Firm loses legal appeal over £370 million ferry subsidy

A ferry firm has lost an appeal over Scottish government subsidies to provide services plying the waters between mainland Scotland and the Northern Isles.

Pentland Ferries challenged the lawfulness of a proposed subsidy under a single public service contract on ferry routes between Scrabster, in Caithness, and Stromness, Orkney, along with Aberdeen to Kirkwall and Lerwick and between Kirkwall and Lerwick.

The firm, which operates its own ferry business between Gills Bay, in Caithness, and St Margaret’s Hope, Orkney, raised a legal challenge which was rejected by a judge at the Court of Session in Edinburgh earlier this year.

It appealed against Lord Boyd of Duncansby’s ruling but on Tuesday three civil judges ruled that the appeal should be refused.

The firm, whose services are not subsidised, challenged the inclusion of the Scrabster route across the Pentland Firth within the contract and maintained that subsiding it threatened its competing business.

Its counsel, Mark Lindsay QC, earlier described the move as “an existential threat” to the ferry firm.

The Scottish Government invited bids for a new contract for the mainland to Northern Isles ferry links between Aberdeen, Kirkwall, Lerwick, Scrabster and Stromness which envisaged five ferries being deployed.

The estimated value of the subsidy for the contract over an eight-year period is £370 million and it is due to be awarded on August 2. Bidders included Serco, which currently runs services, and CalMac.

Scotland’s senior judge the Lord President, Lord Carloway, said it was for the Scottish ministers to decide what would constitute an adequate service.

“If only the petitioners’ (Pentland Ferries) service operated, the respondents were entitled to hold that the services across the Pentland Firth would be inadequate,” he said

“The market would fail to meet the demand. There would be insufficient service to meet a real public need, especially in the peak season and if problems arose, for whatever reason, on the petitioners’ route,” he said.

The senior judge said the ministers were also entitled to take into account the advantages of the Scrabster crossing in terms of convenience as an alternative route.

Lord Carloway said “bundling” routes together was a recognised way of producing economies of scale and attracting operators.

He said it was not unlawful if it did not produce “undue market distortions” and it did not appear to do that.

Lord Drummond Young, who heard the appeal with the Lord President and Lord Menzies at the Court of Session, said that at this stage the court had to rely on the ministers observing their legal obligations in a proper manner.

He said: “Provided they do so, any risk to the economic viability of the petitioners’ own ferry service should be kept as a minimal level or eliminated.”

Agency copy by Dave Finlay