The case Conarken Group Limited, Farrell Transport limited v
Network Rail Infrastructure Limited [2011] EWCA Civ 644
The issue
Vehicles frequently damage railway bridges, crossings and other
rail infrastructure, which often causes disruption to rail
services. Responsibility for the rail infrastructure rests with
Network Rail Infrastructure Limited, who are contractually obliged
to pay compensation to Train Operating Companies (TOCs) when a line
is closed.
In the first case, the judge awarded damages to Network Rail,
including recovery of the full compensation payments it had made to
TOCs. The decision was appealed, and the judgement of the Court of
Appeal was made on 27 May this year. Having briefly covered this in
the last issue of SMIB, we now look at the case in more
detail.
The facts
The case involved two separate incidents, both of which resulted
in the closure of a railway line. The first involved a vehicle
operated by Conarken, and resulted in a line being closed for five
days. The second incident, involving a Farrell vehicle, saw the
East Coast Main Line closed for five hours.
In both cases, primary liability was accepted. In addition to
the cost of repairs, which were relatively minor, Network Rail had
paid substantial compensation to the TOCs in accordance with its
contractual obligations. The calculation of compensation was
complex, including factors such as the relative importance of the
line, the length of delay and the impact upon future customer usage
and confidence.
The issue at appeal was whether Network Rail's liability to pay
the compensation was within the scope of the appellants' duty and,
if so, whether they had to pay the contractually agreed sums.
The defenders disputed the claims on three grounds. Firstly,
they argued that they did not owe a duty of care to Network Rail to
prevent them suffering an economic loss. Second, that the loss was
too remote to be recoverable. Third, that the compensation included
a penal element and could not therefore be considered truly
consequential upon physical damage.
At appeal, the court examined whether the law of remoteness
restricted the amount that a claimant such as Network Rail can
recover where contractual liabilities arise. There was lengthy
discussion regarding the contractual payments and whether they are
binding for the purpose of a negligence action. Particularly
controversial was the inclusion of future loss of revenue within
the contractual payment, although importantly the defenders had
accepted that the contractual payments represented the best
assessment in financial terms.
The decision
The appeal was dismissed and full recovery was allowed.
Liability to compensate was a direct consequence of the negligence.
The court took care to emphasise that the existence of a
contractual obligation did not guarantee recovery. The relevant
principles were summarised in four propositions:
1. Economic loss which flows directly and foreseeably from
physical damage to property may be recoverable. Detailed knowledge
of the claimant's business is not required so long as the general
nature of the loss is foreseeable.
2. One of the recognised categories of recoverable economic loss is
loss of income following damage to revenue generating property.
3. Loss of future business as a result of damage to property
lies on the outer fringe of recoverability. Recovery will depend
upon the circumstances of the case and the relationship between the
parties.
4. When assessing damages, the court will seek to arrive at an
assessment which is fair and reasonable.
Douglas Brodie
This is an important cases for insurers. A relatively short
closure of the East Coast Main Line resulted in a very substantial
award. Vehicle damage to rail infrastructure is a frequent problem,
so the potential exposure is substantial.
The basic principle of pure economic loss remains in place: had
the TOCs claimed direct against the negligent party they would have
failed on the grounds that none of their property was damaged and
their claim was purely economic. However, in future cases with
similar circumstances, the existence of a contract giving rise to
financial liability is likely to result in a requirement to pay
damages. It is not clear how the boundaries of recoverable loss
will be determined.
The difficult question is how to determine what is fair and
reasonable in the face of frequently complex contractual
arrangements? In Conarken, the compensation was accepted as a
reasonable assessment of the TOC losses. Lord Justice Pill observed
that the agreement was "responsibly drafted with a view to
achieving a fair result," and public interest was also a relevant
consideration.
Lord Moore-Bick commented: "That some financial loss would be
likely to result from a suspension of services, whoever was
operating them is, I think, obvious." It may be that in future
similar cases, provided the contractual liabilities can been seen
as a fair assessment of loss, pursuers in negligence will not be
hindered by the law of remoteness.