Hsbc Rail (UK) Ltd. v Network Rail Infrastructure Ltd. (Formerly Railtrack Plc)

A reversionary owner of leased or bailed goods may sue for negligent damage only where the wrong causes actual and permanent injury to the reversionary proprietary interest. The owner cannot recover the full value of destroyed goods or repair costs merely because the goods themselves were damaged. Recovery depends on proved loss suffered by that owner. Where the bailee’s contractual obligations and a composite insurance arrangement ensure that the owner is fully restored, the owner has no recoverable loss. Insurance is not disregarded where the payment in substance indemnified the bailee’s loss and discharged the bailee’s obligations to the owner.

HSBC owned railway carriages leased to Great North Eastern Railway Ltd under a Master Operating Lease Agreement. The carriages were damaged or destroyed in a derailment caused by Network Rail’s admitted negligence. The repairable carriages were repaired and the others were replaced or treated as constructive total losses under insurance arrangements.

The High Court, on a preliminary issue, held that HSBC could not recover because it had no immediate right to possession and had suffered no permanent damage to its reversionary interest: [2005] EWHC 403 (Comm). The appeal concerned whether HSBC could recover the repair costs and value of the written-off carriages, and whether insurance payments had to be left out of account.

1. Appeal dismissed. HSBC had only a bare proprietary and reversionary interest during the eight-year lease. Its claim therefore required proof of actual and permanent injury to that interest, rather than damage to the carriages viewed in isolation.
2. Authorities including Tancred v Allgood (1859) 4 H&N 438, Mears v London and South Western Railway Co (1862) 11 CBNS 850 and East West Corporation v DKBS A/S [2003] QB 1509 establish that a reversionary owner may sue for permanent damage to a chattel. The carriages had been destroyed or seriously damaged, so the absence of an accrued cause of action was not the correct reason for dismissal. The decisive question was the recoverable loss.
3. Ordinary compensatory principles applied. Under Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, a claimant may recover only loss it has suffered. The written-off carriages had been replaced or their value paid, and the other carriages had been repaired. HSBC was therefore not out of pocket and its reversionary interest had not sustained permanent injury.
4. The Winkfield exception did not assist. A bailee in possession or with an immediate right to possession can recover the full value because possession gives title against a stranger. A bailor without possession has no equivalent absolute interest and cannot recover the full value merely to achieve symmetry.
5. The insurance payments did not have to be ignored under the usual principle stated in Bradburn v Great Western Railway (1874) LR 10 Ex 1 and Parry v Cleaver [1970] AC 1. Reading the composite policy with the lease, GNER bore the financial risk, was obliged to repair or replace the carriages, and was ultimately indemnified. Payment to HSBC for the written-off carriages short-circuited GNER’s payment obligation; payment for repairs went to GNER. GNER’s liability to HSBC was discharged.
6. The claim consequently failed because HSBC had suffered no damage to its reversionary interest. Lord Justice Lloyd and the Chancellor agreed with Lord Justice Longmore.

• Court of Appeal (Civil Division): dismissed HSBC’s appeal from the High Court’s determination of the preliminary issue.
• High Court, Queen’s Bench Division (Commercial Court): David Steel J answered the second preliminary question in the negative and dismissed the claim: [2005] EWHC 403 (Comm).