England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Hon Mr Justice David Steel
[2005] EWHC 403 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		25th November 2005

Lord Justice Longmore:

1. Introduction

English law has traditionally regarded both the tort of wrongful interference with goods (whether by way of trespass or conversion to use now old-fashioned terms) and the tort of negligent damage to goods as being torts which infringe the possession or right to possession of goods. Thus in Gordon v Harper (1796) 7 TR 9, where the claimants had let a house and furniture to a tenant and the furniture had been taken by the sheriff in execution before the lease had expired, it was held that the claimant could not sue because during the lease he had no possession or right to possession of the furniture. The corollary of the rule was that since the bailee of goods was the only person with the right to sue, he was under an obligation to account to the true owner. In The Winkfield [1902] P 42, which decided that the bailee could recover the full value of the goods (but was obliged to account for that value to his bailor) even though he was not contractually liable to his bailor for loss or damage to the goods, Sir Richard Henn Collins MR referred to the fact that originally only the bailee could sue but added (page 58):-

"though afterwards by an extension, not perhaps quite logical, the right to sue was conceded to the bailor also".

It is the ambit of this "not quite logical" extension that is at the heart of this appeal, which concerns carriages which were owned by HSBC Rail (UK) Ltd ("HSBC"), leased to Great North Eastern Railway Ltd ("GNER") and damaged as a result of the train derailment at the Welham Curve near Hatfield on 17th October 2000.

2. The Facts

The facts are admirably set out by the judge and I can repeat them in almost his own words. HSBC was the owner of the derailed rolling stock. This rolling stock was being operated by GNER under a lease from HSBC entitled the Master Operating Lease Agreement ("MOLA") dated 14th March 1995, as amended in October 1996.

3. The Defendant ("Network Rail") was the owner and operator of the railway track infrastructure pursuant to a licence granted under the Railways Act 1993. As a Train Operating Company ("TOC"), GNER was permitted by Network Rail to use the country's railway infrastructure. The contractual arrangement between GNER and Network Rail was contained in various agreements including a Track Access Agreement ("TAA") and a Claims Allocation and Handling Agreement ("CAHA").
4. Mr Andrew Gilbert, a partner in the firm of Kennedys, who was formerly Head of Litigation at the British Railways Board from 1993 to 1995, gave evidence about the background to CAHA. He outlined the arrangements for privatisation of the railway system, including the allocation of the infrastructure to Railtrack (later Network Rail) and the transfer of passenger train operations to TOCs. Ownership of the rolling stock was made over to Rolling Stock Companies ("Roscos") one of which HSBC was in due course to become.
5. CAHA grew out of concerns on the part of the Department of Transport that, following privatisation, third parties would have difficulty in identifying the appropriate defendant to any claim, industry parties might attempt to avoid liability by blaming each other and litigation could thereby increase and become prolonged.
6. CAHA therefore made arrangements for a third party claimant to deal with a "Lead Party" on behalf of all "potentially liable industry partners" (i.e. parties to CAHA) under a contractual ADR system. Also included in CAHA were limitation provisions. Clause 16 established a cap of £5 million on the aggregate net sum payable for property damage by any parties to CAHA who were liable for the relevant loss.
7. However, since the Roscos merely leased the rolling stock to the TOCs, they were not involved in operating any train, station or other property. Therefore they were not obliged to obtain any licence from the Rail Regulator under Section 6 of the Railways Act 1993. It followed that there was no statutory power to require Roscos to enter into agreements on regulated terms with other industry parties. In the result, Roscos, such as HSBC, were not parties to CAHA.
8. The crash at the Welham Curve occurred because one of the rails carrying the northbound express shattered, derailing the train. Some four passengers were killed and dozens more were injured. Two coaches were damaged beyond economic repair, their written off value being £1,420,516.67. The remaining coaches were damaged and repaired at a cost of £3,823,659.55.
9. HSBC's case against Network Rail in these proceedings was pleaded in negligence. HSBC contended that Network Rail was well aware of the dangerous condition of the rail (attributable to gauge corner cracking) but had failed to replace the rail or take any other step to reduce the danger. Network Rail has admitted liability for the purpose of these proceedings.
10. As regards the terms of the MOLA, the position was as follows. By virtue of Clause 4.2, GNER assumed all risk of loss, damage or destruction of the rolling stock from any cause whatsoever. Consistent with that, Clause 5.9 provided that GNER's obligation to pay rent was to continue despite such loss or damage. Clause 11.1(b) dealt with events of loss (including actual or constructive total loss). It provided that, in the event of a total loss, GNER was obliged to pay HSBC the "Agreed Value". This was defined as being represented by the projected replacement value for insurance purposes. This agreed value was payable within 120 days after the event of loss or upon receipt of insurance proceeds whichever was the earlier. Upon such payment, GNER then had the option of acquiring HSBC's interest in the rolling stock and the lease of the lost rolling stock would terminate. The question of repair was covered by paragraph 7(b)(iii) of Schedule 3 of the MOLA. GNER undertook liability to repair any rolling stock which was accidentally damaged (unless HSBC elected to do so themselves).
11. The position as regards insurance cover was set out in Schedule 5 of MOLA. All risks property insurance was to be taken out in the names of both HSBC and GNER for their respective rights and interests. Pursuant to paragraph 7(a) of Schedule 5 Part 1, any proceeds payable as a result of a total loss were to be paid to HSBC and "applied by [HSBC] in discharging [GNER's] outstanding obligation under clause 11.1 (b)". This was subject to a proviso that if GNER had already paid the agreed value, the proceeds were to be applied by way of rebate of rent.
12. The joint material damage insurers were St. Paul International Insurance Company Limited ("St Paul"), on terms which I can most usefully set out in the part of this judgment which deals with insurance. As regards the two coaches that were not worth repairing and were thus constructive total losses, St Paul made payments (less the deductible) to HSBC at the joint request of HSBC and GNER "as GNER's insurers", to quote the judge. The deductible was thereafter paid by GNER direct, following which HSBC acknowledged that rental was no longer payable.
13. Arrangements for repair were made by GNER following issue of GNER's purchase orders. On completion, GNER was invoiced by the manufacturers and duly paid them. Following approval by the loss adjusters, reimbursement of those payments was duly made by St Paul to GNER.
14. Initially St Paul sought to recover these sums from Network Rail in the name of GNER and, in March 2004, GNER commenced arbitration proceedings against Network Rail under the terms of the TAA. In its defence, Network Rail admitted liability but relied on the provisions limiting liability to an aggregate sum of £5 million. St Paul in purporting to exercise its rights of subrogation in the name of GNER were also faced with a plea by Network Rail that the primary responsibility for the damage fell on two maintenance contractors who were also parties to CAHA and thus liable to contribute to the £5 million limit. St Paul then sought and has apparently obtained a stay of the arbitration proceedings pending trial of the present proceedings which were issued in June 2004, this time in the name of HSBC. The convenience of HSBC as bailor being able to sue for substantial damages (if they are entitled so to do) is that, in such an action, the contractual limitation clause may be neatly side-stepped.
15. Proceedings Below

On 19th October 2004 Cooke J ordered the trial of preliminary issues in this action: -

"a) Whether the Claimant is the owner of the Rolling Stock

and

b) subject to an assessment of quantum, whether the Claimant is entitled to recover the loss and damage claimed."

16. There is no longer any controversy about the first issue. The judgment below was solely concerned with the second. HSBC's basic contention was and is that, despite only having a reversionary interest in the carriages, it was entitled to recover the repair costs and the full value of the lost coaches. Network Rail, in contrast, contended that as reversioner, HSBC was only entitled to recover in respect of any permanent injury to its reversionary interest and no such injury has occurred. It is common ground that the lease of the rolling stock was for a term of 8 years. During that term, GNER had possession of the carriages. HSBC, as owner and bailor of the carriages, had no immediate right to possession, merely a proprietary interest in the reversion. David Steel J held that Network Rail's contention was correct, answered question (b) in the negative and dismissed the claim. His reasons for so holding were:-

(1) that a lessor or bailor of chattels, who was not entitled to possession during the term of the lease, could only sue for damage to his reversionary interest;

(2) that damage was essential to the tort of negligence and that unless there was damage to the reversionary interest no action would lie;

(3) that there could be no damage to the reversionary interest unless there was permanent damage to the chattel;

(4) any damage which could not be remedied would constitute permanent damage;

(5) any damage which could be remedied but was not going to be remedied would likewise constitute such permanent damage;

(6) where the subject of complaint is remedied or renewed during the term, the lessor or bailor cannot sue;

(7) on the facts, the carriages had been repaired or HSBC had been compensated for their value so no cause of action accrued and HSBC could not, therefore, recover;

(8) the fact that the source of the repair and compensation was insurance monies made no difference to that conclusion.

17. Contentions of the Parties

Mr Butcher QC for HSBC accepted that HSBC was not in possession of nor had a right to possession of the carriages and thus had to show there was permanent damage to the carriages but submitted that the judge's conclusion was wrong because:-

(1) HSBC as the owner of the carriages nevertheless had a right to sue Network Rail in tort for negligence since the carriages had themselves suffered permanent damage;

(2) the fact that the carriages which were economically repairable had been repaired by the time of trial and HSBC had been compensated for those that were economically unrepairable did not mean that they had not suffered permanent damage. Permanent damage to the carriages itself was sufficient to entitle HSBC to sue for damages; there did not have to be permanent damage to the reversionary interest, if that was something different;

(3) there could, in any event, be no more permanent damage than damage which caused two of the carriages to be completely written off;

(4) unless damage to the carriages constituted damage which entitled the owner to sue, it would be impossible to say when any cause of action accrued to the owner;

(5) if any claim was only defeated by the fact of repair and compensation, the cost of that repair and compensation had been paid to HSBC pursuant to the terms of an insurance policy which had insured HSBC in respect of its interest and should therefore be ignored.

18. Mr Crane QC for Railtrack supported the judge for the reasons he had given. He accepted that HSBC was the bailor as well as the lessor of the carriages to GNER but submitted that it was a bailor who was neither in possession of the carriages nor did it have the right to possession. In those circumstances HSBC had to show permanent damage to their reversionary interest not just damage to the carriages. This HSBC could not do if it had been fully compensated by being paid the value of the lost coaches and by repair of the repairable coaches.
19. Development of the right of suit on the part of a bailor not in possession

This is traced in a valuable article by Professor Andrew Tettenborn, an editor of the current (18th) edition of Clerk and Lindsell on Torts and, in particular, chapter 14 on wrongful interference with goods. This article is to be found in [1994] CLJ 326 and is entitled "Reversionary Damage to Chattels". He makes the point that the courts had fashioned a remedy in favour of the reversioner in respect of trespass to land and nuisance in respect of damage that was likely to affect the lessor if and when he recovered possession; he then says that an analogous remedy was awarded in respect of damage to chattels with, no doubt, the position of the reversioner of land being in the minds of the judges, see page 328 and note 24 in particular. This is shown by a series of cases starting with Hall v Pickard (1812) 3 Camp 187, going though Tancred v Allgood (1859) 4 H&N 438 and culminating in Mears v London and South Western Railway Co (1862) 11 CBNS 850, establishing that a reversionary owner of chattels can sue a negligent wrongdoer if there is permanent damage to his reversionary interest. What constitutes such permanent damage is, however, debatable.

20. Unsurprisingly most of the authorities that analyse the concept of "permanent damage" or "damage to the reversion" are cases of leases of land. In such cases there cannot be permanent injury in the sense of the land itself being lost although no doubt the removal of trees which have been cut down or the abstraction of soil can constitute a loss of part of the land. Such cases will be regarded as damage to the reversion. So also will causing water to flow over the land or an obstruction of light because it will be assumed the water or the obstruction will remain unless stopped or otherwise remedied and thereby an easement for the flow of water may be acquired or a right of light defeated, see Simpson v Savage (1856) 1 CBNS 347, 361 per Cresswell J, sitting with Williams J and Crowder J (see page 325) and Metropolitan Association for Improving the Dwellings of the Industrious Classes v Petch (1858) 5 CBNS 504 per Cockburn CJ, Williams, Willes and Byles JJ, followed in Mayfair Property Co v Johnston [1894] 1 Ch 508 and Jones v Llanrwst UDC [1911] 1 Ch 393.
21. Mears v London and South Western Railway Co (1862) 11 CBNS 850 was, however, a case of damage to a bailed chattel. The case turned on a pleading point. The declaration pleaded that the plaintiff owned a barge "let to hire" to a bailee, a Mr Scott Russell, who had possession, the reversion being in the plaintiff. The defendants were unloading a boiler from the barge but carelessly dropped it into the barge "and greatly damaged and injured the same; whereby the plaintiff had been deprived of the use of his said barge for a long space of time". The defendants demurred and Mr Milward in support of the demurrer submitted that an owner of a chattel had no cause of action for injury to that chattel while it was out of his possession. Williams J observed that previous authorities in relation to chattels had been considered in Tancred v Allgood where it was held that such an action did exist if the owner had sustained damages by way of a permanent injury. Mr Milward then shifted his ground to say that the declaration did not show any permanent damage: "non constat that Scott Russell would not have repaired the barge". Erle CJ said the owner had the right to sue, since Tancred v Allgood had by implication decided that action for a permanent injury to a chattel could be maintained. Williams J said that, in the course of a gratuitous bailment either the bailor or the bailee could sue and that although, in the case of a hiring for reward, the owner could not bring trover because he had parted with possession, it had never been doubted that the owner could bring an action against a person whose wrongful act had caused a permanent injury. Presumably the fact that Scott Russell might repair the barge in the future was nothing to the point. Unrepaired, the alleged damage was permanent. The rest of the court (which probably included Willes J, see page 805) concurred.
22. These authorities, together with Transcontainer Express Ltd v Custodian Security Ltd [1988] 1 Lloyds Rep 128, 137, justify the proposition in Clerk and Lindsell Torts (18th ed) para. 14-143:-

"The action for reversionary injury lies, it is suggested, in respect of any act which would, but for the problem of the claimant's lack of title to sue, amount to [trespass] negligence [or conversion], provided it has the effect of depriving him either temporarily or permanently of the benefit of his reversionary interest whether because the goods are destroyed or seriously damaged or because they are wrongfully disposed of by a transaction whereby the disponee acquires a good title, so preventing recovery of them. But actual damage is necessary . . ."

In this case there is no doubt that the carriages were destroyed or seriously damaged. The cases do not, however, assist much or at all on the amount of damages which the owner is entitled to recover. In both Mears and Dee Trading Co v Baldwin [1938] VLR 173, a case from the state of Victoria to which we were also referred, the chattel had not been repaired at the time when the action was brought. As I see it, the real problem in this appeal is to assess the damages to which HSBC is entitled.

23. HSBC's Loss

It is trite law that a claimant cannot sue in negligence unless he has suffered damage and can then only recover to the extent that he has been damnified. Apart from well-established exceptions (like that of the bailee as settled in The Winkfield) he can recover only for loss that he has suffered not for loss that somebody else has suffered. The appropriate measure of damage is

"that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation" see Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39 per Lord Blackburn.

If one ignores insurance for the moment, the position in the present case is that HSBC has been paid the full value of the carriages which were beyond repair and the repairable carriages have been repaired. In these circumstances whatever may have been the position shortly after the derailment occurred HSBC is now not out of pocket in any way and, on ordinary principles, has suffered no loss and can make no recovery.

24. It is true that there are exceptions to this principle. Most of the exceptions occur in the law of contract in cases in which the contract (although not a contract of agency) can be regarded as a contract made for the benefit of persons other than the contracting party. These exceptions are considered by Lord Diplock in his speech in The Albazero [1977] AC 774, 846C-847F in which he said, however, that the particular exception he was considering (viz the right of a consignor to recover damages from the carrier even when he had been paid for the goods) "should not be extended beyond what is justified by its rationale". Even fewer exceptions in a mercantile context exist in tort; the primary exception is that of The Winkfield which decided that a bailee in possession, or with the immediate right to possession, can sue for the full value of the goods, even if he is not liable to the true owner.
25. But HSBC can cite no authority in support of their proposition that a goods-owner without possession, or the immediate right to possession, can recover the value of the goods even where he has been compensated by his bailee. In both The Charlotte [1908] P 206 and Obestain v National Mineral Development Co [1987] 1 Lloyds Rep 465 the claimants were goods-owners with the right to possession at the time of the loss. It was held that they could recover the value of the goods even though they had been paid by the persons to whom the goods had been sold. Normally of course ownership carries with it the right to possession and thus the right to sue for full value but Hobhouse J put the law correctly in the latter case when he said (page 468):-

"It has long been settled law that the owner of goods is entitled to sue and recover damages in respect of loss or damage to those goods. The only qualification is that, if he is suing in tort, his claim may be defeated if his title was a bare proprietary one and did not include any right to possession of the goods."

In the present case HSBC's right during the term of the lease of the carriages can only be described as a "bare proprietary right" since it did not carry with it any right to possession. In these circumstances, as Mance LJ observed in East West Corporation v DKBS A/S [2003] QB 1509, 1528 para 31, the owner's reversionary claim has stricter preconditions than a possessory claim viz.

"the requirement for proof of actual and permanent injury to the reversionary proprietary interest."

In the present case there was actual injury but once the owner was compensated it was not permanent.

26. Other cases where a goods owner without possession has been entitled to sue a tortfeasor in negligence do not assist. If Mrs Morris had recovered her fur in Morris v Martin [1966] 1 QB 716 or if she had been compensated for its loss by the first bailee, she would have had no claim against the actual cleaner. Similarly, if the hirer of the vehicle in Dee Trading v Baldwin had paid to the finance company the outstanding instalments and the cost of repair of the car, the finance company as owner would have had no claim (and no reason to claim) against the tortfeasor.
27. HSBC also sought to rely on the paragraph from Professor Tettenborn's article cited by the judge. It is not necessary to set it out, but it can be summarised by saying that a plaintiff goods-owner can generally recover the cost of repairs from a tortfeasor even if he can require the repair to be done by somebody else, eg his bailee. That is, no doubt, true but Professor Tettenborn does not say that the owner can recover the cost of repair even where the bailee has, in fact, repaired the goods. When, moreover, Professor Tettenborn comes to discuss in general the measure of damages to which the goods-owner is entitled, he does appear to contemplate that a claim to damage by a reversionary owner depends "on proved loss".
28. Mr Butcher further submitted that if the bailee in possession can sue for the full value of the goods and can be accountable to the owner to the extent that he (the bailee) has suffered no loss, it would be a modest and sensible extension of the law to grant the bailor/owner of the goods a similar right to sue for the value of the goods, likewise being accountable to his bailee to the extent that the loss is that of the bailee. The law would then have a pleasing symmetry.
29. Attractively as the argument was deployed, I cannot accept it. The reason why the bailee can recover the full value of goods from a tortfeasor who damages or destroys them is, as Collins MR put it in The Winkfield (page 60):-

"As between bailee and stranger possession gives title – that is not a limited interest but absolute and complete ownership, and he is entitled to receive back a complete equivalent for the whole loss or deterioration of the thing itself."

By contrast the bailor who does not have possession (or the immediate right to possession) does only have a limited interest and he has no other quality which can give him absolute and complete ownership. It would thus be anomalous to give a bailor with a limited interest the right to recover the full value of the goods. In cases where the bailor has not been compensated (eg because his bailee is unwilling or unable to repair or replace the goods) the bailor will have suffered a real loss and will be compensated accordingly. So also if a lessor has to forgo rent as in Ehmler v Hall [1993] 1 EGLR 137. There is, however, just no need for a bailor or lessor to be compensated if the goods have been repaired or replaced and he has suffered no loss. The limitation or exception clause in his contract with the tortfeasor which a bailee wishes to avoid is no part of the bailor's loss.

30. I would therefore reject HSBC's contention that it is entitled to recover the value of the unrepairable carriages and the cost of repairing the carriages which have been repaired; that is because HSBC's reversionary interest has, as matter of fact, not been damaged. To that extent I would uphold the decision of the judge not because no cause of action ever accrued but because, apart from insurance considerations, HSBC has, in fact, suffered no loss. It is, therefore, necessary to turn to HSBC's alternative contention that the only reason why they have suffered no loss is that they have been compensated by insurance which must, in accordance with Bradburn v Great Western Railway (1874) LR 10 Ex 1 and Parry v Cleaver [1970] AC 1, be left out of account. That necessitates looking at the insurance position more closely.
31. Insurance

The relevant insurance policy contained an All Risks section and a Third Party Risks section. It was under the All Risks section that a claim was made. The Schedule to the policy gave the period of insurance as being from 13th August 2000 to 12th August 2001 and described the Insured as being

(i) GNER

(ii) "Any company or person which is the holder of an interest in the Property insured . . . ."

and (iii) Angel Trains Ltd HSBC (Rail) Ltd each a "Rosco"

"for their respective rights and interests".

The Property Insured was defined as meaning "passenger rolling stock the property of the Roscos or leased by the Roscos or for which the Roscos are responsible" and the Insuring Clause provided:-

"In the event of accidental loss destruction of or damage to the Property Insured . . . the Insurers will pay to the insured the Value of the Property Insured as set out in the General Conditions of this Policy"

32. General Conditions 1, 18 and 20 are potentially relevant. They provide:-

"1 Indemnity (up to 9 years)

The basis upon which the indemnity for Property Insured by this Policy is calculated in the event that DAMAGE occurs within 8 years 364 days from the completion of Manufacture of Property Insured is as follows:-

(i) in the event of loss or destruction the value of the Property Insured is (b) below and

(ii) in the event of damage the amount of the damage is the lesser of (a) and (b) below

(a) the actual cost of repair plus in so far as this Policy provides due allowance for the additional cost of Reinstatement to comply with statutory and mandatory requirements

or

(b) the Replacement Value of the Vehicle or its equivalent as set forward in Appendix 3 to this Policy plus additional allowances for inflation during the period of the policy and order and rebuild period of up to 30% of such Replacement Value. Should the Insured be entitled to Replacement Value under this clause 1(b) the Roscos with title to or responsibility for the Property Insured suffering DAMAGE may elect to receive the Cash Value of such Property Insured."

Replacement Value is then defined as :-

"the cost of replacing a Vehicle or Unit with the same or similar type or its equivalent at the values set out in Appendix 3 . . ."

"18 Severable Interests

This Contract shall be treated in all respects save as to average as though it were a separate divisible contract in respect of each Insured to the extent of that Insured's interest in the Property Insured subject to The Insurers liability not being increased thereby. Except to the extent that any Insured knew or ought reasonably to have known (but did not disclose to Insurers) of any representation misrepresentation disclosure non-disclosure or any other act omission or error whatsoever or any breach of duty or obligation or any breach of duty or obligation or terms or conditions of this policy by any other Insured none of the above acts or omissions by one Insured shall affect the rights of any other Insured under its distinct and severable contract of Insurance."

"20 Loss Payee

The Insurers shall indemnify the Rosco having title to the Property Insured at the time of the loss or if no Rosco holds title the Rosco responsible for the Property Insured at the time of the loss except that

(a) where such Rosco has provided The Insurers with notice in writing to pay any other Insured under this Policy payment shall be in accordance with such notice

(b) where indemnity of £25,000 or less is due as a result of a repair instituted by a train Operating company such indemnity shall be made to the Train Operating Company instituting such repair.

Payment in accordance with this clause shall be a full satisfaction against all of The Insureds of the amount so paid."

33. In the light of these conditions and what actually happened when St Paul (1) paid HSBC the replacement value of the carriages which could not be economically repaired and (2) settled the repair invoices as described earlier, Mr Butcher submitted that HSBC was indemnified as to its respective right and interest under the policy and that such insurance payment should, therefore, be disregarded by the court.
34. If one looks at the matter apart from authority this is an odd conclusion. While it is true that HSBC was the owner of the carriages and thus had an "interest" in not being deprived of that ownership, it was not in any real sense the party at risk in the transaction. By the terms of the MOLA, rental for the carriages was payable by GNER even if they were being repaired or were not otherwise in use; moreover GNER was obliged to replace the carriages if they were destroyed or pay their replacement value and were also obliged to repair the carriages if they needed repair. The financial risk was, therefore, all upon GNER rather than HSBC provided, at any rate, that GNER was solvent. It is, therefore, unrealistic to regard an insurance policy which insures the respective rights and liabilities of both HSBC and GNER as indemnifying HSBC rather than GNER. One can test the matter in this way; if insurers were indemnifying HSBC and only HSBC they would presumably, on payment, be subrogated to HSBC's rights under the MOLA against GNER; would insurers in the name of HSBC then be able to sue GNER if GNER had not paid the replacement value or the costs of repair? The answer is: of course not. GNER would be able to defend any such proceedings by saying that they were themselves insured under the self same policy as HSBC, that its liability to HSBC was just as much a "respective right and interest" under that policy and that the very insurers who were suing it in the name of HSBC would have to meet their own claim, see Petrofina v Magnaload [1984] 1 QB 127 and MacGillivray, Insurance Law 10th ed, paras 22-97 to 22-100.
35. Mr Butcher took us carefully through the relevant clauses of MOLA, as well as of the insurance. He emphasised the fact that under Schedule 5 of MOLA it was for the lessor (HSBC) to take out All Risks Property Insurance and for the lessee (GNER) to take out Third Party Liability Insurance. Clause 7 of paragraph 7 of Part I of Schedule 5 then provided that as between lessor and lessee all insurance proceeds received as a result of an "Event of Loss" (defined) were to be paid to the lessor and applied by it in discharging the lessee's obligations as to payment of the Agreed Value and liability to repair, all as set out in paragraph 26 of his skeleton argument. He reminded us of the Loss Payee Clause and then took us through the mechanics of payment under the insurance. As set out in paragraphs 12 and 13 above, GNER and HSBC made a joint request that the insurance monies in respect of the carriages which were write-offs should be paid to HSBC. Payment (minus the deductible) was made to HSBC who signed a receipt. HSBC invoiced GNER for the deductible and GNER paid it to HSBC. The other carriages were repaired by contractors who invoiced GNER for the cost. The adjusters, instructed by insurers, recommended insurers to make payment to GNER and insurers did so.
36. The legal significance of what happened against the background of the MOLA and the insurance policy is that GNER's liability to HSBC to the MOLA was discharged. The party who was liable ultimately to pick up the bill for the damaged coaches was GNER; it was GNER who suffered the real loss and was indemnified by insurers in respect of that loss. It is true that, under the composite insurance policy, HSBC had its own claim for its own interest and could say that it had, as lessor, "lost" the value of the coaches in one sense but the reason why it was paid for the written off coaches was merely to short-circuit the process whereby, if insurers had paid GNER, GNER would have had to pay the self-same sum to HSBC. As far as the repaired coaches were concerned, the money went only to GNER and never got to HSBC although HSBC had, as it was entitled to do, the benefit of the repair of the coaches so far as concerned it. Since rental was payable in any event it was not, in the event, concerned at all.
37. In these circumstances, I do not see how the judge can be criticised for saying that the assured who sustained the loss was GNER and that GNER was duly indemnified by insurers. Whether the judge was also right to say that HSBC had no valid claim against insurers is more debatable and, anyway, irrelevant. My own view is that, if it never acquired the value of the written-off coaches or if it had itself incurred the cost of repair, it might well have a claim but the whole point of a composite policy for the parties "respective rights and interests" is that that point does not need to be tested. The parties together make a claim and the resulting insurance money is dealt with pursuant to the contractual position between them – a matter with which insurers are not (and do not want to be) concerned. General Accident v Midland Bank [1940] 2 KB 388 which was cited to us at some length does not touch this problem, although it does show that there can be circumstances (eg fraud) where insurers may indeed for their own purposes wish to unravel the separate rights and interests of their insured.
38. The reality of this case is that HSBC, as lessor, has, in the event, suffered no damage to its reversionary interest because GNER has fully indemnified it, not because it has been indemnified by insurance. As the judge rightly held, the claim must fail. I would therefore dismiss this appeal.

Lord Justice Lloyd:

39. I agree.

The Chancellor:

40. I also agree.