In our June 2008 edition of Insurable Interest, we reported on a case involving a negligent motorist who collided with a tram. He paid for the repairs to the tram but denied liability to compensate Metrolink for the operational performance penalties it suffered as a result of the collision. The dispute was ultimately resolved by the Court of Appeal in a recent majority decision.

The question for the Court was whether the operational performance penalties were reasonably foreseeable from the point of view of the negligent motorist or whether they were too remote to be recoverable. Resolving this question is a two stage process which requires the Court to put the loss in question into a particular category and then to determine whether a reasonable person in the position of the defendant ought to have foreseen that there was a real risk of loss of that type occurring.

This dispute began in the Magistrates' Court where the operational performance penalty was categorised quite narrowly as being a 'reduction in benefit from a third party or an imposition of a penalty'. The Magistrate found that this category of loss could not reasonably have been foreseen by a reasonable person in the position of the negligent motorist.

The Court of Appeal found that the Magistrate's categorisation was too narrow and preferred a much broader category which it described as 'revenue lost as a result of an inability to operate the tram service'. The Court had no difficulty in finding that such a category of loss was foreseeable to a reasonable person in the position of the negligent motorist and therefore recoverable. The Court of Appeal noted that the operational performance penalty was in the same category as tram fares forgone as a result of a tram being damaged and delayed.

It was noted that if the type of loss in question is very unusual it might be appropriate to place it into a narrower category, but it did not accept that the operational performance penalty was so unusual. Although the loss arose from a highly complicated 433 page franchise agreement, the Court noted that in the modern world, complexity of contracts and financial incentives tied to key performance indicators are not uncommon. It does not matter that the complexities leading to the performance penalty were not reasonably foreseeable. It was sufficient that the negligent motorist ought to have foreseen that colliding with the tram might cause delays which might result in the tram operator losing revenue.

This is an important decision which sheds light on the correct approach to determining questions of foreseeability and remoteness. The preference for broader categories of loss will make foreseeability less of an obstacle, particularly for financial losses stemming from property damage. It is likely that plaintiffs will now be more ambitious in pursing complex financial losses which might previously have been regarded as too remote.