HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd (Formerly Railtrack Plc)
| Jurisdiction | England & Wales |
| Judgment Date | 16 March 2005 |
| Neutral Citation | [2005] EWHC 403 (Comm) |
| Docket Number | Case No: 2004 Folio 777 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 March 2005 |
[2005] EWHC 403 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr Justice David Steel
Case No: 2004 Folio 777
Gregory Treverton Jones QC and Christopher Jackson—Solicitor Advocate (instructed by Burges Salmon LLP) for the Claimant
Michael Crane QC and Katherine Watt (instructed by Kennedys) for the Defendant
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Hon Mr Justice David Steel:
These proceedings arise out of the train derailment at the Welham curve near Hatfield on the 17 th October 2000. The Claimant ("HSBC") was the owner of the rolling stock involved. This rolling stock was being operated by Great North Eastern Railway ("GNER") under a lease from HSBC entitled the Master Operating Lease Agreement ("MOLA") dated 14 th March 1995, as amended in October 1996.
The Defendant ("Network Rail") was the owner and operator of the railway track infrastructure pursuant to a licence granted under the Railways Act 1993. As a Train Operating Company ("TOC"), GNER was permitted by Network Rail to use the country's railway infrastructure. The contractual arrangement between GNER and Network Rail was contained in various agreements including a Track Access Agreement ("TAA") and a Claims Allocation Handling Agreement ("CAHA").
Network Rail called as a witness at the hearing Mr Andrew Gilbert, a partner in the firm of Kennedys, who was formerly Head of Litigation at the British Railways Board from 1993 to 1995. He was in a position to explain the background to CAHA. His evidence was unchallenged.
He outlined the arrangements for privatisation of the railway system, including the allocation of the infrastructure to Railtrack (later Network Rail) and the transfer of passenger train operations to TOCs. Ownership of the rolling stock was made over to Rolling Stock Companies ("Roscos") one of which HSBC was in due course to become.
CAHA grew out of concerns on the part of the Department of Transport that, following privatisation, third parties would have difficulty in identifying the appropriate defendant for any claim, industry parties might attempt to avoid liability by blaming each other and litigation could thereby increase and become prolonged.
CAHA made arrangements for a third party claimant to deal with a "Lead Party" on behalf of all "potentially liable industry partners" (i.e. parties to CAHA) under a contractual ADR system. Also included in CAHA were limitation provisions. Clause 16 established a cap of £5 million on the aggregate net sum payable for property damage by any parties to CAHA who were liable for the relevant loss.
However, since the Roscos merely leased the rolling stock to the TOCs, they were not involved in operating any train, station or other property. Therefore they were not obliged to obtain any licence from the Rail Regulator under Section 6 of the Railways Act. It followed that there was no statutory power to require Roscos to enter into agreements on regulated terms with other industry parties. In the result, Roscos, such as HSBC, were not parties to CAHA.
The crash occurred because one of the rails carrying the northbound express shattered, derailing the train. Some four passengers were killed and dozens more were injured. Two coaches were damaged beyond economic repair, their written off value being £1,420,516.67. The remaining coaches were damaged and repaired at a cost of £3,823,659.55.
The case against Network Rail in these proceedings was pleaded in negligence. It was HSBC's contention that Network Rail was well aware of the dangerous condition of the rail (attributable to gauge corner cracking) but had failed to replace the rail or take any other step to reduce the danger. Network Rail has admitted liability for the purpose of these proceedings.
As regards the terms of MOLA, the position was as follows. By virtue of Clause 4.2, GNER assumed all risk of loss, damage or destruction of the rolling stock from any cause whatsoever. Consistent with that, Clause 5.9 provided that GNER's obligation to pay rent continued despite such loss or damage. Clause 1.1(b) dealt with events of loss (including actual or constructive total loss). Clause 11 (b) provided that, in the event of a total loss, GNER was obliged to pay HSBC the "Agreed Value". This was defined as being represented by the projected replacement value for insurance purposes. This agreed value was payable within 120 days after the event of loss or upon receipt of insurance proceeds whichever was the earlier. Upon such payment, GNER then had the option of acquiring HSBC's interest in the rolling stock and the lease of the lost rolling stock would terminate. The question of repair was covered by paragaph 7(b)(iii) of Schedule 3 of MOLA. GNER undertook liability to repair any rolling stock which was accidentally damaged (unless HSBC elected to do so themselves).
The position as regards insurance cover was set out in Schedule 5 of MOLA. All risks property insurance was to be taken out in the names of both HSBC and GNER for their respective rights and interests. Pursuant to paragraph 7(a) of Schedule 5 Part 1, any proceeds payable as a result of a total loss were to be paid to HSBC and "applied by [HSBC] in discharging [GNER's] outstanding obligation under clause 11.1 (b)". This was subject to a proviso that if GNER had already paid the agreed value, the proceeds were to be applied by way of rebate of rent.
The joint material damage insurers were St. Paul Travelers Insurance Company Limited ("St Paul"). The only other witness at the hearing was Mr Edward Fitzpatrick, who was called by HSBC. He was employed by Cunningham Lindsey, a firm of loss adjusters retained by St.Paul. Again his evidence was not challenged. He stated that he worked with GNER to secure the release of the rolling stock involved in the derailment. Following examination by the manufacturers, all but two coaches were repaired. Notably in his various reports to underwriters he referred to the insured as "GNER". For instance in his report of the 30 th August 2001 he ended with this comment:
"We are presently working with Bombardier to allocate the costs to each vehicle repair in order to determine, if any, the extent of GNER's uninsured losses."
As regards the two coaches that were constructive total losses, St. Paul made payments (less the deductible) to HSBC at GNER's request "as GNER's insurers". The deductible was thereafter paid by GNER direct following which HSBC acknowledged that rental was no longer payable.
Arrangements for repair were made by GNER following issue of GNER's purchase orders. On completion, GNER was invoiced by the manufacturers and duly paid them. Following approval by Mr Fitzpatrick, reimbursement of those payments were duly made by St. Paul to GNER.
Initially St.Paul sought to recover these sums from Network Rail in the name of GNER. Indeed, in March 2004, GNER commenced arbitration proceedings against Network Rail under the terms of the TAA. In its defence, Network Rail admitted liability but relied on the limitation provisions. Thus St.Paul in purporting to exercise its rights of subrogation in the name of GNER were faced with a plea by Network Rail that the primary responsibility for the damage fell on two maintenance contractors who were also parties to CAHA and thus liable to contribute to the £5 million limit. St.Paul thereupon sought a stay of the arbitration proceedings pending trial of the present proceedings which were issued in June 2004, this time in the name of HSBC.
On the 19 th October 2004 Cooke J ordered the trial of preliminary issues in this action: —
"a) Whether the Claimant is the owner of the Rolling Stock
and
b) subject to an assessment of quantum, whether the Claimant is entitled to recover the loss and damage claimed."
There is no longer any controversy about the first issue. This judgment is solely concerned with the second. HSBC's contention was that, despite only having a reversionary interest, it was entitled to recover the repair costs and the write off value of the lost coaches in full. Network Rail, in contrast, contended that as reversioner, HSBC was only entitled to recover in respect of any permanent injury to the reversionary interest and no such injury has occurred.
The lease of the rolling stock was for a term of years. During that term, GNER had possessory title. HSBC, as owner, had no immediate right to possession, merely a proprietary interest in the reversion. The development of a cause of action on the part of such a reversioner is helpfully discussed in Reversionary Damage to Chattels: Tettenborn [1994] CLJ 326.
Prior to the early 19 th century, an action on the case or in trespass in regard to chattels only lay if the plaintiff had possession or an immediate right to possession. At some stage, a non-possessory plaintiff, however, appears to have been held to have a cause of action in respect of his reversionary interest: see e.g. Dean v Whitaker (1824) 1 C & P 347.
In Tancred v Allgood (1859) 4 H & N 438 the plaintiff had bought goods under a bill of sale but had agreed to leave the seller in possession. The sheriff seized the goods on behalf of one of the seller's creditors. The Court of Appeal held that, although the plaintiff had title to sue, the action only lay for proved loss and no loss had been proved or even alleged.
In Mears v L & SWR Co (1862) 11 CB (NS) 1029, a barge was let out on hire during which period it was damaged when a boiler was dropped...
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