[2025] UKUT 00138 (LC)

The contract with TWM was made in 2011, so that the Doncaster factory was under development during the last three years of operations at Tallington; the contract will expire in 2026. In 2012 NR entered into a five-year contract with the claimant for production at WWH; the contract included an option for NR to extend its term by up to two individual years to 31 March 2019. The TWM and WWH contracts both featured two important terms:

Both contracts also made provision for annual indexation of prices, calculated by a formula dependent on the price of materials. Thus the prices initially charged under the 2012 WWH contract increased each year.

After 2012, with contracts in place for supply from Doncaster until 2026 and from WWH until 2017 and potentially 2019, NR was able to turn its attention to the possibility of getting a sleeper factory established at an LDC on the west side of the country. It would have done so in any event, because the policy of co-location of production at LDCs was important to NR, but from 2014 onwards it became obvious that another problem was coming down the track: the growing likelihood that the WWH site would be compulsorily purchased as a result of the construction of HS2. A Bill making provision for the first phase of its construction had its first reading in Parliament in November 2013. The claimant was aware that its site at WWH was identified as being subject to compulsory acquisition, and petitioned against the Bill; its petitions were withdrawn shortly before the end of 2016 and the Bill became law on 23 February 2017. To jump ahead, the property at WWH vested in the compensating authority on 15 May 2020.

The procurement process known to the parties as P1 began in June 2015 when NR issued an Invitation To Tender (“ITT”) for a 15-year sleeper supply contract from one of eight sites, some of them LDCs including Bescot, but the Invitation also stated that alternative sites could be considered. The plant was to provide up to 600,000 sleepers per year, and the factory was to be fully operational by October 2017. The claimant submitted a number of bids, including one for supply from WWH. In April 2016 the P1 process was discontinued because, NR said, its requirements had changed.

The procurement process known as P2 began in September 2016, and was again for the grant of a 15-year contract requiring the construction of a factory capable of producing 600,000 sleepers per annum; this time bids had to be for a factory at Bescot. NR owned the LDC at Bescot and it wanted to have an ownership interest in the sleeper factory. However, there was of course no existing sleeper factory at Bescot, nor was there planning permission to build one.

The claimant submitted two bids. The first was a bid to construct and supply sleepers from a factory at Bescot. A second separate bid, acknowledged to be non-compliant, was to supply sleepers from WWH. It included an offer to transfer Cemex’s leasehold interests in the land there to NR. Both the claimant’s bids were unsuccessful. The claimant’s Bescot bid was ranked in third place; in June 2017 the contract was awarded to RailOne GmbH. NR then sought planning permission for a new sleeper manufacturing facility at Bescot; the planning statement made by NR in support of the planning application has been a source of evidence about NR’s view of the volume of sleepers it was going require from Bescot, to which we return later.

In July 2017 the claimant commenced a High Court action challenging the decision to abandon P1 and replace it with P2. The challenge was subsequently discontinued, but not before witness statements had been filed. One of those statements, made by Jonathan Curtis, NR’s Head of Commercial Materials, Route Services Contracts and Procurement Team, has also been a source of information about NR’s thinking and expectations at the time. For example, it is the source of the figure we have been given for the annual “trip cost” of taking sleepers from WWH to the LDC at Bescot.

The failure to win the P2 contract was of course not inevitably the end of the road for WWH; the Bescot plant needed planning permission, and then needed to be built, so a replacement supplier was not yet in place and was not guaranteed. And individuals at WWH – among them Mr Neil – cherished the hope that the compulsory purchase might yet be fended off.

Furthermore, NR was taking steps to protect its supply of sleepers in light of the impending compulsory acquisition of WWH by building up a stockpile of sleepers, first at Carlisle, the most north-westerly LDC, and later also at Tyne Yard just south of Newcastle. According to Mr Jarvis, the first sleepers to be stockpiled, at the end of 2014, were the last 50,000 or so produced at Tallington before its closure. More were purchased from both TWM and the claimant in the years 2017 to 2019. The size of the stockpile is not agreed, and we discuss that later, but on any reckoning was somewhere between 700,000 and 900,000. About 440,000 sleepers have been withdrawn from the stockpile, which is perhaps surprisingly low given that (as we shall see) the claimant was unable to produce any sleepers between 2020 and 2022 so that one of NR’s only two suppliers was out of action for two years; but demand was low during those years, not least because of the effects of the pandemic. So, a substantial stockpile remains. We should mention at this point that it is agreed that the stockpile is a real world factor, and as we explain later would not have occurred in the no scheme world.

It was therefore not in NR’s interests for WWH to close at the end of the five-year term of the 2012 contract on 31 March 2017, because that would leave only TWM, with its smaller capacity which, on the basis of the previous few years, would certainly not have been adequate to meet NR’s requirement. So the WWH contract was extended for two one-year periods, and two further short-term extensions were put in place. Sleepers continued to be acquired from WH until its closure in 2020 both for NR’s requirement for track and for the stockpile. The claimant was able to negotiate a significant increase in its prices in those four short contracts, and as a result was able to continue to operate profitably until shortly before WWH closed.