The defendant thus indicated what would need to be shown to deal with the concerns about the elasticities assumed in the SCEPTRE methodology. The claimant’s evidence did not demonstrate this.  What the claimant did in the enclosure to the  letter dated 22 September was to amplify what it previously said about the toolkit being used to validate the outcome under SCEPTRE. It also offered to provide copies of supporting documentation produced by its consultants since 1999. That was not what the defendant said would be required. The decision shows clearly that the defendant did not consider that those concerns had been met. It is not arguable that, in so concluding, the defendant either failed to take into account the claimant’s calculations or acted irrationally. 

46.	Mr Bourne vigorously rejected the suggestion that what the claimant is doing is seeking to reargue the merits of the case put to and rejected by the defendant. This is, however, the position.  The issue of average fares and whether the toolkit calculation validated the SCEPTRE calculations was squarely before the defendant and was the subject of submissions by both sides. The submission that the defendant failed to have regard to them is utterly unarguable.

47.	What remains is the submission based on the decisions in comparable cases. Mr Bourne accepted that comparisons are not easy. He considered that it is, however, significant that, in the cases of the four other transport executives considered in the evidence before me the cash fares were discounted and the reimbursement rates with fares discounted by about 20% ranged between 60 and 65%. Mr Bourne submitted that a reimbursement rate of 62.5% in conjunction with a fare discounted by only 2% (as it was in the TWM case) or an undiscounted one (as he argued it was in the GO case) is inexplicable. He submitted that the other cases show that the defendant could not have had regard to the decisions in comparable cases. It may be that the primary thrust of his submissions based on the other cases was in fact directed to his submission that the reasons given for the decisions are inadequate. 

48.	Leaving aside the challenge based on adequacy of reasons, the material put before me goes nowhere near showing that it is arguable that the defendant failed to have regard to the decisions in comparable cases. First, the defendant stated that he had regard to the rates determined in other cases which came to appeal in that year. Secondly, the reimbursement rates in these two cases are within the range of rates in those cases. The claimant’s submission is primarily based on the fact that those cases involved elasticities derived from average fares. But in those cases SCEPTRE was not the method used to produce the reimbursement rate and in the TWM case the claimant had accepted that £1.02 was a reasonable figure for the average fare under the SCEPTRE methodology. In the GO case, moreover, the toolkit approach could not be used unless agreed figures could be identified and no such figures were identified. Moreover, the claimant had been operating SCEPTRE for many years and had had a concessionary travel scheme prior to it being introduced nationwide. In these circumstances the material put before the court by the claimant does not arguably show that the defendant failed to have regard to those other cases or was irrational in his treatment of them.

49.	Having concluded that it is not arguable that the defendant disregarded any of the factors raised by the claimant, it is also not arguable that the defendant’s decision was irrational. In truth the claimant, having failed to sustain its elasticity factor and therefore its reimbursement rate, is seeking to put forward an appeal against one aspect of the defendant’s application of the claimant’s own SCEPTRE scheme. That is not the function of a reviewing court, particularly in a case of this kind, involving as it does complex economic issues on which there is legitimate scope for disagreement and on which Parliament has enacted that it is the defendant who is to be the decision maker. 

Internal Inconsistency

50.	Mr Bourne submits that in the TWM case it is inconsistent of the defendant to find that the appropriately discounted average fare for use under the toolkit would be £0.89 while applying a reimbursement rate of 62.5% to the mere cash fare of £1.05. He does so because he argues that the toolkit, if calibrated with the fare of £0.89 and the average -0.40 elasticity figure for metropolitan areas outside London contained in the defendant’s guidance, validated the claimant’s reimbursement rate using the SCEPTRE methodology. He argued that the application of a reimbursement rate of 62.5% to a fare of £1.05 would produce a figure of some £4 million more than that and this was a wholly inconsistent result. 

51.	The argument that the application of a fare of £0.89 applied to an elasticity figure of -0.4 validates the reimbursement rate under SPECTRE was put to the defendant and rejected. The defendant indicated to the claimant what would have to be done to “validate” the rates produced using the SCEPTRE methodology. It is accepted that the determination for elasticities and the identification of relevant fares is not a precise process. Mr Bourne accepted that different economists can have different views on these matters. This is a classic example of a case where the court should be slow to interfere with the decision of the authority to which Parliament has given the primary decision making function. 

52.	The inconsistency relied on by Mr Bourne, moreover, assumes the validity of the very process which the defendant, guided by his own and departmental expertise, rejected. Here too, the claimant having failed to persuade the defendant that the inputs it proposed to apply to the toolkit method validated its approach under SCEPTRE, seeks to reargue its case. I do not consider it is arguable that the defendant’s decision that the claimant’s operation of the toolkit did not validate the SCEPTRE methodology is outside the bounds of reasonableness. Miss Simor’s observation that what the claimant was doing was a circular attempt to produce the “right” answer by putting the “right” figures into the toolkit has force. 

53.	Additionally, it is not the case that the defendant found that £0.89 would be the correct average fare for the purposes of the toolkit methodology. What the decision states is the defendant’s “impression” that the claimant’s calculations of average fares were more likely to be accurate than those of the operators. The claimant is fastening on what is no more than an obiter dictum as the foundation for the submission of internal inconsistency. Additionally, the defendant did not decide that the correct elasticity to apply was -0.4. Finally, the evidence of Mr Reams indicates that the application of an elasticity of -0.4 applied within the toolbox to a £0.89 fare would result in a significantly lower figure for revenue foregone and thus a significantly lower figure for reimbursement than the claimant expected to pay. 

54.	In summary, both this ground and the wider irrationality grounds submitted in both cases are unarguable for the reasons I have given. The defendant’s decision that the elasticity figure produced by the claimant’s SCEPTRE methodology was too high is not arguably irrational. The claimant has not sought to argue that it is. Having found that an ever increasing elasticity did not reflect elasticity in the market and created an unfairly low return to an operator, the defendant accepted that the determination of an appropriate reimbursement rate was not easy. He did it by reference to his own knowledge of elasticities over the period and the rates in other cases. The rate determined lay in the mid-point of the range of rates in the cases put before the court by the claimant. Save for the reimbursement rate, the defendant used the claimant’s methodology. 

Insufficiency of reasons

55.	Mr Bourne submitted that the defendant gave no or no adequate reasons for; (a) departing from his guidance as to the use of discounted fares in determining the average fare, (b) not basing his decision on the toolkit calculation which showed that the discounted fare of £0.89 with a typical elasticity of -0.4 yielded the same reimbursement figure as the claimant’s methodology, and (c) the inconsistency between the decisions in these cases and the decisions in cases in which reimbursement rates in the range 60-65% were applied to discounted fares. All parties relied on Lord Brown of Eaton under Heywood’s statement of the principles governing reasons and their adequacy in South Bucks DC v Porter (No.2) [2004] 1 WLR 1953 at [36]. His Lordship stated: 
“The reasons for a decision must be intelligible and they must be adequate. They must enable the reader to understand why the matter was decided as it was and what conclusions were reached on the ‘principal important controversial issues’, disclosing how any issue of law or fact was resolved. Reasons can be briefly stated, the degree of particularity required depending entirely on the nature of the issues falling for decision. The reasoning must not give rise to a substantial doubt as to whether the decision-maker erred in law, for example by misunderstanding some relevant policy or some other important matter or by failing to reach a rational decision on relevant grounds. But such adverse inference will not readily be drawn. The reasons need refer only to the main issues in the dispute, not to every material consideration. They should enable disappointed developers to assess their prospects of obtaining some alternative development permission, or, as the case may be, their unsuccessful opponents to understand how the policy or approach the grant of permission may impact upon future such applications. Decision letters must be read in a straightforward manner, recognising that they are addressed to parties well aware of the issues involved and the arguments advanced. A reasons challenge will only succeed if the party aggrieved can satisfy the court that he has genuinely been substantially prejudiced by the failure to provide an adequately reasoned decision.”

56.	The defendant accepts that reasons are required under the 1986 Regulations. It is common ground that the standards of reasons required in a particular case depend on the context and circumstances of the case: see R (Asha Foundation) v Millennium Commission [2003] EWCA Civ 88 at [27]. Mr Bourne submits that in the present case the financial value of the determinations, the public interest in them, the complexity of the subject matter, and the volume of submissions made by the parties meant that detailed reasons were required. He submitted that the comment in the decision on the claimant’s SCEPTRE methodology was not sufficient. It did not constitute reasons for departing from the guidance on discount fares, not basing the decision on the toolkit calculation and not addressing the fact that the 60-65% range of reimbursement rates in other decisions reflected discounted fares. In particular Mr Bourne submitted that the comments on the methodological inadequacies as the defendant saw them of the SCEPTRE methodology, did not explain why the defendant selected 62.5% in these cases. He said that the reference to “other factors” in the decision is delphic. 

57.	On this issue too I do not consider the claimant has raised an arguable case. With regard to the first two ways in which it is said that the defendant gave no or no adequate reasons, it is important that the claimant had submitted that the SCEPTRE methodology should be used in both cases and that the toolkit was not a substitute for what the claimant described as “a sophisticated and long established reimbursement system such as SCEPTRE”. The claimant had submitted that where the figures on volume, average fare and elasticity are not agreed the toolkit could not be used. Moreover, the claimant accepted that the correct fare to use within the SCEPTRE methodology was £1.05 whereas that figure was not appropriate under the toolkit approach for which the claimant advocated an average fare of £0.89. In these circumstances, since the defendant accepted the claimant’s position, the claimant cannot complain of a failure to explain why it did so. 

58.	As far as the submission that the decision does not explain why 62.5% was selected, the criticisms of the SCEPTRE methodology’s effect on elasticities and the result of an unduly low reimbursement rate are explained in the decisions. The decisions also explain why they applied the chosen reimbursement rate to the SCEPTRE methodology preferred and advocated by the claimant. 

59.	The central important controversial issue was the adequacy of the elasticities applied within the SCEPTRE methodology. That was explained clearly in the decision. Lord Brown observed that “the reasons need refer only to the main issues in the dispute, not to every material consideration”. The defendant stated in the decision that it was difficult to know what figure to substitute and that this pointed to the need for new work to be done on elasticities not just in the claimant’s area. In relation to the other cases, for the reasons I have given the claimant has not shown that the defendants’ approach in these cases is inconsistent from those. In those circumstances it is not arguable that there was any need to provide an explanation. 

Procedural unfairness

60.	Mr Bourne submitted that, although an oral hearing is not required in every case of an appeal pursuant to section 150 of the 2000 Act, it was in the present case. He argued that the procedure here was adversarial, the defendant had received submissions clearly placing in issue the average fare, the reimbursement rate and the relationship between them and had relied on professional advice and unspecified “other factors”. Given the amount at stake it was unfair not to have an oral hearing. His written submissions also argued that it was unfair for the defendant to base his decisions on professional advice he received and rates determined in other cases without making these known to the parties and giving them the opportunity to comment on them.

61.	The 1986 Regulations provide that the parties to an application to modify reimbursement rates must provide each other with copies of their statements: see regulations 39(2), 40(2) and 41(2). Regulations 42-48 concern procedure. By regulation 42(1) the defendant “may” invite the applicant or the Transport Executive to appear. The Secretary of State is, however, not required to do so.  

62.	It is clear that there is no procedural unfairness in dealing with an application on the basis of written evidence and argument provided that the decision making body in substance considers the submissions for and against the application. In this case the parties were given a fair opportunity to comment on all statements submitted by the other party. The defendant reserved his position as to whether an oral hearing was required until he received the information furnished by the parties and their submissions, and the information he requested (which was copied to the other party). The claimant was thus able to comment on all that TWM and GO put before the defendant. At the end of the process, the defendant believed he had all the material needed to reach a well informed judgment. He was also conscious of the need for the appeal to be concluded because of its implications for budgeting and business planning by both parties. In GO’s case he also refers to the fact of the time since the appeal was submitted in July 2006. TWM’s appeal was submitted in April 2006. The defendant believed a hearing would further delay decision-making and would not represent good value for money and time.

63.	In these circumstances it is not arguable that the defendant’s exercise of his discretion not to have an oral hearing was irrational or otherwise unlawful: see R v Deputy Industrial Injuries Commissioner, ex p Jones [1962] 2 QB 677, R v Secretary of State for Trade, ex p Lonrho plc [1989] 1 WLR 525, 535, R v Law Society, ex p Ingham Foods oy AB [1997] 2 All ER 666, R (Thompson) v Law Society [2004] 2 All ER 113 at 45. 

64.	Mr Bourne also submitted that the procedure was unfair because the defendant relied on professional advice the decision maker received on fare elasticities which was not disclosed and the rates in other cases.  Regulations 39(2), 40(2) and 41(3) do not require the defendant to provide internal advice received from its employees to the parties. It is not suggested that in this case the material on which advice was received related to matters that had not been raised or considered by the parties. As far as the rates in other cases are concerned, the claimant has not shown an arguable inconsistency between the outcomes in those cases and the outcomes in these cases. There was therefore no need to provide an explanation for such. In these circumstances it is not arguable that the defendant was under an obligation to disclose the internal professional advice or the details of the other cases.

Conclusion

65.	Mr Bourne submitted that the issues he raised on behalf of the claimant’s merited a full hearing. The renewed permission application in these cases lasted a full day. I have had the benefit of thorough skeleton arguments from the claimant and the defendant, as well as the claims and the summary grounds filed by the defendant and the interested parties. The issues have been thoroughly ventilated. Notwithstanding that, I have applied the ordinary “arguability” test rather than the modified one that Keene J, as he then was, stated is applicable where there has been a full permission hearing: R v London Docklands Development Corp. and CWI Holdings plc, ex p. Sister Christine Frost (1997) 73 P. & C.R. 199, 203. I have concluded that none of the claimants’ grounds are arguable. Accordingly, leave is refused.