LEGAL action threatened by Stagecoach, Virgin, SNCF and Arriva over the cancellation of their bids for three franchises last April is about to start in the High Court.

The court is to hear claims that the Department for Transport ‘mismanaged’ the competitions for Intercity West Coast, East Midlands and South Eastern when it ruled that bids from the four firms were ‘non-compliant’ because they tried to reduce pensions risks.

The result of the DfT’s action was that the West Coast Partnership franchise was awarded to a consortium of FirstGroup and Trenitalia, while the East Midlands contract was given to Abellio. Both these franchises have now started, but the award of South Eastern has been suspended, with Govia’s current contract now running until April at least. A further Direct Award seems likely.

A major crisis has blown up in the funding of railway pensions, where there is estimated to be a ‘black hole’ of £7.5 billion. Stagecoach is alleging that taking at least partial responsibility for such a deficit would be ‘too big a burden’ for franchise holders. It had previously been estimated that the West Coast contract alone would involve a risk of £1.6 billion.

The claimants are seeking compensation and also a judicial review, which could see the awards of the West Coast Partnership and East Midlands franchises overturned. If this happened, it would be a rerun of the events of October 2012, when the award of West Coast to FirstGroup was withdrawn after Virgin and Stagecoach successfully challenged the DfT’s calculations. However on that occasion the FirstGroup franchise had not yet started, although the DfT’s surrender was reported to have cost taxpayers around £50 million because their bidding costs were refunded.

Stagecoach said the need for legal action was ‘disappointing’, but it believed the claimants had a ‘strong case’.

The DfT said it had ‘total confidence’ in its process and would ‘robustly defend‘ its decision to rule the bids non-compliant.

The hearing is expected to take about four weeks, but the judgments are expected to be reserved until later in the year.