It is a long established common law principle that economic losses, for example, loss of income, are recoverable where they are consequent upon damage to revenue earning property.  This principle was recently revisited in the Court of Appeal case of Conarken Group Ltd & Farrell Transport Ltd and Network Rail Infrastructure Ltd [2011] CA.

The employees of Conarken and Farrell caused damage to Network Rail's railway lines in the course of their employment as heavy goods vehicle drivers.  On both occasions the damage caused part closure of the railway.  

Network Rail claimed (1) the cost of repairs; and (2) damages calculated on the basis agreed in contracts between them and train operating companies (TOCs) which operate railway services using those lines.  The contracts set out agreed levels of financial loss which National Rail became liable to pay to the TOCs in the event of disruption. 

Both Conarken and Farrell admitted negligence and agreed to pay for repairs to the railway lines but disputed their liability for the losses suffered by Network Rail under its contracts with the TOCs.  Conarken and Farrell argued that had the TOCs, whose property had not been damaged, been claimants, they could not have recovered damages from them in tort and that the introduction of a contract between third parties should not change this position.

It was held at first instance and on appeal that the railway lines owned by Network Rail constituted revenue earning property and that it was plainly foreseeable that if the railway lines were damaged, Network Rail would suffer a loss of revenue.  It did not matter that a negligent driver, or the employer of that driver, knew nothing about the detailed arrangements between Network Rail and the TOCs.  Network Rail's losses were a direct consequence of physical damage and a type of loss that was reasonable foreseeable. 

This case reaffirms the position that pure economic loss is not recoverable unless it is incurred as a consequence of physical loss.  However, it stretches our understanding of what is meant by consequential loss.  Some may consider that the economic loss recovered by Network Rail was too remote and that it should not have been recoverable.