Last reviewed 25 January 2012

Tim Ridyard examines some of the issues arising from EC Regulation 1071/2009, in particular how it has led to the Road Transport Operator Regulations 2011 (which makes changes to the Goods Vehicles (Licensing of Operators) Act 1995), and changes in the criteria for the issue and retention of licences in the areas of repute, transport managers and financial standing.

Introduction

With effect from 4 December 2011, EC Regulation 1071/2009 has been in force in all EU Member States. It governs access to the occupation of road transport operator, in both the goods and passenger sectors. Some of its provisions cannot be deviated from by an individual Member State, while other parts can be relaxed. Indeed, the stated approach in Great Britain, from the Department for Transport, has been to encourage as “light a touch” as possible, so far as this is consistent with the regulation.

That this regulation is in operation is immediately apparent. All application forms and guidance notes issued by the Office of the Traffic Commissioner refer to it, and the domestic legislation relevant to it came into force on the same date through the following statutory instruments.

  • Road Transport Operator Regulations 2011.

  • Goods Vehicles (Community Licences) Regulations 2011.

  • Public Service Vehicles (Community Licences) Regulations 2011.

A further consequence is the emergence of the Senior Traffic Commissioner Statutory Guidance and Statutory Directions, published on 6 December 2011 and previously seen in a version that did not include the provisions of EC Regulation 1071/2009. This document is a useful source of material for operators and other interested parties who need to be aware of the law and its interpretation in operator licensing. This material not only sets out the law but also describes how various aspects of operator licensing should be applied by Traffic Commissioners and their staff in the various traffic areas. Implementation of the EC Regulation, as applied to operator licensing, is referred to throughout and it is recommended that all transport businesses acquire this material to gain a deeper understanding of this area of law and its application.

The Statutory Guidance and Statutory Directions were the subject of a very brief public consultation and are to be reviewed within six months.

Road Transport Operator Regulations 2011

The Road Transport Operator Regulations 2011 (RTOR 2011) came into force on 4 December and have to be reviewed every five years by reference to EC Regulation 1071/2009.

The Regulations apply the provisions of EC Regulation 1071/2009 by amending the existing Goods Vehicles (Licensing of Operators) Act 1995 (and also its passenger sector counterparts, the Public Passenger Vehicles Act 1981 and the Transport Act 1985).

EC Regulation 1071/2009 governs hire or reward activities, ie operations for which a Standard National or International licence is required, and not Restricted licence operations. However, RTOR 2011 does include provisions which relate to Restricted licences. In any event, operators who have Restricted licences should be conscious of when a Standard licence is required and what conditions have to be fulfilled to obtain one.

Applications for licences

Section 13 of the 1995 Act is re-worked. In order for a Standard licence to be granted, a Traffic Commissioner must be satisfied that the applicant can fulfil certain requirements.

  1. The applicant must:

    • have an effective and stable establishment in Great Britain

    • be of good repute

    • have appropriate financial standing

    • be professionally competent.

  2. The applicant must have a designated transport manager who:

    • is of good repute

    • is professionally competent

    • if designated as an external transport manager, is not prohibited by the Traffic Commissioner and is not designated to act for more vehicles than the traffic commissioner regards as appropriate having regard to EC Regulation 1071/2009 (which does not permit in excess of an aggregate 50 vehicles across a maximum of 4 licences) or such smaller number as the traffic commissioner regards appropriate.

  3. There must be “satisfactory arrangements” in relation to drivers’ hours rules; the avoiding of overloading; maintenance of vehicles in a fit and serviceable condition; operating centre availability, capacity and use.

The EC Regulation distinguishes between internal transport managers (who will have a direct link to the business, eg director, owner, shareholder, employee etc) and external transport managers (typically external consultants).

Restricted licence application requirements are slightly different: an applicant must be “not unfit to hold an operator” licence but must again comply with the ability to provide “satisfactory arrangements” (as per Point “C”, above).

Good repute

While it has always been a requirement that there be “good repute” as a pre-requisite for the grant and retention of an O-licence, the provisions of the regulation in this area have had to be inserted into RTOR 2011 and it is best here to simply set out important aspects of the law with regard to good repute, with effect from 4 December 2011.

It remains the case that an applicant for a Standard licence must be of good repute and a licence must mandatorily be revoked if the licence holder is no longer of good repute. An applicant for a licence will be of good repute if Schedule 3 of the 1995 Act is satisfied.

In relation to an individual, Traffic Commissioners can consider any matter in relation to good repute but must have regard to the relevant convictions and any other information relating to fitness to hold a licence. With regard to companies, the Traffic Commissioner must consider all the “material evidence”, including any relevant convictions of the company, its officers, servants or agents, and any other information relating to the previous conduct of those parties as well as directors if the conduct appears to relate to the company’s fitness to hold a licence.

“Relevant convictions” are as follows.

  • Offences under Road Traffic Act (RTA) 1988, s.53 (plating and goods vehicle test certificates).

  • Offences relating to fit and serviceable condition of goods vehicles, overloading or driver licensing.

  • Goods vehicle drivers’ hours offences.

  • International permit offences under RTA 1988 ss173 and 174 (forgery/false statements/withholding information).

  • Certain pollution offences.

  • Goods vehicle offences relating to prohibiting or restricting waiting vehicles.

  • Offences under the Goods Vehicle (Licensing of Operators) Act 1995, Transport Act 1968 or Road Traffic Act 1960 (relating to licences or means of identification, unlawful use of rebated fuel oil in relation to goods vehicles) and RTA 1988 s.74, and offences relating to the keeping of inspection records in relation to goods vehicles.

Traffic Commissioners have to conclude that individuals are not of good repute if they have either more than one conviction for a serious offence or have been convicted of road transport offences. Serious offences are defined as convictions where either three months’ imprisonment has been imposed or a fine exceeding level 4 has been imposed (currently £2500) or a community service order for more than 60 hours has been imposed, currently known as “unpaid work”. Road transport offences are any offence under UK law (or any corresponding offence outside the UK) relating to road transport, including drivers' hours, weights or dimensions of goods vehicles, road or vehicle safety offences or those relating to the protection of the environment and any other offence relating to professional liability.

Seven Deadly Sins

Arising out of Regulation 1071/2009, Traffic Commissioners must take into account serious infringements under Article 6 (2) (a) of that Regulation. These are already being euphemistically referred to as the “Seven Deadly Sins” and are as follows.

  1. Exceeding the maximum 6-day or fortnightly driving time limits by margins of 25% or more. Exceeding, during a daily working period, the maximum daily driving time limit by a margin of 50% or more without taking a break or without an uninterrupted rest period of at least 4.5 hours.

  2. Not having a tachograph and/or speed limiter, or using a fraudulent device able to modify the records of the recording equipment and/or the speed limiter or falsifying record sheets or data downloaded from the tachograph and/or the driver card.

  3. Driving without a valid roadworthiness certificate if such a document is required under Community law and/or driving with a very serious deficiency of, inter alia, the braking system, steering linkages, wheels/tyres, the suspension or chassis that would create such an immediate risk to road safety that it leads to a decision to immobilise the vehicle.

  4. Transporting dangerous goods that are prohibited for transport or transporting such goods in a prohibited or non-approved means of containment or without identifying them on the vehicle as dangerous goods, thus endangering lives or the environment to such extent that it leads to a decision to immobilise the vehicle.

  5. Carrying passengers or goods without holding a valid driving licence or carrying by an undertaking not holding a valid Community licence.

  6. Driving with a driver card that has been falsified, or with a card of which the driver is not the holder, or which has been obtained on the basis of false declarations and/or forged documents.

  7. Carrying goods exceeding the maximum permissible laden mass by 20% or more for vehicles the permissible laden weight of which exceeds 12t, and by 25% or more for vehicles the permissible laden weight of which does not exceed 12t.

Some of the infringements listed above are offences that are “strict liability” in nature and, while an operator is ultimately responsible for the transport operations, there will be countless occasions when offences occur despite the systems in place or because of uncharacteristic lapses. By way of example, one can contemplate incidents where, say, a serious maintenance issue has occurred such as wheel loss. This would constitute a “serious infringement” for the purposes of the EU Regulation and hence trigger the potential for loss of good repute (for the transport business and transport manager). However, it would be somewhat unusual for a Traffic Commissioner to regard it as appropriate to make a finding of loss of good repute for such an isolated episode where there was evidence of good compliance otherwise.

Another example relates to driver licensing. Carrying goods without holding a valid driving licence constitutes a serious infringement under Article 6, but business are often convicted of permitting the use of a vehicle without the driver holding the correct driving licence, where the driver has provided a false driving licence or the driver has strayed from one driver licensing category into another for some reason (eg by use of a trailer). One can contemplate a situation where it would be wholly disproportionate for the draconian step of “loss of good repute” to occur.

Member States must ensure that from 31 December 2012 there is “inter-connectivity” between the National Registers of Member States, wherein there will be recorded information of operators and transport managers convicted of serious criminal offences or where there have been serious infringements of Community rules.

Determinations in relation to transport managers

The EC Regulation, RTOR 2011 and the Statutory Guidance and Directions set out the requirements with regard to nominated transport managers for Standard National and International licences.

They must be of good repute (as defined), be professionally competent and, if external transport managers, cannot act for operators or be responsible for more than 50 vehicles (or less if a Traffic Commissioner so dictates). The regulation distinguishes between internal and external nominated transport managers. There must be a formal contractual arrangement with the latter category.

The transport manager is one who “effectively and continuously manages the transport activities” of the undertaking. It is this definition which is the litmus test for compliance by operators: nominated transport managers are quite simply not individuals by name only but must be actively engaged in the business they purport to work for.

Because a designated transport manager has to be of good repute, he or she must not fall foul of the EC Regulation. Regulation 16 of RTOR 2011 deals with the action to be taken against transport managers who may be considered to be no longer of good repute and/or professionally competent. If a Traffic Commissioner makes a finding that the transport manager is no longer of good repute or professionally competent, then he or she must order that person to be disqualified indefinitely, or for an appropriate period, from being a transport manager. If such a disqualification takes place then the transport manager cannot act in that role during the disqualification period (in any EU Member State). However, Traffic Commissioners are obliged to consider whether finding that the transport manager was no longer of good repute or professionally competent would “constitute a disproportionate response”.

If a transport manager has been convicted of a serious criminal offence or received convictions or penalties for “serious infringements”, this will lead to loss of good repute. See Seven Deadly Sins above, re Article 6 (2) (a) of EC Regulation 1071/2009. Basically, a Traffic Commissioner will either find the good repute is lost or that it is unaffected (albeit tainted) because it would be disproportionate to make such a finding, although such a finding would still have to be recorded in the National Register.

In practice, many cases will be clear cut because a transport manager will have engaged in activity which is clearly serious. Conversely, the loss of good repute and/or professional competence might very well be a wholly disproportionate approach. The transport manager, who might also be a business owner, may have made a genuine error leading to a conviction or may simply be the subject of a fixed penalty.

With regard to procedure, it would appear that there will be no sudden escalation in the number of hearings against transport managers (or indeed operators). It is likely to be the case that the Office of the Traffic Commissioner will require an explanation from a transport manager before determining whether a transport manager retains his or her good repute and/or professional competence. Indeed, a Traffic Commissioner will not be permitted to make any adverse finding unless there has been service of a notice on the transport manager. Such a notice will be deemed to have been served on the transport manager on the date it would normally be delivered by post, and it will be sent to the transport manager’s last known address. The notice must set out:

  • whether repute and/or professional competence are under consideration

  • the nature of the allegations

  • provision of 28 days from the date of service for the transport manager to make representations

  • the opportunity for the transport manager to request a hearing and, if a hearing is requested, the obligation on the Traffic Commissioner to convene one.

Unlike the previous regime, which led to transport managers being summoned to Public Inquiry hearings in tandem with the operator but not being summoned alone, a new procedure will permit a transport manager’s good repute, etc, to be considered in isolation. It may often be the case that a transport manager who is under scrutiny no longer works for a business but holds the operator’s licence, or the business no longer trades or has already surrendered its licence.

If a Traffic Commissioner disqualifies a transport manager there is an automatic right of appeal to the Upper Tribunal (the new incarnation of the Transport Tribunal) against the order, and a Traffic Commissioner can order that any disqualification should not take place until the expiry of a time within which an appeal must be lodged. Indeed, if a Traffic Commissioner refuses to do so the transport manager can appeal directly to the Upper Tribunal on that point. The need for such an appeal procedure for Transport Managers, as a matter of natural justice, has been a matter of concern, since the EC Regulation did not provide for this.

A change to the 1995 Act through RTOR 2011 means that if a transport manager is disqualified then such an order can be amended or cancelled by an application from the Traffic Commissioner or the disqualified transport manager. Traffic Commissioners will be entitled to specify “measures” with which the disqualified transport manager has to comply before the disqualification order can be changed or cancelled. One can contemplate that, as now, Traffic Commissioners may order certain steps to be taken so that a transport manager can be rehabilitated, eg attendance on refresher courses and further training.

The Statutory Guidance and Statutory Directions relating to transport managers has been amended and revised but they reiterate and emphasise the meaning of the role of a transport manager, often misunderstood or underestimated. Transport managers cannot fulfil that role “in name alone” and their own good repute is at risk if they allow that state of affairs. Often, transport managers are neglectful of their specific duties, or others within the business may, in reality, be carrying out those functions while not being nominated on the licence. This is an area of significant concern to Traffic Commissioners generally, since the transport manager function, as regards licences, is so fundamental.

Financial Standing

RTOR 2011 amends the Goods Vehicles (Licensing of Operators) Act 1995 to introduce the approach of the EC Regulation to financial standing. This needs to be read in conjunction with the Statutory Guidance and Statutory Directions, which set out “the way in which the Senior Traffic Commissioner believes that Traffic Commissioners should interpret the law in relation to the requirements of financial standing”.

Traffic Commissioners have to revoke a Standard licence if the licence holder no longer satisfies the requirement to have the appropriate financial standing. By virtue of Article 13 of the EC Regulation, a Standard licence holder can ask the Traffic Commissioner for a period of grace to rectify a situation where the required financial standing cannot be properly established. The maximum period permissible to demonstrate that the requirements can be met on a permanent basis is six months. There is no obligation on the Traffic Commissioner to grant such a period.

By virtue of Section 13D of the revised 1995 Act, any applicants for any licence have to have sufficient financial resources for maintaining the authorised vehicles, and Traffic Commissioners can revoke Restricted licences if there has been a material change in the applicant’s financial position.

For Standard International and National licences, the level of finance required for each authorised vehicle is based on the exchange rate of the Pound against the Euro on the first working day of October. Accordingly, the financial standing requirements that took effect on 1 January 2012 are based on the October 2011 exchange rate. With effect from 1 January 2012, the rates are as set out below.

Financial standing 2012

Standard licence

First vehicle

£7700

Previously £8100

Standard licence

Additional vehicles

£4200

Previously £4500

Restricted licence

First vehicle

£3100

No change

Restricted licence

Additional vehicles

£1700

No change

Note:

The amounts for Restricted licences are set by Traffic Commissioners and do not derive from the EC Regulation.

In practice, operators will not have to carry out anything specific in relation to the change in the financial standing levels, except to ensure that at all times the financial standing amounts are available. Any applications for new licences will be processed using those figures (whether new licences or applications for existing ones) and the only other times compliance will be scrutinised is on five-year licence renewals or at other times when the Traffic Commissioner may ask operators to demonstrate that the requirement is met, eg when called to Public Inquiry.

Regulation 1071/2009 allows a Member State to implement a relaxation (derogation) to give greater flexibility to operators with regard to the evidence that can be taken into account to demonstrate how the financial standing requirement is satisfied. This enables Traffic Commissioners “to take into account evidence such as bank guarantees, an insurance policy (including professional liability insurance) from a financial institution, joint and several guarantees, as well as overdraft facilities, credit facilities and invoice finance agreements which have previously been taken into account” (taken from Statutory Guidance and Statutory Directions).

Financial standing is traditionally an area which has caused and continues to cause difficulty for applicants and licence holders. The purpose of the requirement is to ensure “vehicles are safe to use on public roads … and other road users are not put at risk by them and that they can compete fairly with other operators”. Applicants for and holders of licences must have financial resources available, which must be capable of being used, be at the operator’s disposal and be obtainable or easy to get. Thus, cash sitting in a director’s personal bank account is not available and is not in the possession of the company, easily transferrable though it may be.

The Statutory Guidance and Statutory Directions have introduced a revised approach to assessing the availability of finance as a consequence of EC Regulation 1071/2009. The general approach, as with other areas, is to reduce the burden on operators where possible, while at the same time permitting Traffic Commissioners to scrutinise financial standing arrangements, as necessary.

It will continue to be the case that for many applicants/holders, bank statements will continue to be used to indicate financial standing, either on their own or in conjunction with other evidence. Of course, new businesses may only have recently opened bank accounts and have little or no trading history. In those circumstances, the bank statement evidence will be accepted, so long as the requisite amount is available, and a finance condition will be put in place requiring a further set of bank statements, provided no later than the end of the fourth month after grant of the licence and covering the three-month period after the grant.

The way of assessing bank statements to work out the average balance on an account has changed, and letters sent to applicants and operators by the Central Licensing Unit have been amended to this effect. While operators who have to attend a Public Inquiry will still have three months’ bank statements scrutinised, in other cases (eg applications and variations) the approach is as follows.

Assessing bank statements

The latest account balance is taken (which must not be more than two months from receipt of the application) together with the balance 28 days previously. These are combined with the two best closing balances between those two points. An average of the four balances (to include any unused overdraft facility) is calculated, giving the average amount available. If this is insufficient for the financial standing requirement, other resources can be combined, eg undrawn amounts in invoice financing arrangements, annual accounts (so long as they are certified by a properly accredited person), real assets (only if their disposal would not impact on the operator), credit cards (unless this is the sole source of finance, in which case this would be scrutinised further), working capital loan facilities and revolving credit agreements.

With regard to annual accounts, it continues to be the case that those operators whose turnover exceeds £5.6 million are permitted to utilise such accounts to satisfy the financial standing requirement instead of bank statements, so long as they are not more than 18 months old and other criteria are met.

By virtue of 1071/2009, Traffic Commissioners now also accept annual profit-and-loss accounts/balance sheets or a statement of an opening balance if they are certified by a properly accredited person. The Statutory Guidance and Statutory Directions set out who are properly accredited persons and checks will be made on an online audit register. Membership of a recognised supervisory body and professional qualifications are required.

As is now the case, satisfying the financial requirement will for many applicants and operators be relatively straight forward, but complications arise where it is not possible to easily show that requirements are met; invoice finance arrangements, which enable operators to draw down a percentage of invoices raised before they are actually paid by the customer, are widely used as a substitute for an overdraft facility. Many businesses are often unable to support the financial standing requirement because they draw down a large amount of the invoices raised, leaving an insufficient window of undrawn-down monies to be used to demonstrate financial standing.

Goods Vehicles (Community Licences) Regulations 2011

EC authorisations for goods vehicles (and, in the passenger sector, community licence or public service vehicles) issued to Standard International holders are now known as “community licences” (as from 4 December 2011). Existing community authorisations and driver attestations are treated as valid, ie there is no requirement for them to be surrendered in order for replacements to be issued.

A person using a vehicle in Great Britain without possessing a community licence commits an offence (maximum fine of level 4, currently £2500). Stopping officers are given powers to stop vehicles for the purpose of policing community licences. If any offence is committed by a body corporate, then a director, manager, secretary or other officer can be prosecuted if the offence is alleged to have been committed with their connivance.

The regulation also provides for the automatic transfer of a community licence where there is death, bankruptcy or incapacity of the holder under the like provisions found in Regulation 31 of the Goods Vehicle (Licensing of Operators ) Regulations 1995. These are the provisions that allow transport operations to continue to operate for an interim period of grace while issues are resolved, on application to the Traffic Commissioner.

Small trailers

RTOR 2011 amends the Goods Vehicles (Licensing of Operators) Act 1995. Goods vehicles continue to fall outside the scope of operator licensing “if the vehicle, or a vehicle combination including the vehicle, has a permissible laden mass not exceeding 3.5t”. In fact, the regulations bring all hire-or-reward goods (and passenger journeys) into scope but permit Member States to enjoy an opt-out for vehicles not exceeding 3.5t, as is the case in Great Britain.

Prior to 4 December 2011, vehicle combinations that included small trailers (defined as those with an unladen weight not exceeding 1020kg) excluded the small trailer in the 3.5t weight calculation. This was permitted through Schedule 1 of the 1995 Act.

This has been amended, the net effect of which is that for Standard licence operations there is no “disregard” for small trailers and, quite simply, the whole vehicle combination including the trailer has to be taken into account. However, the disregard remains for own-account operations, in determining whether or not a Restricted licence would be necessary.

This may affect certain businesses in the hire or reward (Standard licence) sector who previously have not crossed the weight threshold by being able to discount small trailers. For them, they will either need to apply for a Standard licence or potentially seek some other alternative. One route may be to consider the use of a dual-purpose vehicle that would continue to remain exempt from operator licensing, which includes trailers drawn by any dual-purpose vehicle.

Conclusion

The information above sets out only some of the issues in the main areas affected by the 4 December 2011 changes. It is already the case that the changes are already being seen in a variety of ways. This includes the drafting of applications, the information required by the licensing authorities, summonses to public hearings, letters requiring the attendance of transport managers that warn them of the powers now in force, and the approaches that have to be taken at public inquiry hearings by Traffic Commissioners, who must now consider some matters in a different way compared to before. It will take some time before these changes are fully “bedded in”.