A high Court writ was yesterday issued against Railtrack's administrators for allegedly refusing to recognise key powers of the Rail Regulator Tom Winsor.
Ernst & Young, who are conducting the infrastructure company's administration, have rejected a plea by Britain's biggest rail freight operator, English, Welsh & Scottish (EWS), for a 10-year licence to run trains on the network.
The administrators are arguing that they cannot be forced to grant long-term access while Railtrack remains insolvent.
However EWS contends that the regulator has powers under section 17 of the Railways Act to impose a deal on Railtrack and has gone to the High Court to prove it.
The litigation is another consequence of Railtrack's bankruptcy unforeseen by the Transport Secretary Stephen Byers. It is known that other train operators, such as First Great Western and Great North Eastern Railways are encountering similar difficulties and also assert that Mr Winsor's powers can legitimately be invoked.
Ernst & Young argues that Mr Winsor's right to impose a contract has been legally suspended during the period of administration.
The administrators said they were considering their position and would make no comment because of the legal process. Privately the administrators say it would be inappropriate for them to strike a long-term deal, which future purchasers of Railtrack would be forced to live with.
Directors at EWS – already suffering financially from the interruption to cross-Channel trade because of the asylum crisis – argue that the company cannot be expected to conduct business on the basis of a one-year interim deal offered by Ernst & Young.
Mr Winsor had warned the administrators that he expected them to comply with any instruction he might issue by mid-May. However EWS wanted a quicker resolution to the impasse and applied to the High Court for a decision. The freight operator's existing contract expires on 31 May.
Prolonged litigation would result in substantial fees for lawyers, the bill for which would be paid by taxpayers. Legal fees incurred by Ernst & Young and the Rail Regulator would come from Government funds.
The legal process may be cut short however if Railtrack comes out of administration early. Network Rail, the not-for-profit company established by the Government to take over the infrastructure, has offered investors 250p a share – made partly possible by £300m of taxpayers' money.