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 the observations which in our view are apt to be relied upon to wider effect.

  1. Making a contract does not confer a licence on the contracting parties to determine the extent of third party liability. Ordinary tortious (delictual) principles apply.
  2. Loss of future business as a result of damage to property may be recoverable; the question remains one of forseeability.

That losses would be sustained by Network Rail, where its apparatus was damaged, was reasonably foreseeable, said the court. The complexity of the arrangements governing the method by which that loss is calculated does not limit its recovery, in itself. Such an approach was not tantamount to conferring a licence or free reign on contracting parties to determine the extent of third party liability.

  1. One of the recognised categories of recoverable economic loss is loss of income following damage to revenue generating property.

Accordingly, where a claimant can demonstrate that the property damaged was 'revenue generating', a claim for economic loss may be on firmer ground.

In summary, quite separate from being a cautionary tale for negligent drivers, those working upon or in close proximity to, revenue generating property (in particular) should, in the absence of contract provisions limiting the same, be aware of the extent of the duties which may be placed upon them. Liability may well extend significantly beyond simple reinstatement costs. In contrast, those who sustain physical damage to their property should sensibly consider the extent and nature of the losses sustained with a view to exploring whether they may be recoverable in law.