Network Rail Infrastructure Ltd v Conarken Group Ltd

The Court of Appeal considered whether owners of railway infrastructure (Network Rail) could recover from negligent road hauliers sums which Network Rail had become contractually liable to pay to train operating companies under Track Access Agreements (notably sums calculated under Schedule 8). The central legal principles were the ordinary tort requirements of causation and remoteness, the scope of the defendant's duty and foreseeability.

The court held that contractual allocation between Network Rail and TOCs does not automatically bind a third‑party tortfeasor, but that the relevant losses here were a direct consequence of physical damage and were not too remote. Applying the established tests (Wagon Mound, Caparo, Kuwait Airways and related authorities) the court concluded that both the societal rate component and the marginal revenue effect (MRE) component of Schedule 8 were within the scope of the defendants’ duty and were reasonably foreseeable. The appeal was dismissed.

Background and parties: The appellants (Conarken Group Limited and Farrell Transport Limited) appealed against a Technology and Construction Court judgment awarding Network Rail damages for physical damage to railway infrastructure caused by negligent driving. The cases were treated as test cases: one (Howden) involved damage to a bridge parapet and track closure for five days; the other (Newark/Bathley Lane) involved detachment of overhead electric cables and disruption of the East Coast Main Line for several hours.

Nature of the claim: Network Rail sought, in addition to repair costs, recovery of sums it had to pay to TOCs under Track Access Agreements (Schedule 8 payments). These Schedule 8 payments comprised two key elements: the marginal revenue effect (MRE) (a forecast of future fare losses) and the societal rate (a contractual rate reflecting franchise performance penalties).

Procedural posture: This was an appeal to the Court of Appeal from Akenhead J in the TCC (see [2010] EWHC 1852 (TCC)). The judge below had awarded the Schedule 8 sums; the Court of Appeal heard argument on whether such contractual payments were recoverable from tortfeasors.

Issues:

• Whether the existence of a contractual mechanism between Network Rail and TOCs (Schedule 8) bound the tortfeasor to meet the sums assessed by that mechanism;
• Whether the type and quantification of loss represented by the societal rate and MRE were within the scope of the appellants’ duty of care and not too remote.

Reasoning: The court reviewed authorities on causation, foreseeability and remoteness and accepted that loss consequential on physical damage can be recovered, subject to policy limits. It rejected any rule that the mere presence of a contract between the victim and a third party automatically fixes the extent of a tortfeasor's liability. The correct approach requires ordinary tort analysis: assessment of scope of duty, foreseeability and remoteness, and a value judgment about what losses the defendant ought to bear. The court examined the nature of Schedule 8, the methodology behind MRE and the societal rate, and found both elements to be reasonable assessments of likely losses. It was satisfied that it was reasonably foreseeable that damage to Network Rail’s apparatus would reduce the availability/value of services and that the franchising regime would impose contractual consequences on TOCs which in turn would give rise to a contractual liability of Network Rail. The court therefore treated Network Rail’s liability under the Track Access Agreements as a direct consequence of the physical damage for which the tortfeasors could properly be held liable.

Result: The Court of Appeal concluded that both the societal rate and MRE components were recoverable from the appellants and dismissed the appeal.

Appeal dismissed. The court held that, although a contractual allocation between Network Rail and train operating companies does not automatically fix the extent of a tortfeasor's liability, the Schedule 8 sums (including the societal rate and the MRE component) were a direct and reasonably foreseeable consequence of physical damage to Network Rail’s infrastructure and were not too remote; accordingly the appellants were liable to pay those components.

Appeal to the Court of Appeal from the Technology and Construction Court, Queen's Bench Division (Akenhead J), reported as [2010] EWHC 1852 (TCC); this Court gave judgment at [2011] EWCA Civ 644.