Declaratory relief

A person faced with arbitration proceedings who asserts that there is no valid or binding arbitration agreement in existence or which extends to the dispute in question may decide to appear in the arbitration to contest jurisdiction, or he may refuse to take any part in the proceedings and either sit tight to await the award or take pre-emptive action to seek a declaration from the courts. The latter option is conferred by s72 of the Arbitration Act 1996, and was exercised in Secretary of State for Transport v Stagecoach South Western Trains Ltd [2009] EWHC 2431 (Comm).The issue was the construction of an arbitration clause in a franchise agreement.

Stagecoach: the facts

The Secretary of State, the franchising authority for passenger rail services, entered into a Franchise Agreement with Stagecoach for the operation of the South West rail franchise, encompassing trains running in and out of Waterloo Station. Under the Franchise, the Secretary of State was to make payments to Stagecoach if actual revenue fell short of projected revenue, so that the calculation of revenue was crucial to the arrangements. Two disputes arose between the parties: the Car Parking Dispute (CPD) and the Revenue Support Dispute (RSD). The CPD dispute was whether, for the purpose of calculating the amount of the franchise payment for the 2008-2009 year, account was to be taken of the revenue derived by Stagecoach from car parking. Stagecoach asserted that these sums were not to be taken into account in determining its actual revenue, whereas the Secretary of State claimed that the sums were to be included. The RSD concerned the calculation of Revenue Support Adjustments (RSAs). In general terms, there was an initial four-year scheme running from 4 February 2007, followed by a separate regime. In the initial period, Stagecoach was entitled to a revenue support payment only in the event of a force majeure event occurring before 4 February 2011, and thereafter there was no need for Stagecoach to establish a force majeure event: this arrangement was based on the unpredictability of revenue after the first four years. The problem arose from the fact that each Franchise Year ran from 1 April to 31 March. That meant that there were two 28-day reporting periods running immediately after the expiry of the first four year period on 4 February 2011, namely 4 February 2011 to 31 March 2011. The dispute between the parties was whether, as was contended by Stagecoach, RSAs for those two reporting periods were recoverable even though there was no force majeure event, whereas the Secretary of State’s case was that force majeure continued to apply to those reporting periods.