Conarken Group Ltd & Anor v Network Rail Infrastructure Ltd (Rev 1)

Economic loss flowing directly and foreseeably from physical damage to revenue-generating property is recoverable in negligence. It includes revenue lost because the property cannot be made available to third parties. The tortfeasor need foresee only the general kind of loss, not the claimant’s detailed contractual arrangements or method of calculation.

A contract with a third party does not itself determine a tortfeasor’s liability. Ordinary principles concerning scope of duty and remoteness remain applicable. A genuine and reasonable contractual assessment of losses caused by the property’s unavailability may, however, establish the claimant’s recoverable loss. Detailed examination will ordinarily be unnecessary unless the arrangements contain an exceptional or obviously unreasonable feature.

The appellants’ drivers negligently damaged railway bridges, track and electrical infrastructure owned by Network Rail. The damage closed or disrupted railway lines. Repair costs were admitted, but Network Rail also claimed sums which it had become liable to pay train operating companies under Schedule 8 of its Track Access Agreements.

Schedule 8 calculated the commercial consequences of disruption through a marginal revenue effect, principally reflecting anticipated future loss of fares, and a societal rate linked to performance arrangements between train operators and the franchising authority. Akenhead J held that these payments were recoverable in [2010] EWHC 1852 (TCC).

The appeal concerned whether liability for the Schedule 8 payments fell within the scope of the appellants’ duty and was sufficiently foreseeable and proximate to the physical damage to be recoverable in negligence.

1. The appeal was dismissed unanimously. Network Rail’s Schedule 8 payments, including the marginal revenue effect and societal-rate components, were recoverable as economic loss consequent upon physical damage to revenue-generating property.

2. A duty to avoid physical damage to commercial property extends, subject to remoteness, to the cost of repair and revenue lost while the property is unavailable. A person damaging railway infrastructure can reasonably foresee that its owner will lose revenue. Detailed knowledge of the contractual arrangements through which the asset produces that revenue is unnecessary.

3. Per Pill LJ, a contract between the claimant and a third party cannot dictate the extent of a stranger’s tortious liability. Direct causation alone is insufficient. The court must apply ordinary principles concerning the scope of the duty, reasonable foreseeability and remoteness. The contractual heads and method of calculation may therefore require examination.

4. Per Moore-Bick LJ, the payments represented Network Rail’s own net loss of revenue rather than an indirect recovery of the train operators’ pure economic losses. Their contractual form was immaterial. It was accepted that Schedule 8 was a genuine and reasonable attempt to assess the commercial damage caused by the lines’ unavailability. The loss did not become too remote merely because it included compensation linked to future fares and performance penalties.

5. Per Jackson LJ, loss of income consequent upon damage to revenue-generating property is an established category of recoverable economic loss. Unless the claimant’s business arrangements contain an exceptional circumstance or an obviously unreasonable feature, the court should not undertake a detailed and expensive investigation of how such lost revenue was built up.

6. Future loss of business lies near the outer boundary of recoverability and depends on the circumstances and relationship between the parties. Here the marginal revenue effect was recoverable because it resulted from a genuine attempt to assess future loss of income caused by disruption. The societal-rate component was also foreseeable because diminution of railway services could reasonably be expected to attract performance consequences.

1. Court of Appeal (Civil Division): Dismissed the appeal and upheld the award of the Schedule 8 payments in [2011] EWCA Civ 644.
2. Technology and Construction Court: Akenhead J awarded Network Rail damages against both appellants, including the Schedule 8 payments, in [2010] EWHC 1852 (TCC).