HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd (Formerly Railtrack Plc)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Lloyd,or,The Chancellor |
| Judgment Date | 25 November 2005 |
| Neutral Citation | [2005] EWCA Civ 1437 |
| Docket Number | Case No: 2005 0806 A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 November 2005 |
[2005] EWCA Civ 1437
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION (COMMERCIAL COURT)
Hon Mr Justice David Steel
[2005] EWHC 403 (Comm)
Sir andrew Morritt QC
(the Chancellor of the High Court)
Lord Justice Longmore and
Lord Justice Lloyd
Case No: 2005 0806 A3
CHRISTOPHER BUTCHER Esq QC and JAMES BROCKLEBANK Esq
(instructed by Burges Salmon LLP) for the Appellant
MICHAEL CRANE Esq QC and Ms KATHERINE WATT
(instructed by Kennedys) for the Respondent
Introduction
English law has traditionally regarded both the tort of wrongful interference with goods (whether by way of trespass or conversion to use now old-fashioned terms) and the tort of negligent damage to goods as being torts which infringe the possession or right to possession of goods. Thus in Gordon v Harper (1796) 7 TR 9, where the claimants had let a house and furniture to a tenant and the furniture had been taken by the sheriff in execution before the lease had expired, it was held that the claimant could not sue because during the lease he had no possession or right to possession of the furniture. The corollary of the rule was that since the bailee of goods was the only person with the right to sue, he was under an obligation to account to the true owner. In The Winkfield [1902] P 42, which decided that the bailee could recover the full value of the goods (but was obliged to account for that value to his bailor) even though he was not contractually liable to his bailor for loss or damage to the goods, Sir Richard Henn Collins MR referred to the fact that originally only the bailee could sue but added (page 58):—
"though afterwards by an extension, not perhaps quite logical, the right to sue was conceded to the bailor also".
It is the ambit of this "not quite logical" extension that is at the heart of this appeal, which concerns carriages which were owned by HSBC Rail (UK) Ltd ("HSBC"), leased to Great North Eastern Railway Ltd ("GNER") and damaged as a result of the train derailment at the Welham Curve near Hatfield on 17th October 2000.
The Facts
The facts are admirably set out by the judge and I can repeat them in almost his own words. HSBC was the owner of the derailed rolling stock. This rolling stock was being operated by GNER under a lease from HSBC entitled the Master Operating Lease Agreement ("MOLA") dated 14th 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 and Handling Agreement ("CAHA").
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, gave evidence about the background to CAHA. 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 to any claim, industry parties might attempt to avoid liability by blaming each other and litigation could thereby increase and become prolonged.
CAHA therefore 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 1993. 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 at the Welham Curve 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.
HSBC's case against Network Rail in these proceedings was pleaded in negligence. HSBC contended 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 the 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 was to continue despite such loss or damage. Clause 11.1(b) dealt with events of loss (including actual or constructive total loss). It 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 paragraph 7(b)(iii) of Schedule 3 of the 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 International Insurance Company Limited ("St Paul"), on terms which I can most usefully set out in the part of this judgment which deals with insurance. As regards the two coaches that were not worth repairing and were thus constructive total losses, St Paul made payments (less the deductible) to HSBC at the joint request of HSBC and GNER "as GNER's insurers", to quote the judge. 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 the loss adjusters, reimbursement of those payments was duly made by St Paul to GNER.
Initially St Paul sought to recover these sums from Network Rail in the name of GNER and, 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 provisions limiting liability to an aggregate sum of £5 million. St Paul in purporting to exercise its rights of subrogation in the name of GNER were also 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 then sought and has apparently obtained 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. The convenience of HSBC as bailor being able to sue for substantial damages (if they are entitled so to do) is that, in such an action, the contractual limitation clause may be neatly side-stepped.
Proceedings Below
On 19th 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. The judgment below was solely concerned with the second. HSBC's basic contention was and is that, despite only having a reversionary interest in the carriages, it was entitled to recover the repair costs and the full value of the lost coaches. Network Rail, in contrast, contended that as reversioner, HSBC was...
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