Whenever the law is unable to provide firm guidelines on a given matter, judges seem to fall back on that great legal cop out: it’s a matter of “common sense” or it is “fair and reasonable”. No area do they seem to rely on this more than in the law of tort or, more precisely, when dealing with the question of pure economic loss (when no physical damage or injury has been caused to people or other property).
The Court of Appeal (which included Jackson LJ), had the opportunity to give their thoughts on this issue in Conarken and Farrell v Network Rail Infrastructure. The facts giving rise to the claim, we are told at the beginning of the judgment, are “quite frequent”. So there must be a simple answer? Wrong…
The contracts
Since British Rail was privatised, Network Rail has owned the railway lines. The trains are owned and operated by different companies (TOCs).
The contract between Network Rail and the TOCs contained a complicated but, in the end, reasonable way of calculating the sum payable by Network Rail to the TOCs if a train is late or unable to run. This includes a sum for predicted loss of future fares because, for example, loss of customer confidence. A genuine and reasonable attempt had been made by the parties to assess the loss. In construction lawyers speak, the payment would not have been branded a penalty but deemed to be an enforceable liquidated damages provision.
The accidents
In separate incidents, drivers from two transport companies crashed, causing damage to Network Rail’s property. As a result, the railway track was unusable while repairs were carried out. Network Rail had to pay the affected TOCs pursuant to the contractual arrangements agreed between them.
The claims and arguments
Network Rail sued the transport companies. The transport companies admitted liability for the cost of the repairs. However, the issue between the parties was the extent of the transport companies’ liability for losses Network Rail suffered as a result of paying the TOCs.
Network Rail claimed that it was foreseeable that they would suffer a financial loss as a result of the physical damage causing disruption of the rail traffic on their track. This would result in a liability to the TOCs. This loss was foreseeable and was not too remote.
The transport companies:
- Denied they had liability for the sums that Network Rail had to pay the TOCs to compensate them for the delays and potential loss of future revenue. It was, they claimed, irrecoverable economic loss.
- Argued that they should not be liable for the TOCs’ losses, as they could never have been directly liable to the TOCs, as none of the TOCs’ property was physically damaged.
- Argued that it was unfair. How could the transport companies ever have any idea as to what sums and for what reasons Network Rail had agreed to make payments to the TOCs? It was all too remote.
The Court of Appeal opines
Jackson LJ, as only he can, summarised the answer in less than ten very digestible paragraphs. For those that cannot bear the suspense of a “who done it”, this judgment is perfect. Just turn to the last two pages of what is otherwise a complicated and authority-heavy judgment.
While each of the Court of Appeal judges gave their own fully reasoned judgment, they all agreed that Network Rail could recover all of its losses (including the monies paid to the TOCs) from the transport companies. The losses were a direct consequence of the tort that caused the damage to the track.
Further, while a claimant cannot always recover the monies that it has agreed to pay a third party, it should be able to do so if the damage claimed is reasonably foreseeable and is not too remote. However, loss of future business as a result of damage to property lies on the outer fringe of recoverability. It will depend on the circumstances of the case and the relationship between the parties. In this case, the losses claimed were reasonably foreseeable and were not too remote.
Jackson LJ’s summary
Summing up the position very neatly, Jackson LJ held:
- It is plainly foreseeable that if railway lines are damaged, Network Rail will suffer a loss of revenue.
- It is well established that if revenue earning property is damaged, a party can recover that lost income. It is not pure economic loss.
- While a driver will not know anything about the detailed and complex contractual arrangements between Network Rail and the TOCs, it is foreseeable to expect that Network Rail will have to compensate the TOCs.
- Unless there is some exceptional circumstance or some obviously unreasonable feature in the claimant’s business arrangements, the court should not explore in detail the build up of any loss of revenue following damage to revenue generating property. All the claimant has to prove, in most instances, is that it has lost revenue as a result of that damaged property.
It all depends on what the court thinks is fair and reasonable
So, while lawyers may be comforted by the court agreeing that the question is indeed vexed, you may wonder how much comfort your client will be able to derive from the fact that when they ask whether a particular type of loss is recoverable, you answer by saying that “it all depends on what the court thinks is fair and reasonable”.
However, while clients may not appreciate the court’s refusal to lay down a single set of rules that can be comprehensively applied, this flexibility allows our legal system to adapt and change with the times. Good common sense indeed.
