Economic Loss Actions Still On Track

The law is the embodiment of common sense: or, at any rate, it should be. So said Lord Denning in S.C.M (United Kingdom) Ltd v. W.J. Whittall and Son Limited in 1970. A recent Court of Appeal decision in England has revisited the S.C.M case together with a myriad of other cases in connection with the extent of a person's duty of care in tort (delict in Scotland) and the limits on recoverability.

Facts

The case, Conarken Group Limited and Farrell Transport Limited v. Network Rail Infrastructure Limited, concerned two instances of negligent driving. In each instance Network Rail infrastructure was damaged and temporarily put out of use. As a result, certain train operating companies (TOC's) were also temporarily unable to operate their trains on the parts of the rail system affected. There were sophisticated agreements in place between the TOC's and Network Rail to regulate the use by the TOC's of the Network Rail infrastructure, under which Network Rail were contractually liable in damages to the TOC's (known as schedule 8 payments) in the event of unavailability of the track. In the first instance, the sum payable under schedule 8 was over £200,000; in the second instance the sum was over £1,000,000. In each instance, the affected track was out of use for 5 days, and about 7 hours, respectively.

It is settled law that where there has been physical damage to property, the direct and foreseeable economic losses flowing naturally from that physical damage may be recoverable in law. Even so, there is routinely much debate about how far such a general principle extends and the categories of economic loss so recoverable. The matter at issue in this case was whether economic loss of the type sustained by Network Rail under schedule 8 was recoverable and if so on what basis.

Under schedule 8, the majority of the loss was calculated by reference to the marginal revenue effect (MRE) that unavailability of track and/or disruptions to service, etc, might induce for the TOC's or Network Rail, through an assessment of, among other things, potential passenger fears and projected falling passenger demand. Conarken Group and Farrell Transport contended such an arrangement should not be binding, or instructive as to an assessment of the damages payable by them as a third party.

Decision & Comment

The Appeal Court upheld the decision of the trial judge and held that losses of the type sustained by Network Rail were recoverable. We have picked out three of...