Regulation 3(2) of the Utilities Contracts Regulations 2006 (“UCR”) should be construed as if it said that network “includes a system operated in accordance” instead of “means a system operated in accordance”. The term “contracting authority” in regulation 2(1) of the UCR and regulation 3(1) of the Public Contracts Regulations 2006 (“the PCR”) was restricted to domestic bodies only. The fact that an undertaking was able to continue trading only as a result of very substantial state aid did not preclude it from being of an industrial or commercial character within the terms of article 2(1) of Parliament and Council Directive 2004/17/EC.

Roth J, sitting in the Chancery Division, so held when giving judgment for the defendant rail service operator, Eurostar International Ltd, on the trial of a preliminary issue in a claim brought by the claimant, Alstom Transport, as to whether an invitation to tender issued by the defendant for a valuable contract for the design, supply and maintenance of a new generation of trains was subject to the EU procurement regime which the claimant, an unsuccessful tenderer, claimed that the tender process had violated. The defendant was an English joint venture company, 60% of the shares in which were owned by companies wholly owned by other member states.

Article 2 of Parliament and Council Directive 2004/17/EC co-ordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors provides: “(1) … (a) Contracting authorities are…bodies governed by public law…' A body governed by public law' means any body … not having industrial or commercial character … and financed, for the most part, by the state.… (2) This Directive shall apply to… (a) … contracting authorities…which pursue one of the activities referred to in Articles 3 to 7….”

Article 5(1) provides: “This Directive shall apply to activities relating to the provision or operation of networks providing a service to the public in the field of transport by railway…a network shall be considered to exist where the service is provided under operating conditions laid down by a competent authority of a member state.”

Regulation 3(2) of the UCR provides: “'Network' in relation to a service in the field of transport, means a system operated in accordance with conditions laid down by or under the law in any part of England, Wales or Northern Ireland.”

The definition of “contracting authority” in the Directive applies to contracting entities irrespective of the state concerned. Under regulation 2(1) of the UCR, which defines “contracting authority” by reference to regulation 3(1) of the PCR, only a body or authority within the United Kingdom can be a contracting authority.

ROTH J said that the Directive did not mean to confine its application to transport undertakings which were subject to a public service obligation. Rail transport undertakings operating a “network” were not restricted to those providing infrastructure. Regulation 3(2) of the UCR, read literally, was narrower than article 5(1) of the Directive, but the domestic provision should be interpreted purposively and elastically, to achieve the same result. There was no indication in the UCR that it was seeking to narrow the definition. Thus regulation 3(2) should be construed as if it said that network “includes a system operated in accordance” instead of “means a system operated in accordance”. The legislation did not intend to cover the operation of a service on the rail infrastructure without more. The sectoral public procurement regime was designed to apply in circumstances where undertakings faced no, or only limited, competition. An operator of a rail service alone which was conducted free from legal requirements regarding such conditions as routes to be served and frequency of services was not an operator of a network within the terms of article 5(1). Such unrestricted commercial use of the infrastructure did not have the same character of being protected from competition: competing operators might use the same infrastructure. Accordingly, although the definition of network in the UCR was to be interpreted so as to achieve consistency with the Directive, the requirement to operate a network was not satisfied by the defendant and therefore it was not an utility to which the UCR applied. In case that conclusion were wrong, his Lordship proceeded to address whether the rail service operator was a “contracting authority” for the purposes of both sets of Regulations. The fact that an undertaking was able to continue trading only as a result of very substantial state aid did not preclude it from being of an industrial or commercial character within the terms of the procurement directives. The defendant was of a commercial character in the sense in which that expression was used in the Directive. It was evidently a conscious choice in framing the United Kingdom legislation to confine the definition of contracting authority in the regulations to domestic bodies, or associations formed by domestic bodies. It would be wholly inconsistent with that approach to “interpret” the very specific provisions in regulation 3(1) of the PCR in a manner which would cover authorities in all other 26 member states. It appeared that the United Kingdom took the view that implementation of the Directive by each member state required only that “contracting authorities” should be determined as referring to bodies within that member state. It was not permissible to “disapply” a potentially conflicting provision of the United Kingdom regulations and directly enforce the Directive. For those reasons the defendant was not a "body governed by public law" and therefore did not satisfy the criteria for being a "contracting authority" to which either the UCR or the PCR applied.