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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Easyjet Airline Company Ltd v The Civil Aviation Authority [2009] EWHC 1422 (Admin) (26 June 2009) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2009/1422.html Cite as: [2009] EWHC 1422 (Admin) |
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QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| easyJet Airline Company Limited |
Claimant |
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| - and - |
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| The Civil Aviation Authority |
Defendant |
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| - and - |
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| Gatwick Airport Limited |
Interested Party |
____________________
Mr Michael Beloff, Q.C. & Ms Gemma White (instructed by Legal Adviser to the CAA) for the Defendant
Mr Thomas Sharpe, Q.C. & Mr Conall Patton (instructed by Herbert Smith LLP) for the Interested Party
Hearing dates: 17 – 20 March 2009
____________________
Crown Copyright ©
Mr Justice COLLINS :
" … in the manner which it considers is best calculated:-
(a) to further the reasonable interests of users of airports within the United Kingdom;
(b) to promote the efficient, economic and profitable operation of such airports;
(c) to encourage investment in new facilities at airports in time to satisfy anticipated demands by the users of such airports; and
(d) to impose the minimum restrictions that are consistent with the performance by the CAA of its functions …."
Users are defined in s.82 to include (inter alios) airlines and passengers.
"(5) Without prejudice to the generality of subsections (3) and (4), conditions imposed or modified in pursuance of those provisions-
(a) may provide-
(i) for an overall limit on the amount that may be levied by the airport operator by way of all airport charges at the airport , or
(ii) for limits to apply to particular categories of charges, or
(iii) for a combination of any such limits;
(b) may operate to restrict increases in any such charges, or to require reductions in them, whether by reference to any formula or otherwise;
(c) may provide for different limits to apply in relation to different periods of time falling within the period of five years for which the conditions are in force."
S.40(9) requires the CAA to make a reference to the Competition Commission (CC) before imposing or modifying any condition.
S.45(2) provides:-
"The Commission's conclusions on a reference under s.43(1) so far as relating to the maximum amounts referred to in paragraph (a) of that provision shall take the form of recommendations as to what those maximum amounts should be during the five years in question; and any such recommendations may do any of the things referred to in paragraphs (a) to (c) of section 40(5)."
"(4) before imposing any conditions or making any modifications … the CAA shall have regard to the recommendations [as to what the maximum amounts should be]
(5) Where the CAA has imposed any conditions or made any modifications … it shall publish the following matters, namely –
(a) particulars of the conditions or modifications in question, and
(b) insofar as those conditions or modifications do not accord with the recommendations [of the CC], a statement of the CAA's reasons for not implementing the Commission's report."
"12(1). Where the CAA has received a report from the Commission and is required by sections 40(3), (4) or 46 of the Act to impose or modify a condition in relation to an airport, it shall publish notice of the conditions or modifications it intends to impose; and insofar as the proposed conditions or modifications do not accord with the recommendations made by the Commission as to what the conditions or modifications should be, the notice shall include a statement of the CAA's reasons for not implementing the Commission's report.
(2) The notice shall be published in such manner as the CAA considers most suitable for bringing it to the attention of the airport operator and other persons who, in the opinion of the CAA, would be affected by or be likely to have an interest in the proposed conditions or modifications.
(3) A decision as to the form of the conditions or modifications to be imposed shall be taken only by a member of the CAA after considering any written representations served on the CAA within 30 days of the date of publication of the notice given by the CAA pursuant to paragraph (1) of this regulation."
In the light of submissions made by Mr Beloff were I to find that there had been any procedural defects and so unfairness in the way in which the CAA had dealt with the capping, I should set out Regulation 18. This provides:-
"The failure of the CAA to give notice or publish any particulars in the time or manner provided for in the Act or in these Regulations or any other procedural irregularity shall not invalidate the action taken by the CAA, and the CAA may, and shall if it considers any person may have been prejudiced, take such steps as it thinks fit before reaching its decision to cure the irregularity, whether by the giving of notice or otherwise."
"The subject matter of the inquiry is the objections to the proposed scheme that have been received by the minister from local authorities and from private persons in the vicinity of the proposed stretch of motorway whose interests may be adversely affected, and in consequence of which he is required by Schedule 1, paragraph 9, to hold the inquiry. The purpose of the inquiry is to provide a minister with as much information about those objections as will ensure that in reaching his decision he will have weighed the harm to local interests and private persons who may be adversely affected by the scheme against the public benefit which the scheme is likely to achieve and will not have failed to take into consideration any matters which he ought to have taken into consideration.
Where rules regulating the procedure to be followed at a local inquiry held pursuant to a particular statutory provision have been made by the Lord Chancellor under section 11 of the Tribunals and Inquiries Act 1971, the minister and the inspector appointed to hold the inquiry must observe those rules; but no such rules were applicable in the instant case – they had not yet been made. The Highways Act 1959 being itself silent as to the procedure to be followed at the inquiry, that procedure, within such limits as are necessarily imposed by its qualifying for the description 'local inquiry', must necessarily be left to the discretion of the minister or the inspector appointed by him to hold the inquiry on his behalf, or partly to one and partly to the other. In exercising that discretion, as in exercising any other administrative function, they owe a constitutional duty to perform it fairly and honestly and to the best of their ability, as Lord Greene M.R. pointed out in his neglected but luminous analysis of the quasi-judicial and administrative functions of a minister as confirming authority of a compulsory purchase order made by a local authority, which is to be found in B Johnson & Co (Builders) Ltd v Minister of Health [1947] 2 All ER 395, 399-400. That judgment contains a salutary warning against applying to procedures involved in the making of administrative decisions concepts that are appropriate to the conduct of ordinary civil litigation between private parties. So rather than use such phrases as 'natural justice' which may suggest that the prototype is only to be found in procedures followed by English courts of law, I prefer to put it that in the absence of any rules made under the Tribunals and Inquiries Act 1971, the only requirement of the Highways Act 1959, as to the proceeding to be followed at a local inquiry held pursuant to Schedule 1, paragraph 9, is that it must be fair to all those who have an interest in the decision that will follow it whether they have been represented at the inquiry or not. What is a fair procedure to be adopted at a particular inquiry will depend upon the nature of its subject matter.
What is fair procedure is to be judged not in the light of constitutional fictions as to the relationship between the minister and the other servants of the Crown who serve in the government department of which he is the head, but in the light of the practical realities as to the way in which administrative decisions involving forming judgments based on technical considerations are reached. To treat the minister in his decision-making capacity as someone separate and distinct from the department of government of which he is the political head and for whose actions he alone in constitutional theory is accountable to Parliament is to ignore not only practical realities but also parliament's intention. Ministers come and go; departments, though their names may change from time to time, remain. Discretion in making administrative decisions is conferred upon a minister not as an individual but as the holder of an office in which he will have available to him in arriving at his decision the collective knowledge, experience and expertise of all those who serve the Crown in the department of which, for the time being, he is the political head. The collective knowledge, technical as well as factual, of the civil servants in the department and their collective expertise is to be treated as the minister's own knowledge, his own expertise. It is they who in reality will have prepared the draft scheme for his approval; it is they who will in the first instance consider the objections to the scheme and the report of the inspector by whom any local inquiry has been held and it is they who will give to the minister the benefit of their combined experience, technical knowledge and expert opinion on all matters raised in the objections and the report. This is an integral part of the decision-making process itself; it is not to be equiparated with the minister receiving evidence, expert opinion or advice from sources outside the department after the local inquiry has been closed."
"[45] The appeal panel, as I have explained, took the view that it was for NICE to quality assure the model and that it was not for consultees to perform that function: and a similar point was made by Dobbs J. I accept, of course, that NICE, as the decision-maker, is responsible for checking the reliability of the model. But I agree with Mr Pannick that this does not answer the question whether fairness requires consultees to be given the opportunity to test the reliability of the model themselves, for the purpose of making informed representations on it. The Appraisal Committee has to rely on others to check that the model is robust (the fully executable version was provided in this case to only two out of 32 members of the committee). The checking is not something on which SHTAC and NICE's technical staff alone may have a relevant input. Whether the model has weaknesses is a matter on which consultees may properly have something to say. Indeed, they already do have things to say on the basis of the read-only version, and attention is properly paid to their representations. The carrying out of additional tests that are possible only with the fully executable version does not give rise to any difference of principle. On the face of it, to limit the extent to which consultees can engage in the legitimate task of testing such an important element in the appraisal process does seem to me to be unfair. Moreover, the possibility cannot be excluded that work done by them on the fully executable version would bring to light hitherto unrecognised weaknesses in the model."
"The consequence is that a number of them will require further detailed examination by the CAA before it can put forward its final proposals. There are also a number of other outstanding issues for consideration by the CAA."
"4.29 Linking construction price inflation to RPI is a pragmatic approach, and we have seen no real evidence that the broad correlation between construction inflation and RPI is fading. In terms of the construction inflation uplift, there are two possible approaches:
(a) To try to anticipate what construction prices will do in the next five years. This approach was preferred by both BAA and the CAA, given the nature of airport investments, and is also the approach used by Ofgem. The RPI+2 proposal reflects an expectation that construction price inflation will increase in that period due to the large projects being undertaken in London and the price of raw materials. However, historically the construction market has been cyclical; but downturns are difficult to predict. In addition, in periods of downturn (e.g. the infrastructure price deflation at the junction of Q3 and Q4), there will clearly be no pressure from BAA to deflate the capex programme and little debate with the regulator on whether it should do so, with the consequence that over the long-run above average inflation may be built into BAA's capex programme.
(b) Alternatively, the long run rate may be more relevant for regulators (as the periods of volatility on the upside and downside broadly cancel each other out), with the long-term differential between RPI and construction costs being applied (which would be below RPI+1). This is the Ofwat approach.
We regard the latter as a preferable approach, particularly as some measure of inflation risk is already built into the 25 per cent project cost contingency. We commissioned a report from Experian on construction inflation over the next ten years, which also suggested an assumption of between 0.5 and 1 per cent would be sufficient. We also note that Ofwat applied a differential of 0.4 per cent in 2004. We therefore recommend and have adopted in our own projections an increase in construction prices of 0.75 per cent a year above RPI. We have applied this to all capex, although there would be a case, particularly were any higher increase in construction prices to be assumed, for applying it only to project costs and base costs: we recommend this should be considered further by the CAA. "
It thus suggested a figure of RPI plus 0.75%, but its recommendation was that the matter should be considered further by the CAA. It did not in terms recommend that RPI plus 0.75% should be applied.
"It is not instruction, but it is much more than mere advice which an addressee is free to follow or not as it chooses. It is guidance which any hospital should consider with great care and from which it should depart only if it has cogent reasons for doing so. "
"… we consider that they need further detailed scrutiny by the CAA with the assistance of an accounting firm before being allowed for the final price determination. In future reviews, such claims for 'one off' items should be subject to similar detailed verification at an earlier stage of the process."
"As stated we have not been able to look at the same level of detail for Gatwick but from the information we have we have no reason to consider that the approach has been any different from that adopted for Heathrow."
"BAA argued that such a cap on pension costs effectively penalised BAA's pension trustees for excellent management of the scheme, and introduces an element of asymmetry. Our recommended cap is not targeted at BAA's pension scheme trustees. It seeks to limit the degree to which BAA can pass on all of the costs of a relatively generous pension scheme to airport users. Also, applying the high end of the range provided by GAD, we see our cap as being a generous estimate rather than asymmetric."
In Paragraph 4.47 of the report, the CC stated that it believed it important to cap cash contributions at an appropriate level to ensure that airport users were not disadvantaged by the relative generosity of the scheme or by the change of investment strategy following BAA's acquisition by ADI.
"While constructive engagement has generally led to a much better working relationship between the airlines and the BAA, we are very disappointed at what we consider to be a misuse of the process through the very late submission of additional operational and capital expenditure, in addition to the revised traffic forecasts. We are very concerned that this is a moving of the goalposts, relatively late in this review process, which has made it very difficult to actually consult on time."
"The CAA proposes that maximum airport charges … for Gatwick … rise to £6.07 per passenger in 2008/9, with charges subsequently increasing annually by no more than RPI inflation plus 2%."
In Paragraphs 6.30 and 6.31, the CAA explained its approach to dealing with the increased security costs. It said:-
"6.30 The CAA is concerned about the scale of BAA's revised security cost estimates and the fact that it has not had the opportunity to consider BAA's projections in detail nor to discuss these with airlines or other interested parties. Airlines have also expressed concerns, in particular around the extent of the cost increases proposed and the lack of transparency over BAA's cost modelling of these standards. For these reasons, the CAA intends to initiate a work programme over the next two months through which it will scrutinise these costs thoroughly and will work closely with BAA and with airlines to ensure that all parties have a clear understanding of the costs associated with delivering higher levels of queuing standards.
6.31 The CAA will ensure that any additional costs allowed for in price caps are consistent with the service standards agreed through the service quality regime and with the CAA's statutory duties, in particular the duties to further the reasonable interests of airport users and to promote the efficient, economic and profitable operation of airports. As a holding position, the CAA has adopted the Commission's projections of security costs (net of pension costs) in the modelling for this document."
"… what we have set out in a note we put on the web I think last week … was that there are some continuing constructive engagement discussions going on. The last dates for submission for anything is the 31st. If at the end of these sessions parties feel there are points where they need to add some further clarification to what they have said, then they may put something further in, but everything has to be in by the 31st and that is the final deadline."
"In order to facilitate debate at the Panel ERG has set out four potential options for dealing with this:
- Option 1 – accept BAA's proposal in full. This option does not seem credible given the scale of the increases proposed, the lack of detailed explanation from BAA and the modelling issues that have been identified by airlines.
- Option 2 – retain the current (Nov 07) numbers in price caps with an undertaking to carry out a systematic audit and review of BAA's projections over the spring with a view to adjusting prices in 2009/10 if BAA is able to provide robust evidence to support its projections. The advantage of this approach is that it signals publicly to BAA that we take a very dim view of BAA's approach and that BAA must go much further in justifying and explaining cost increases of this magnitude to both the CAA and to airlines. This would also reverse the perverse situation in which the CAA and airlines are seeking to justify reducing BAA's projections and would instead place the onus on BAA to properly substantiate and validate its proposals. The disadvantage is that this approach creates uncertainty over the settlement as a whole and is likely to have wider implications for the implementation of the service quality regime in particular.
- Option 3 – present our misgivings to BAA and give them the opportunity to present a more robust case for including these costs. However, it seems unlikely that BAA would be able to provide much more evidence in the timescales available than it has already exhibited.
- Option 4 – apply judgment to reach a view on the appropriate level of costs on the basis of the material that BAA has provided.
- (a) one approach would be to accept the airlines proposed reduction to central search costs (i.e. £16m p.a.) and apply an aggressive efficiency factor (e.g. 3% p.a.) to the remainder of security costs;
- (b) an alternative would be to base the settlement on a one-bag scenario and effectively disallow the costs BAA has identified for moving back to a more than one-bag approach."
"The CAA's main concern with GAL's submissions on security costs is that while BAA's roadmap (BAA/Q5/586) is a helpful summary of how BAA's projections have evolved from the 2006/07 base to the current estimates, it does not provide adequate evidence to justify the proposed opex increases which are very material to the overall price cap assessment. It is not sufficiently clear what degree of confidence BAA is building in to its opex projections (i.e. for what percentage of measurement periods in each month is BAA planning to meet the 5 minutes central queue target). In addition, the CAA needs to see much more evidence (e.g. contracts with third parties, tender documents, internal BAA reports, reports from DfT etc) to substantiate the forecasts that BAA is now putting forward. The CAA also wishes to obtain a greater understanding of how the Summer 2006 base level of cost was built up between central search costs and other security costs and how these proportions have changed as BAA's cost projections have evolved.
In order to inform these two points we have set out a number of questions and requests for additional information which can be categorised into
- General.
- Questions on the joint BAA / airlines submissions to the CAA; and
- Questions on BAA's roadmap."
"If airlines had had access to BAA's model, they could have run a variety of alternative service options though it, or through any improvements to that model, and seen what difference it made to resource requirements. Our perspective on such data might have been very different from that of BAA, which was concerned to achieve the maximum earnings from any hours and secure the maximum cushion on its levels of staffing."
In paragraph 55 he observes that CAA was 'entirely correct to obtain a copy of the security demand models from BAA (albeit very late).' His complaint is that it was unfair for this to occur without disclosure to the airlines, particularly as the CAA was informed on 8 February that the airlines had not seen the model but only the outputs.
"In light of BAA's proposals, the CAA initiated a joint work programme with BAA and airlines to undertake a detailed scrutiny of BAA's projections through constructive engagement. This involved BAA and airlines working closely together to understand the nature of the increase being proposed and the modelling assumptions made by BAA. As part of this assessment, British Airways, on behalf of the airline community, carried out its own modelling of security costs based on operational research simulation tools that it used to plan its own business requirements. However, no consensus view was reached, and both sides provided their own detailed submissions to the CAA setting out how the new security requirements should be reflected in operating costs. A summary of these submissions and the CAA's assessment is set out below. "
And in paragraph 5.31, it stated:-
"The CAA has carefully listened to the arguments advanced by both sides in bilateral and tri-lateral meetings to discuss these complex issues in some detail. In parallel, the CAA has undertaken its own detailed review of BAA's analysis and modelling assumptions. Having weighed up the evidence, the CAA considers that the extended scope of the SQR is likely to lead to BAA incurring additional costs as it introduces new processes for measuring and maintaining a queue standard for staff search and transfer search and applies queuing standards across the whole day rather than part of the day. Further resources would also be needed to maintain the new higher service standards with the restoration of the 'more than one hand baggage' allowance at each airport. (This is a particular issue at Gatwick.) However, the CAA considers that in a number of areas BAA has been too cautious in its modelling assumptions."
In 5.40 it made some criticisms of the airlines' projections, notably in their failure to provide substantive evidence to support their assumptions of lower wage costs. The conclusion is set out in paragraph 5.46:-
"The CAA considers that the detailed programme of work that was established following publication of the November 2007 document provided ample opportunity for interested parties to raise concerns with the CAA and for airlines to understand better BAA's assumptions on modelling and vice versa. In establishing the projections set out above, the CAA considers that it has taken into account all of the evidence and views put forward by airlines and by BAA and has undertaken considerable analysis of its own to inform its assessment. Looking forward to the Q6 price control review, given the increased salience of security costs in overall airport operating expenditure, the CAA would seek to understand BAA's actual performance on security costs during Q5 compared to the assumptions made at the time of setting price caps, in order to inform the analysis and consultation leading to the Q6 price caps. The CAA will scrutinise carefully any claim within Q5 for additional security costs, arising from changes in DfT security directions, to be reflected in an upward adjustment to airport charge caps."