Network Rail Infrastructure Ltd v Conarken Group Ltd
Network Rail Infrastructure Ltd v Farrell Transport Ltd - [2010]
EWCH 1852
Every year there is a significant number of road traffic
accidents on bridges over railways and on railway crossings. These
accidents may cause damage to railway lines and disruption to rail
services. Disruptions are bad news for Railtrack, the company
responsible for the railway network. Not only do they have to
repair the lines, they are contractually obliged to pay
compensation to disgruntled train companies for every minute that a
line is closed. This test case addressed whether Railtrack can
recover those costs from the drivers (and their insurers) whose
negligence cause the disruptions.
The facts
On 29 July 2002, there was a collision between a low loader and
a refrigerated trailer on the Howden Bridge, Yorkshire. The bridge
carries the A614 road over railway tracks. The driver of the low
loader, who was employed by the Conarken Group, was at fault for
the accident. The line was closed for five days.
In a separate incident on 10 May 2003, part of the busier East
Coast Mainline near Newark was out of operation for five hours. The
cause of the disruption was damage to overhead cables. The damage
was caused by Mr Farrell's lorry.
The cost of the repair work was relatively minor in each case.
Both Conarken and Farrell accepted that they were liable for the
repair costs. However, Railtrack had also paid out a total of £1.3
million to train companies whose services had under Track Access
Agreements (TAAs) in which a complex calculation, based upon
factors such as the relative importance of the line in question and
the length of the delay, is used to assess the losses.
The law
The defenders disputed the claims on three grounds. They argued
that they did not owe a duty of care to Railtrack to prevent them
suffering economic loss. Just as if he had been told that there
were leaves on the line, the judge was not convinced. He held it
was well established that economic loss was recoverable in cases
involving physical damage to property provided that the economic
loss was consequential upon the physical damage. 'Consequential' in
this context meant closely associated with the physical damage to
the railway line and the work done to repair the damage.
The defender's second argument was that the loss was an unusual
one. It was a step too far, they said, to expect them to have
foreseen Railtrack's obligations under the TAAs. The loss was
therefore too remote to be recoverable. The judge disagreed. He
held that it was not necessary for the defenders to have foreseen
the contractual mechanism under which Railtrack might have to pay
compensation. All that was required was for the defenders to have
foreseen that Railtrack would lose revenue as a result of
disruption to rail services. In his opinion, that kind of loss was
to be expected and thus recoverable.
The defenders could see where the judge's train of thought was
heading. They attempted to derail it by arguing that the loss was
not truly consequential upon the physical damage. The payments
under the TAAs were not simply to compensate for loss of revenue as
a result of disruptions. Built into the calculation, they said,
were incentives and penalties to encourage Railtrack and the train
companies to run services on time irrespective of any economic
losses they may actually suffer as a result of rail
disruptions.
The judge nudged this argument into a siding. On the evidence he
concluded that a significant proportion of the sums paid to the
train companies was for actual loss of revenue; any penal element
was minor; there was a clear link to be drawn between the damage to
the line, the repair work and the economic loss. In those
circumstances, the judge found the economic loss to be truly
consequential.
Comment
This is an important case for road traffic insurers. It would
appear that a mere five hour disruption to the East Coast Mainline
costs Railtrack over one million pounds. If Railtrack can now pass
on such costs, it is clear that even innocuous incidents at railway
crossings could lead to a significant liability not only for an
insurer but also for an underinsured policyholder.
We anticipate that the decision will be appealed. However, even
if it is allowed to stand, it should be remembered that the case
does not affect the general restriction on claims for pure economic
loss. For example, had the claims been brought not by Railtrack but
by the train companies actually affected by the disruptions, those
claims would have failed. The defenders had caused no damage to any
property belonging to the train companies. The damage was to the
line, not the rolling stock. As a result, any loss suffered by the
train companies was 'purely economic' rather than consequential
upon physical damage.
The application of this principle will always restrict the
number of claimants and the extent of the losses claimed in cases
where there is no contractual relationship between claimant and
defender. It cannot be said that consequential loss is a runaway
train never going back, heading the wrong way up a one way
track.
Contributed by Steven Guild