Duty to take care - Economic loss - Damage to property

Network Rail Infrastructure Ltd v Conarken Group Ltd; Network Rail Infrastructure Ltd v Farrell Transport Ltd: CA (Civ Div) (Lord Justices Pill, Moore-Bick, Jackson): 27 May 2011

The claimant company was responsible for the rail track system in Great Britain. It had agreements with train operating companies (TOCs), which were known as ‘track access agreements’.

Those agreements operated as licences from the claimant to the TOCs to use the track, in return for annual fees.

Where the track was not available through no fault of a particular TOC, schedule 8 to the track access agreements provided for the TOC to receive a payment or allowance from the claimant (schedule 8 payments/allowances), calculated on the basis of the estimated effect on the revenue of the TOCs of delays to the rail service.

The instant proceedings concerned two cases in which the defendants had caused physical damage to, in the first case, a bridge over a railway line and, in the second case, to electrical equipment at a level crossing. In each case, payments in accordance with schedule 8 were made to the TOCs.

The claimant issued proceedings against the defendants.

Liability was admitted for the costs of the requisite repairs, but the parties disputed whether or not the claimant could recover the schedule 8 payments/allowances.

At trial, the court considered, among other things: (i) whether the schedule 8 losses were recoverable, as directly consequent on physical damage, or whether they represented pure economic loss; and (ii) whether the schedule 8 losses were reasonably foreseeable.

The court allowed the claim for the schedule 8 losses.

The defendants appealed.

The defendants submitted that even though schedule 8 of the agreements was binding between the parties to the contracts, it did not bind them.

They submitted that ordinary tortious principles applied, and on their application they were not liable to the claimant for the sums claimed.

In support of that submission, it was accepted that the TOCs would not have been able to recover damages in tort from the defendants.

The claimant argued that it had suffered their own loss, and was not recovering on behalf of the TOCs.

Those losses were simply the contractual liabilities incurred as a result of the incidents.

The appeal would be dismissed.

It was settled law that forseeability and remoteness were to be considered together.

Forseeability, as an abstract concept, was not determinative.

An imaginative person might foresee extremely broad consequences as potentially resulting from his actions.

In considering whether consequences were too remote to create a liability in negligence, reasonableness had a part to play.

Further, the fact that a claimant had contractually agreed with a third party the level of damages that it would pay, would not necessarily bind the tortfeasor.

It was not open to a party to dictate to the whole world the extend to tortious liability and what was reasonably foreseeable and not too remote in order to achieve what it regarded as a satisfactory contract with a third party.

It might lead to ever more ingenious attempts to attribute possible loses to a tort and would be inimical to the simple solution desired (see [49] and [95] of the judgment).

In the circumstances, the defendants would be liable for each of the heads of damage claimed, as the losses claimed satisfied the requirement of being a direct consequence of the tort.

The liability of the claimants to pay sums to the TOCs was the direct consequence of the tort which occasioned the damage to the tracks.

However, it had also to be considered whether the defendants were bound by the assessment of damages in the contracts between the claimant and the TOCs and, if not, whether the damages claimed were reasonably foreseeable.

The solution by which the tortfeasor was liable to pay whatever the claimant and the TOCs agreed as between them to be reasonable was of attractive simplicity.

Nonetheless, such an agreement did not necessarily bind the defendants, as tortfeasors, to pay the agreed sum.

It made no difference that the claimant was the monopoly supplier of the use of railway tracks; the court would intervene to assess the reasonableness as between the claimant and the tortfeasor, of the losses specified in the contract.

The extent of the defendants’ liability would be determined on ordinary tortious principles.

In the circumstances, the schedule 8 figures were, as between the claimant and the TOCs, reasonable.

It did not follow that they had to be accepted, however; schedule 8 had obviously been drafted responsibly and with a view to achieving a fair result, in the public interest, as between the parties to it.

Accordingly, the defendants should be liable for each of the heads claimed.

It had been reasonably foreseeable that, if the track was damaged, the services of the TOCs, and their value to the public, would have been diminished, and that arrangements would have been put in place by the franchising authority to penalise the TOCs for the diminution in their services.

Accepting the care with which the calculations had been made, schedule 8 fell on the side of recoverability (see [68], [69], [78], [82], [86], [102] and [148]-[158] of the judgment).

All ER (D) 237 affirmed.

Jeffery Onions QC, David Drake and Alexander Polley (instructed by Hay & Kilner) for the claimant; Andrew Bartlett QC, Jonathan Hough and James Purnell (instructed by Greenwoods Solicitors) for the ­defendants.