Shell UK Ltd and others v Total UK Ltd and another-Duty of Care owed to Beneficial Owners

A recent Court of Appeal decision has addressed the question of liability for economic loss where the claimant is the beneficial owner of property damaged or destroyed due to negligence.

A summary of the Court of Appeal judgment and its implications is set out below. To read the full judgment, please click here

The case arose in respect of a series of fires and explosions occurring on 11th December 2005 at the Buncefield Oil Terminal. This incident was well documented in the media and a substantial number of claims for compensation were brought by numerous claimants against Total Downstream UK PLC, Total UK Limited ("Total") and Hertfordshire Oil Storage Limited, a company jointly owned by Total and Chevron Limited ("Chevron").

The disaster was caused by the negligent overfilling of a fuel storage tank located at one of the three sites that comprosed the Oil Terminal. This lead to the creation of a large hydrocarbon rich vapour cloud which ignited causing widespread damage to property in and around the Oil Terminal.

This particular case related to significant damage caused to tanks and pipelines through which Shell UK Limited ("Shell") distributed its oil. The legal title to the tanks and pipelines was vested in "vehicle" companies, which had been set up to hold the property on trust for Shell and others. The vehicle companies were non-trading companies and had no employees, made no profits and did not declare dividends or hold assets on their balance sheets (other than £200 of issued share capital). Shell was, with others, the holder of a beneficial ownership interest in the tanks and pipelines at the time of the incident whilst also being one of the shareholders of the aforementioned vehicle companies along with, BP, Total and Chevron. Shell also owned oil flowing through the property.

Whilst Total accepted liability for the damage and destruction of Shell-owned property (i.e. the oil) due to its negligence, it disputed that it should be liable for any loss of profit flowing from the destruction or damage to the tanks and pipelines which were legally owned by the vehicle companies. In doing this, it relied upon what it described as "the rule recognised by many authorities" that only a legal owner or someone with an immediate right to possession of property has the right to claim damages for economic loss which is the consequence of damage to such property. Shell's actual loss following the incident arose through its inability to supply...