Railtrack last night disclosed it is considering legal action against Stephen Byers accusing him of abusing his powers by preventing the Rail Regulator Tom Winsor from bailing out the stricken network operator.
The move came as big City institutions appealed directly to the Governor of the Bank of England, Sir Edward George, to intervene to ensure a fair solution to the dispute between the Secretary of State for Transport and Railtrack shareholders.
After another black day for Mr Byers, Railtrack said legal action was "a major step that we would not take lightly" but warned it would not be deterred by "personal attacks or criticism". Steve Marshall, Railtrack's chief executive, said: "We are actively considering a number of legal options, one of which may well be a case of misfeasance in public office. The Secretary of State may have misused his powers by stating his intention 'to introduce a bill at the earliest opportunity giving him the power to direct the Rail Regulator'."
Mr Marshall added that Mr Winsor's evidence to the Transport Select Committee, when he contradicted Mr Byers' account of the episode, was "beyond dispute".
A Department of Transport source described the threat of legal action by Railtrack as "perverse and strange" adding: "It is odd for Railtrack to claim it has a case against the Secretary of State when he didn't actually do anything."
Earlier the Institutional Shareholders' Committee, which represents big City institutions and their trade bodies, said it had written to the Governor "to explain its concern over the need for a stable and productive relationship between the Government and the City". It added that in addition to the possibility of a misfeasance suit, Railtrack and its shareholders might also bring a case under the Human Rights Act or apply for a judicial review.
David Rough, director of investments at Legal & General and chairman of the Committee said: "Nobody wants to take legal action, but many millions of small savers and pensioners are the ultimate beneficiaries of the funds we invest. We owe it to them to make sure their rights are protected."
In a statement to its members, the Committee warned of the "loss of trust between the City and the Government" that could occur and the damage this would do to private sector financial support for the railways. The Committee said: "The letter urges the Governor to use his good offices to promote a solution that alleviates this concern and will allow the City to continue financing projects of vital importance to the country."
Meanwhile, DoT sources were backpedalling from suggestions Mr Byers had wanted the chairman of BG, Richard Giordano, to chair the not-for-profit successor company to Railtrack. Sources said Mr Giordano, had "never been the front-runner" to chair the new company limited by guarantee. Mr Byers hopes to announce the new chairman in the next week. But first he faces a grilling tomorrow from MPs on the the Transport Select Committee over his handling of the Railtrack crisis. Railtrack's Mr Marshall said it was turning into "a protracted Whitehall farce".