The owner of Melbourne's restaurant trams is suing public transport bodies over claims a $10 million sale fell through after its carriages were taken off the rails.

The Colonial Tramcar restaurant, one of Melbourne's top tourist attractions, is suing Yarra Trams and Public Transport Victoria for allegedly failing to provide it with three trams to continue operating, as per its long-term agreement with the two transport bodies.

The Colonial Tramcar Restaurant

The on-rail dining service has been shut down since October last year, when Yarra Trams took all three of the company’s restaurant trams, built between 1947 and 1950, out of service, saying their badly weathered structures raised safety concerns in collisions.

Colonial Tramcar Restaurant chief executive Paul O’Brien said at the time that his company was willing to invest millions, but claimed that Bendigo Workshops were unable to schedule the required upgrades of the three trams until 2020.