HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Andrew Morritt C,Longmore,Lloyd L JJ |
| Judgment Date | 25 November 2005 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 November 2005 |
Court of Appeal (Civil Division).
Sir Andrew Morritt C, Longmore and Lloyd L JJ.
Christopher Butcher QC and James Brocklebank (instructed by Burges Salmon LLP) for the appellant.
Michael Crane QC and Katherine Watt (instructed by Kennedys) for the respondent.
The following cases were referred to in the judgment:
Albazero, TheELR [1977] AC 774.
Bradburn v Great Western Railway CoELR (1874) LR 10 Ex 1.
Charlotte, TheELR [1908] P 206.
Dee Trading Co v Baldwin [1938] VLR 173.
East West Corp v DKBS AF 1912 A/S [2003] 1 CLC 797; [2003] QB 1509.
Ehmler v HallUNK [1993] 1 EGLR 137.
General Accident Fire and Life Assurance Corp Ltd v Midland Bank LtdELR [1940] 2 KB 388.
Gordon v HarperENRENR (1796) 7 TR 9; 101 ER 828.
Hall v PickardENR (1812) 3 Camp 187.
Jones v Llanrwst UDCELR [1911] 1 Ch 393.
Livingstone v Rawyards Coal CoELR (1880) 5 App Cas 25.
Mayfair Property Co v JohnstonELR [1894] 1 Ch 508.
Mears v London and South Western Rly CoENR (1862) 11 CBNS 850; 142 ER 1029.
Metropolitan Association for Improving the Dwellings of the Industrious Classes v PetchENR (1858) 5 CBNS 504; 141 ER 204.
Morris v CW Martin & Sons LtdELR [1966] 1 QB 716.
Obestain Inc v National Mineral Development Corp LtdUNK [1987] 1 Ll Rep 465.
Parry v CleaverELR [1970] AC 1.
Petrofina (UK) Ltd v Magnaload LtdELR [1984] 1 QB 127.
Simpson v SavageENR (1856) 1 CBNS 347; 140 ER 143.
Tancred v AllgoodENR (1859) 4 H & N 438; 157 ER 910.
Transcontainer Express Ltd v Custodian Security LtdUNK [1988] 1 Ll Rep 128.
Winkfield, TheELR [1902] P 42.
Bailment — Insurance — Negligence — Damage to goods — Leased railway carriages destroyed and damaged as a result of derailment — Insurers compensated train operator and lessor — Track owner admitted negligence but relied on contractual limitation against train operator — Claim by owner of carriages as bailor to avoid contractual limitation — Whether bailor entitled to sue for substantial damages — Bailor not in possession had right of suit but could not recover where he had been compensated by baileeBailor's reversionary interest had not been damaged — Bailee had been at risk and had suffered real loss and had been indemnified by insuranceBailor had suffered no damage because it had been indemnified by bailee rather than by the insurers.
This was an appeal by the lessor (H) of railway rolling stock, which had been destroyed or damaged in a derailment, against the decision of the judge ([2005] EWHC 403 (Comm)) that it could not recover substantial damages from the owner of the track (N) because there had been no permanent injury to H's reversionary interest.
H was the owner of the derailed rolling stock which was being operated by a train operating company (G) under an operating lease agreement with H. The contractual arrangement between G and N was contained in various agreements including a track access agreement and a claims allocation and handling agreement.
In the derailment two carriages were damaged beyond repair. The remaining coaches were damaged and repaired. All risks property insurance had been taken out in the names of G and H. The insurers made payment to H in respect of the coaches which were not worth repairing and H acknowledged that rental was no longer payable. G paid for the repairs to the other carriages and was reimbursed by the insurers. The insurers claimed against N in the name of G. N admitted liability but relied on contractual provisions limiting its liability and claimed that primary responsibility for the damage fell on two maintenance contractors who were liable to contribute under the terms of the claims allocation and handling agreement. The insurers then sought to claim against N in negligence in the name of H on the basis that H would be able to sue as bailor and H's claim would not be met by the contractual limitation clause.
The judge held that as reversioner H was only entitled to recover in respect of any permanent injury to its reversionary interest in the carriages and that in the circumstances no such injury had occurred.
Held, dismissing the appeal:
1. The authorities indicated that a reversionary owner of chattels could sue a negligent wrongdoer if there was permanent damage to his reversionary interest.
2. Ignoring the insurance position, H had been paid in full for the value of the carriages which had been destroyed and the repairable carriages had been repaired. H was not out of pocket and on ordinary negligence principles had suffered no loss and could make no recovery.
3. H could cite no authority in support of its proposition that a goods owner without possession, or the immediate right to possession, could recover the value of the goods even where he had been compensated by his bailee.
4. H was not entitled to recover because its reversionary interest had not been damaged. Apart from insurance considerations it had suffered no loss.
5. The legal significance of what had happened was that G's liability to H under the operating lease agreement had been discharged. The party which had been liable to pick up the bill for the damaged coaches was G. It was G which had suffered the real loss and had been indemnified by insurers in respect of that loss. H had suffered no damage to its reversionary interest because G had fully indemnified it, not because H had been indemnified by insurance.
Longmore LJ:
1. 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 HarperENR(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 WinkfieldELR[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 17 October 2000.
2. 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 14 March 1995, as amended in October 1996.
3. 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”).
4. 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.
5. 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.
6. 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.
7. 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.
8. 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...
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