BR Research, the former research arm of British Rail, is due to be sold off in the next nine months but faces a legal action from a quarrying company over the failure of a bogey designed for a wagon carrying stone.
An internal memo by Clifford Chance, the City solicitors which is handling the privatisation for British Rail, reveals BR Research is anxious that liability for any legal action should "stay with the board" and not transfer to the new company. BR Research, which employs 380 people and is based in Derby, may have a turnover of more than pounds 20m when it becomes privatised.
The Low Track Force wagon was designed to allow each wagon to carry higher loads. BR Research passed on the design to the Gloucester Carriage Company, which provided the stone wagons to ARC, the Somerset-based quarrying company.
It bought 145 of the wagons, costing pounds 70,000 each, but a series of derailments led to them being withdrawn. ARC was then forced to lease smaller wagons and, according to the memo, "ARC lost millions of pounds and it is possible that ARC will seek damages with BR Research being joined as a third party to any action".
The memo suggests that any other liabilities "that may arise as a result of impending litigation" should be excluded from the terms of sale.
The matter raises a much larger doubt over the sell-off of British Rail. While intellectual property rights may form a large part of the value of the new companies, failings in research may lead to litigation. If other sales of former British Rail sections are conducted on the same basis as that proposed for BR Research, taxpayers may face litigation while the new owners of the companies face no risk.
A BR insider said: "We do try to palm off the risk if we can. But if they spot the problems, we have to reach a compromise."
Michael Meacher, Labour's transport spokesman, said: "It is outrageous that taxpayers should be stuck with a large bill while the company is sold off and its shareholders are allowed to make large profits."