Two companies have been found liable for the financial loss suffered by Network Rail when its apparatus was damaged due to the negligence of their drivers. The damage caused disruption to the rail service and made Network Rail liable to the Train Operating Companies under their Track Agreements. The companies were held to be liable for that financial loss.

The UK railway track network is maintained by Network Rail whilst the trains themselves are operated via a franchise system by Train Operating Companies (TOCs) such as Virgin and GNER. Under the Track Agreements between the TOCs and Network Rail, if the track is not available to be used through no fault of the TOC, Network Rail is liable to compensate them through Schedule 8 payments or allowances. The Schedule 8 calculations included two elements known as MRE (marginal revenue effect) and the societal rate.

Network Rail had two claims which were heard together. The claims were against the employers of negligent heavy goods vehicle drivers who had caused physical damage to a bridge over a railway line and to electrical equipment at a level crossing. in July 2002, the negligence of one of Conarken’s driver caused damage to the parapet walls of a railway bridge and rubble was strewn on the railway tracks at Howden in Yorkshire. The line was closed for five days while repairs were carried out. On 10 May 2003, there was a similar incident at Bathley Lane, Newark, which resulted in the detachment of overhead electric cables which affected the use of the East Coast Main Line (“ECML”) for about seven hours. This was caused by one of Farrell’s drivers. Liability was admitted and it was agreed that the defendants were liable for the costs of the necessary repairs. The appellants appealed against damages awarded against them in the sums of £293,732.32 plus interest and £1,017,144.66 respectively.

In addition to the costs of repairs, which were less than £5,000, Network Rail had claimed damages calculated on the basis agreed in contracts between them and TOCs and the Track Agreements. Network Rail’s claim based on the Schedule 8 calculations was that it was foreseeable that they would suffer a financial loss as a result of physical damage causing disruption of traffic on their tracks. That would involve a liability to TOCs. Network Rail argued that its liability to pay sums to the TOCs under the contracts was a foreseeable and direct result of the negligent acts which damaged their apparatus.

The appellants submitted that, even if Schedule 8 of the agreements between Network Rail and the TOCs, was, as between the parties to the contracts, a reasonable way of assessing loss, it did not bind them. Because they were not party to the agreements, they could bind them, as tortfeasors, to pay the contractual sums. Tortious principles applied, and on their application they were not liable to Network Rail for the sums claimed.

Network Rail argued that they had suffered their own loss and were not seeking to recover the TOC’s losses. Their own losses were the contractual liabilities incurred due to the damage.

The losses claimed satisfied the requirement of being a direct consequence of the tort. Network Rail’s liability to pay sums to the TOCs was the direct consequence of the tort caused the damage to the tracks. What then had to be considered as whether the appellants were bound by the assessment of damages in the contracts between Network Rail and the TOCs and, if not, whether the damages claimed were reasonably foreseeable.

Network Rail’s agreement to pay the TOCs did not necessarily bind the appellants. It was not open to a party to dictate to the whole world the extent of 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. Making a contract did not confer a licence on Network Rail to charge a tortfeasor with whatever types of financial loss, and whatever quantification of financial loss, was included in the agreement provided it was reasonable between the contracting parties. The extent of the appellants’ liability should be determined on ordinary tortious principles. The issue was not concluded because the loss to Network Rail was a direct consequence of the tort.

It was too simplistic in circumstances such as the present to say that because a kind of loss, financial loss, is reasonably foreseeable to one who causes physical damage, all financial loss agreed between the victim and a third party is reasonably foreseeable. If there had been no such contract, it would be necessary to analyse the headings under which the alleged loss was claimed, and the manner in which it was calculated. This still had to be done even thought there were a contract. It was accepted that the sums claimed between Network Rail and the TOCs were reasonable. It did not follow, however, that the figures must be accepted because Network Rail were monopoly suppliers of the use of rail tracks and there was no market against which to judge the reasonableness of the figures. However, Schedule 8 had obviously been drafted responsibly and with a view to achieving a fair result, in the public interest, between the parties to it.

The appellants were liable for each of the heads claimed, i.e. the societal rate component and the MRE component. It had been reasonably foreseeable that if Network Rail’s apparatus were damaged, the services of the TOCs, and their value to the public, would be diminished and that arrangements would have been put in place by the franchising authority to penalise the TOCs for the diminution in their services. Two contracts were involved, the contract between Network Rail and the TOC, and the franchising arrangement between the franchising authority and the TOC, but the complexity did not make the resulting loss to the respondents too remote from the physical damage.

Network Rail Infrastructure Ltd. v Conarken Group Ltd., and Farrell Transport, [2011] EWCA Civ 644

 

 

This article was originally written and published on the internet by Bliss Books on 07/06/11.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

 

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