Network Rail Infrastructure Ltd v Conarken Group Ltd and another

Hearing dates: 5 & 6 April 2011

This is an appeal, with permission of the trial judge, against a decision of Akenhead J dated 21 July 2010 whereby he awarded damages to Network Rail Infrastructure Limited ("the respondents") against Conarken Group Limited and Farrell Transport Limited ("the appellants"). In 1996 the railways came out of nationalised public ownership and were privatised. The privatisation involved the setting up of Railtrack as the company responsible for the rail track system and the introduction of companies which would operate the trains on that system. Train operating companies (TOCs) were awarded franchises to operate on different parts of the system. In 2002, Railtrack returned effectively to government ownership and became known as Network Rail.

In the first named case, the award was in the sum of £293,732.32 plus interest, and in the second £1,017,144.66 plus interest. In each case, physical damage had been caused to railway property owned by the respondents and caused by the negligent driving on the highway of drivers employed by the appellants. Liability for the cost of repairing the property was admitted; the issue was as to the extent of the appellants' liability for other losses claimed. The cases were brought as test cases, accidents of this kind regrettably being quite frequent.

In July 2002, the negligence of Conarken's driver at Howden, Yorkshire caused damage to the parapet walls of a railway bridge and rubble was strewn on the railway tracks. The line was closed for five days while repairs were carried out. On 10 May 2003, the negligence of Farrell's driver at Bathley Lane, Newark, resulted in the detachment of overhead electric cables which affected the use of the East Coast Main Line ("ECML") for about seven hours.

In addition to the cost of repairs, which in the Newark case was less than £5,000, the respondents claimed damages calculated on the basis agreed in contracts between them and TOCs using the respondents' tracks, known as Track Access Agreements. In the Newark case, damages of over £1,000,000 were claimed and ordered under this head. Schedule 8 of the contracts between the respondents and the TOCs provided a way of calculating what, as between the parties to the contracts, was the agreed financial loss suffered by the TOCs as a result of the incidents and the service disruptions that flowed from them. In the Newark case, almost all the sum so calculated was payable to GNER, who ran trains on the ECML. Small sums were payable to ten other TOCs. The major part of the schedule 8 loss at Howden was payable to Arriva with much smaller sums to three other TOCs.

The schedule 8 calculations included two elements known as MRE (marginal revenue effect) and the societal rate. As defined by the judge at paragraph 23 of his judgment:

"The MRE is the estimated effect on the TOC's revenue of one minute of average lateness whilst the Societal Rate represents a payment rate per minute of average lateness in the context of the franchise performance regime between the TOC and the franchising authority."

We were told, as an indication of their relative importance, that of the very large sum paid to GNER following disruption of traffic on the ECML, 85% was MRE and 15% societal rate.

The societal rate arises from franchise agreements made between the franchising director (now the Department of Transport) and TOCs under the Railways Act 1993. These agreements are confidential and were not before the court. The respondents are not a party to them and do not know their terms. They provide benchmarks for calculating monetary penalties payable by the TOCs to the franchising director in the event of poor performance.

The issue

I put the issue in summary form. The respondents' claim based on the schedule 8 calculations is straightforward; it was foreseeable that the respondents 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. The respondents made Track Access Agreements with TOCs as to how the losses sustained by TOCs should be calculated. How the calculation is done is irrelevant to the issue between respondents and appellants. The liability of the respondents to pay sums to the TOCs under the contracts was a foreseeable and direct result of the negligent acts which damaged the respondents' apparatus.

The appellants submitted that, even if schedule 8 of the agreements between the respondents, whose property they damaged, and the TOCs, was, as between the parties to the contracts, a reasonable way of assessing loss, it does not bind the appellants. They are not party to the agreements and the agreements cannot bind them, as tortfeasors, to pay the contractual sums. Tortious principles apply, and on their application they are not liable to the respondents for the sums claimed.

Had the TOCs, whose property had not been damaged, been claimants, they could not have recovered damages from the appellants in tort. The judge agreed with that proposition stating, at paragraph 62(g):

"… The reality is that, under the law as it now stands and has stood for many years, these Defendants would never have been liable in negligence to the TOCs for those losses because no property of the TOCs was physically damaged. The losses would therefore never have been recoverable directly by the TOCs."

That finding is not challenged by the respondents. The introduction of a contractual entitlement in the TOCs, as between them and the respondents, does not necessarily create a liability in the appellants, it was submitted.

Mr Onions QC, for the respondents, submitted that they suffered their own loss and are not recovering the TOCs' losses. How the respondents' losses are made up and how they would be categorised in the hands of a third party such as the TOCs is simply irrelevant. The respondents' losses are simply the contractual liabilities incurred as a result of incidents. How and why that contractual sum is precisely calculated is a matter of detail in the determination of the particular extent of what is a recoverable type of loss, financial loss. It is irrelevant to a remoteness enquiry in tort.

The appellants do not challenge the reasonableness of the schedule 8 calculations as a way of assessing how loss is to be apportioned between the parties to the Track Access Agreements, of which schedule 8 is a part. That I understood to be the limit of the appellants' concession. They do not concede that whatever parties to the Track Access Agreements choose to put in them governs the extent of a tortfeasor's liability to the respondents.

I doubt whether Mr Bartlett would challenge the proposition expressed in this case by Moore-Bick LJ at paragraph 99. The issue, Moore-Bick LJ states, is "whether a loss in the form of a liability to make Schedule 8 payments to the TOCs under the Track Access Agreements was within the scope of the appellants' duty and not too remote in law to be recoverable". The issue is whether the mere presence, in an agreement between the respondents and the TOCs, is enough or whether the heads of damage in the Agreements must, before the tortfeasor is held liable, also be tested according to the tortious principles stated by Moore-Bick LJ.

Loss on the day, MRE and the societal rate

Liability to pay losses which occurred immediately upon the disruption, such as train crew overtime, additional fuel, buses and taxis for passengers is not in issue. That was explained by Mr Angus, the respondents' analysis and forecasting manager, at paragraph 40 of his statement."When an incident occurs which causes delay or cancellation to trains, TOCs generally suffer relatively little loss of revenue on the day concerned." In his oral evidence, Mr Angus put it in this way:

"… the amounts of those kinds of expenses are hugely relatively limited compared to a revenue loss. You can take 500 people going from London to Edinburgh and you are looking at £10,000, £20,000 worth of revenue on a train; if you have to hire a bus or two to get them there, it's pretty small beer."

Mr Angus added, at paragraph 42:

"Most of the revenue lost from poor performance is therefore not suffered on the day in question. It is suffered in the future, as passengers affected by delays or cancellations (or indeed people who hear about experiences of delays and cancellations from others) are less likely to travel by rail in the future."

The concept of delay attribution was explained in the respondents' opening note for the trial. The respondents investigate the causes of delays and a staff of about 250 are employed in the procedure. A Delay Attributor investigates the cause of the loss of time and allocates it to the particular incident which is responsible. Computer systems are then used to calculate the appropriate consequences under schedule 8. The calculation of MRE is based on a document known as the Passenger Demand Forecasting Handbook. In his evidence, Mr Angus referred to the research on the impact of delays on rail passengers. As recorded by the judge at paragraph 32, Mr Angus said "ultimately the product of the approach...