[2025] UKUT 00138 (LC)

It is common ground that NR has not abandoned its ambition to secure a site for a sleeper factory at or close to an LDC – which it achieved at Doncaster but failed to do so at Bescot. It remains NR’s policy in the real world to have sleepers manufactured at an LDC – not just because of the very unsatisfactory nature of the site at Rochester (being too small, and in the wrong place) but because in any event it wishes to avoid the trip costs, and the potential lack of flexibility, associated with sites that are not at LDCs. For those reasons NR would pursue the same policy in the no scheme world despite the continued availability, in that world, of the site at WWH. If NR is eventually successful in identifying a new site at an LDC, the experts agree that it would then take approximately four years before sleeper production can begin.

The claimant’s case is that, despite NR’s policy, this is not going to happen. All NR’s efforts to identify a new LDC site came to nothing, because none of the LDCs is suitable for the installation of a sleeper factory, for reasons of space, or for environmental or planning reasons. There is no evidence to show that an LDC site is going to be found during CP7 – CP9 (April 2024 to March 2039) or indeed ever. Despite NR’s efforts, Bescot was the only suitable location identified, and that failed.

The Secretary of State’s position is that a suitable site could be found, in the real world, by 2028. Mr Heubeck was asked to comment on the likelihood of a site being found at Carlisle Kingmoor, Crewe, Toton or Westbury, and he maintained that all those sites would be suitable. The basis on which he said so was unconvincing; for example, he dismissed environmental concerns about a site at Carlisle on the basis of internet searches, but he accepted in cross-examination that he had no expertise in planning or ecology and was not qualified to comment on environmental matters. Indeed he appeared to have very little understanding of the environmental issues at Carlisle. He also disagreed with Mr Jarvis’ emphasis on the importance of finding a new site on the west of the country, maintaining that the west can easily be supplied from the east and arguing that new rail links could be provided where necessary.

Overall, Mr Heubeck’s solutions to the problem of locating a sleeper factory at an LDC were simplistic; if it were as easy as he said, NR would have been able to find a suitable LDC, either as an additional possibility back in 2016 in the P2 procurement exercise or since then. It has not done so. In the planning statement supporting the application for Bescot NR explained why the other sites were unsuitable; and while we can see that that planning statement might have downplayed the other sites we accept that the reasons given were genuine rather than merely pessimistic – as is borne out by the fact that NR today is no nearer to finding a new site at an LDC.

We therefore reject Mr Heubeck’s view that an LDC site will be found by 2028 in the real world.

That is not to say that a site will never be found, given the obvious advantages of being at or near an LDC and given the fact that the need for one will become pressing both in the real world and in the no scheme world. In the real world, requirement is going to rise and put pressure on Rochester in a few years’ time, and NR will want to secure its supply before that happens. In the no scheme world, the site at WWH is getting old (we say more about that below). We accept Mr Jarvis’ view that it will need to be in a position where it can serve the west side of the country more readily than can be managed from Doncaster. What has changed in the last few years, and even since the refusal of planning permission for Bescot, is the reduction in NR’s requirement for sleepers. We have found that that reduction was not just the result of the pandemic; we have accepted Mr Heubeck’s view that systemic changes mean that although the requirement will rise, it is not going to reach, in the foreseeable future, the levels seen ten years ago.

As Mr Ormondroyd submitted, a change in size requirement might well yield more positive results in the future. A new plant is not going to need the capacity looked for in the P2 exercise. Nor will it need the long sidings required in the past for loading track renewal trains (see paragraph 92 above). A new plant might be a carousel plant, which needs less space than does the long line method. We find it more likely than not that NR will eventually locate a suitable site at or near an LDC.

As we have said, it is common ground that in the no scheme world there would have been no stockpile, which in the real world was made in contemplation of the disappearance of WWH. In the no scheme world, by 2017 after the outcome of the P2 procurement exercise, there was a threat to supply arising from the absence of planning permission for the new Bescot factory, but there was no need for a stockpile because WWH could continue to supply sleepers until Bescot came on stream (if indeed it did). The sleepers experts in their SAFI said:

“4.47

… in a No Scheme World, stockpiling would not have been required and would not have happened, because NR could have taken actions to maintain supply from the Washwood Heath factory.

4.48

Such a continuation of supply would have been achieved by the award of two

contracts. Firstly, a short-term contract lasting only a few months from the end of the extended 2012 Contract until a new medium-term contract was in place. Secondly, just as in reality, NR would have prepared and issued an Invitation to Tender, ("ITT") in 2019, which would have sought offers for supply for a medium-term contract. This second contract would have commenced no earlier than April 2020 and most likely from June 2020 for a likely term of up to 8 years in duration via either a 4 year contract with the option to extend for an additional 4 years on a 1+1+1+1 basis or via a 5 year contract with the option to extend for an additional 3 years on a 1+1+1 basis. The ITT would have described NR’s supply requirements, in the same way as the P3 contract described in the Scheme World.

4.49

Given the availability and capabilities of the WWH factory and its workforce, it is a reasonable conclusion that Cemex would have bid for and been awarded both the short term contract and the subsequent medium-term contract. As a result, there should have been no gap in supply.”

So it is agreed that in the no scheme world the 2012 contract would have been extended as it was in reality, that there would have been a P3 ITT in 2019, and that the claimant would have bid successfully in that exercise. They agreed that it was unlikely that anyone else would have bid for that contract; after the failure of the planning application for Bescot potential competitor bidders would have had little confidence in NR.

Accordingly the claimant would have continued to produce sleepers at WWH. We have to consider in due course (issue 4 below) what would have been the terms of that contract and what would have been the claimant’s market share; first, we have to consider how long the claimant’s business at WWH would have continued.

It agreed that WWH had a 600,000 sleeper production capacity, with a proven track record. It was better located than Rochester, close to the WCML. According to Mr Jarvis NR considered it as the ‘optimum’ location for supplying sleepers on the west side of the country. The claimant’s case is that there is no reason to foresee an end to the business at WWH in the no scheme world; it had the capacity, the personnel, the track record, the location (good if not ideal) and there is no reason to foresee its replacement by a different manufacturer or any move to a different location despite NR’s policy of co-location at LDCs. In effect WWH was, so far as location was concerned, good enough and its advantages outweighed any disadvantages.

The weakness in that case is that WWH would not have lasted for ever. It was built, as we said, in 1989. Mr Neil accepted that by 2032 the factory would have been ‘really quite old’, and that work would be required to renew or replace it. Mr Jarvis accepted that renewal work could not be put off forever if WWH were to continue to supply sleepers and pass the necessary safety requirements. Renewal would be costly, that cost would be reflected in the price of sleepers, and that cost would in turn have an effect upon the claimant’s competitiveness in future procurement exercises following the end of the current contract.

The authority’s case, and the view expressed by Mr Heubeck, was that operations would cease at WWH by 2036 because the plant there would by then have become too old and another site would by then have been found.

Counsel for Cemex argued that Mr Heubeck conceded, in cross-examination, that if the Tribunal were to find that no alternative location at an LDC was available to replace WWH, and if we found that there was no reason to suppose that NR would wish to relocate production to a site that was not at an LDC, then there would be no basis for assuming that supply of sleepers from WWH would end. What Mr Heubeck said, when that view was put to him, was “I believe that’s correct, if I follow your logic”; but he did not concede either that no alternative LDC location was available or that NR would not wish to relocate to a non-LDC location.

In any event, we have found (paragraph 129 above) that eventually NR would have found an alternative LDC location, and therefore Mr Heubeck’s concession, if such it was, does not take effect. We find that the claimant’s case, that WWH would continue to operate in perpetuity, is unrealistic. We accept the alternative view put forward by the authority that a new site at an LDC would have been found by 2036.

Beyond that date the state of the claimant’s business cannot be predicted. There would be procurement exercises and the claimant would probably bid. There is no evidence about what its chances of success would be and no reason to suppose that the claimant would have any better or worse chance of success in bidding for future contracts than any of its competitors, which would of course be drawn from a worldwide field and have access – as would the claimant – to constantly developing technology. There would also be new materials in play; for example, Mr Heubeck drew to our attention research programmes developing sleepers made out of recycled plastic, aimed at reducing carbon emissions. We cannot say anything about how successful such endeavours will be. The future is unknown because the technical landscape is changing so fast.

In closing Mr Ormondroyd described the decision we have to make here as being whether the accountants should model cash flows into perpetuity or to 2036. In our judgment it is impossible to make any findings about the claimant’s business in the no scheme world beyond 2036 and therefore the accountants should model to that date.

It is uncontroversial that Rochester is an inferior location to WWH, with a smaller site, challenging access conditions, and in a relatively remote part of the country in relation to the WCML. It has a de facto annual capacity of 200,000 sleepers. It is also common ground that NR would be alive to the risk of only having one supplier. It will plan ahead to avoid failure at times of peak demand, and therefore will need to find an alternative site in the future.

The experts agreed that the Rochester contract would probably be extended by NR to its maximum extent, to 2030. They also agreed that Rochester could potentially continue to supply sleepers to 2036, although that was dependent on the level of NR’s demand. Certainly it could carry on beyond that date at the levels of requirement predicted by Mr Heubeck; we have found that NR’s requirement will be rather larger than he predicted, but will not have reached 600,000 per annum by 2036.

The claimant argued that even in the absence of an LDC location, an alternative will ‘simply have to be found’ at a non-LDC location, which while challenging should be somewhat easier than identifying a location at an LDC. Mr Jarvis thought that after 2030 NR, who he thought are pre-occupied with the re-tender of the TWM contract (due to expire in 2026), would grant one further contract of two years, again with four one-year extensions sufficient to allow NR to secure a replacement site better located in relation to the WCML, taking operations at Rochester to 2036. His oral evidence was slightly vague, but we understand from closing submissions that the claimant’s case is that relocation would have to occur by 2032.

In his written evidence, Mr Heubeck thought that it would be necessary to relocate from Rochester by early- to mid-CP9, around 2036. He accepted that there would be benefits of relocating earlier to avoid unreliability of supply, on his case by 2034.

We accept that a new site will have to be found because the useful life of the Rochester plant is limited by its capacity. However, standing as we do in early 2025 when there is no sign of NR yet taking steps to find a new site, and when it is about to be preoccupied by a new procurement exercise at Doncaster, we find it difficult to suppose that a new site could replace Rochester by 2032. Even in the real world, prediction into the 2030s is very difficult. Both experts at different stages in the proceedings favoured 2036 as the date by which sleeper production will move away from Rochester, and that is our finding.

There will therefore be a procurement exercise and the claimant will no doubt wish to tender. The authority’s case is that it will have a competitive advantage in that exercise because it can relocate the carousel plant from Rochester, and so is likely to win that contract. Mr Heubeck thought it eminently possible; and he pointed out that it was believed that the Bescot P2 bid had been won by RailOne on the basis that it was going to use a carousel plant relocated from Iowa.

Carousel plant is sold on the basis that it can be relocated because it does not require the same degree of foundations required to keep long cables under tension as needed by the long line system. The claimant said that despite this, the Rochester plant would not be moved. It has been specially adapted to fit the awkward Rochester site. The claimant called Mr Lawrence, who gave expert evidence that while it was physically possible to relocate elements of the carousel plant, it would not be economic to do so as the costs of dismantling, transporting, reassembling and then commissioning would easily exceed the installed value of the plant.

Mr Lawrence’s expertise is in insolvency; he assesses for the benefit of third parties whether it is economic to sell plant. But that is not relevant here. We accept that the plant at Rochester could not economically be re-sold, but the question is a different one; could its owner move it for use elsewhere, and would that be cheaper for the owner than buying new? Mr Lawrence accepted that on that basis up to 50% of the plant at Rochester could be relocated and re-used by the claimant.

Nevertheless, we have little hesitation in rejecting the notion that in reality this possibility would give the claimant a competitive advantage. Mr Heubeck’s evidence to that effect carried no weight; he is not an expert in plant and machinery, and his information about the RailOne relocation was, as he put it, little more than ‘informed gossip’ in the industry. Relocation would be expensive; and the plant at Rochester is specially adapted to the awkward site and might be difficult to fit elsewhere. There is no basis on which we can make a finding that the claimant would be more likely than any other competitor to win the competition for a contract at the replacement site – particularly in light of the uncertainties we identified at paragraph 138 above.

Accordingly in the real world by 2036 the claimant is in a very similar position to that which we described in the no scheme world; its future cannot be predicted, and it has no more chance of winning a contract and continuing to operate than any of its competitors.