ON APPEAL FROM QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
MR JUSTICE AKENHEAD
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MOORE-BICK
LORD JUSTICE JACKSON
| Conarken Group Limited and Farrell Transport Limited
|- and -
|Network Rail Infrastructure Limited
Jeffery Onions QC, David Drake and Alexander Polley (instructed by Hay & Kilner Solicitors) for the Respondents
Hearing dates : 5 & 6 April 2011
Crown Copyright ©
LORD JUSTICE PILL :
"The MRE is the estimated effect on the TOC's revenue of one minute of average lateness whilst the Societal Rate represents a payment rate per minute of average lateness in the context of the franchise performance regime between the TOC and the franchising authority."
We were told, as an indication of their relative importance, that of the very large sum paid to GNER following disruption of traffic on the ECML, 85% was MRE and 15% societal rate.
". . . The reality is that, under the law as it now stands and has stood for many years, these Defendants would never have been liable in negligence to the TOCs for those losses because no property of the TOCs was physically damaged. The losses would therefore never have been recoverable directly by the TOCs."
That finding is not challenged by the respondents. The introduction of a contractual entitlement in the TOCs, as between them and the respondents, does not necessarily create a liability in the appellants, it was submitted.
Loss on the day, MRE and the societal rate
". . . the amounts of those kinds of expenses are hugely relatively limited compared to a revenue loss. You can take 500 people going from London to Edinburgh and you are looking at £10,000, £20,000 worth of revenue on a train; if you have to hire a bus or two to get them there, it's pretty small beer."
"Most of the revenue lost from poor performance is therefore not suffered on the day in question. It is suffered in the future, as passengers affected by delays or cancellations (or indeed people who hear about experiences of delays and cancellations from others) are less likely to travel by rail in the future."
"He accepted that, although the MRE was unlikely to be perfect, it was the best available estimate of the effect of performance on passenger demand. He went on to consider the accuracy or reliability of the MRE in relation to the specific incident and explained, logically, that passengers are different. He described the "tipping point" at which an individual passenger's travelling behaviour begins to change compared with what it would have been if there had been no incident. One passenger might give up travelling on the railways as the result of one incident whilst, for another more hardened traveller, it might take 10 incidents spread over six months or a year."
The assessment depends, as Mr Bartlett QC for the appellants submitted, on potential customers being put off travelling by train by incidents such as this because of worries that they may recur.
"He concluded that the MRE component of the Schedule 8 payments was designed to compensate the TOC for loss of revenue although only a small proportion of this would relate to a loss of revenue on the day of the incident and most would be expected to occur in the future. He said that "the MRE reflects loss of revenue, loss of fares revenue gain by passengers to the operator". He also accepted that this loss of revenue is to a large extent predicated upon the perception of passengers in effect of the reliability of the rail service as affected by given and in particular the longer delays over and above the timetabled times. It is accepted even by the [appellants] that the MRE represents a genuine attempt based upon the findings of market research and economic forecasting methods to place a monetary value upon what is believed to be the commercial damage that may have been suffered by either or both the TOCs and Network Rail following delays to the rail service. The Societal Rate compensated TOCs for what they would have to pay the franchising authority; and there is no doubt that it relates to the TOCs' liability to the franchising authority (now the Department for Transport). This reflects incentives and disincentives imposed for policy and possibly political reasons."
"Franchise agreements will include a performance incentive regime . . . where the Franchising Director believes the market is too weak to motivate the relevant franchise operator to respond adequately to customer demands for a punctual and reliable train service."
Mr Angus said in evidence:
"societal rate, in terms of the incentive placed by the DFT onto train operators is not the – was not, to my knowledge, the subject of extensive consultation within the industry. That is simply a – that is not to say there isn't a lot of work and thought behind it, I don't think these figures were plucked out of the air, but again, it is a different sort of mechanism. What sets the franchise agreement is essentially a mixture of government policy, what it would like to achieve, how much it is willing to pay to achieve it, and the mechanisms by which it wants to achieve it, a financial incentive or not, for instance, and that is largely about, essentially, government policy aims and its intentioned budget and the commercial side in terms of a franchising competition."
Mr Angus also described its purpose:
"to sort of reflect the value or the sort of disbenefit – the disutility, an economist might say – that poor performance will have on commuters".
Authorities, submissions and discussion
"The second inquiry, although this is not always openly acknowledged by the courts, involves a value judgment (' .. ought to be held liable..'). Written large, the second inquiry concerns the extent of the loss for which the defendant ought fairly or reasonably or justly to be held liable (the epithets are interchangeable). To adapt the language of Jane Stapleton in her article 'Unpacking "Causation"' in Cane and Gardner (ed) Relating to Responsibility (2001), page 168, the inquiry is whether the plaintiff's harm or loss should be within the scope of the defendant's liability, given the reasons why the law has recognised the cause of action in question. The law has to set a limit to the causally connected losses for which a defendant is to be held responsible. In the ordinary language of lawyers, losses outside the limit may bear one of several labels. They may be described as too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause. The defendant's responsibility may be excluded because the plaintiff failed to mitigate his loss. Familiar principles, such as foreseeability, assist in promoting some consistency of general approach. These are guidelines, some more helpful than others, but they are never more than this."
"the chain of consequences is cut off as a matter of law, either because it is regarded as unreasonable to impose liability for that consequence of the breach (The Pegase  1 Lloyds Reports 175 Robert Goff J), or because the scope of the duty is limited so as to exclude it (Banque Bruxelles SA v. Eagle Star  AC 191), or because as a matter of commonsense the breach cannot be said to have caused the loss, although it may have provided the opportunity for it to occur (Galoo Ltd. V. Bright Grahame Murray  1 WLR 1360)."
"A duty of care such as the valuer owes does not however exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered."
Lord Hoffmann, at page 212B, cited the speech of Lord Bridge of Harwich in Caparo Industries Plc v Dickman  AC 605 at 627, which is cited below, at paragraph 30.
"It is irrelevant to consider what for instance the old British Rail, that is the organisation that historically owned the rail track and ran the train services before privatisation, would have been able to sue for. One needs to look at the position of Network Rail which only owns the rail track. The United Kingdom is one of a number of countries in the world which has moved from a nationalised and unified railway system to a privatised one. It would be unfortunate, at least, if the law was not able effectively to give redress to reflect the changed state of affairs of ownership and responsibility in relation to the organisation which owns the track (and bridges over and under it and level crossings). The law can give such redress consistently with established principle."
Equally, the respondents should not be better off by reason of the organisational change than British Rail would have been, Mr Bartlett submitted. They could not rely on the contract to establish a liability in tort against the appellants which would not otherwise have existed.
"It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless. 'The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and extent of any duty to avoid or prevent it.' see Sutherland Shire Council v. Heyman, 60 A.L.R. 1, 48, per Brennan J. Assuming for the purpose of the argument that the relationship between the auditor of a company and individual shareholders is of sufficient proximity to give rise to a duty of care, I do not understand how the scope of that duty can possibly extend beyond the protection of any individual shareholder from losses in the value of the shares which he holds. As a purchaser of additional shares in reliance on the auditor's report, he stands in no different position from any other investing member of the public to whom the auditor owes no duty."
"That is not to say that a plaintiff who suffers damage of some kind will succeed or fail in an action to recover damages according to his classification of the damage he suffered. The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and extent of any duty to avoid or prevent it."
"For it does not seem consonant with current ideas of justice or morality that for an act of negligence, however slight or venial, which results in some trivial foreseeable damage the actor should be liable for all consequences however unforeseeable and however grave, so long as they can be said to be 'direct'".
Foreseeability is the starting point but, as later cases show, other concepts are involved.
"He said that there was a prejudice against the locality by reason of the flood, and that this would cause the houses even when put into repair to command a less rental than they would otherwise have done. In my opinion that is not a legitimate ground for giving damages. It is not damage which is the natural result of nor directly caused by the flood. It is entirely different from injury to the structures of the houses . . ."
". . . it seems to follow that depreciation in the value of the surface owner's property brought about by the apprehension of future damage gives no cause of action by itself."
Lord Loreburn LC stated, at page 34, that depreciation in present value caused by the apprehension of future subsidence was not recoverable.
"But secondly, the damages to be awarded are to be reasonable, that is as between the plaintiff on the one hand and the defendant on the other."
"I do not see why in the realm above all of remedies the common law cannot mould its principles flexibly to the needs of the situation, and as so often the test of reasonableness lies to hand as a useful tool."
"I do not think it is fair, as against the defendants, to take the unusually high figure of the charter-party immediately following the delay and basing the calculation of loss on that figure. It seems to me that justice demands that the court should take an average of the voyages before and after in order to arrive at a representative figure for the earning capacity of the vessel at that period"
I find the case helpful only in that Brandon J applied a test of what "justice demands", which suggests the same "flexible" approach to issues such as the present as was adopted by Rix LJ in The Baltic Surveyor. In Governors of the Peabody Donation Fund v Sir Lindsay Parkinson Ltd & Ors  AC 210, Lord Keith of Kinkel stated, at page 241C:
"So in determining whether or not a duty of care of particular scope was incumbent upon a defendant it is material to take into consideration whether it is just and reasonable that it should be so."
"The sum which she paid, having regard to what she was to get was, on the evidence, reasonable. But she cannot claim [against the tortfeasor] the whole cost as the cost of mitigating the loss of the use of her car."
"It was argued that the appellant cannot recover because the damage which he suffered was of a kind which was not foreseeable. That was not the ground of judgment of the First Division or of the Lord Ordinary and the facts proved do not, in my judgment, support that argument. The appellant's injuries were mainly caused by burns, and it cannot be said that injuries from burns were unforeseeable. As a warning to traffic the workmen had set lighted red lamps round the tent which covered the manhole, and if boys did enter the dark tent it was very likely that they would take one of these lamps with them. If the lamp fell and broke it was not at all unlikely that the boy would be burned and the burns might well be serious. No doubt it was not to be expected that the injuries would be as serious as those which the appellant in fact sustained. But a defender is liable, although the damage may be a good deal greater in extent than was foreseeable. He can only escape liability if the damage can be regarded as differing in kind from what was foreseeable."
In Ehmler, a car showroom was out of use having been damaged by the defendant's van. The showroom had been let by the claimant to a third party. Physical damage and consequential financial loss were foreseeable. Nolan LJ stated, at page 139:
"That was enough, in my judgment, to make him liable in damage to whichever of those parties, under the contractual arrangements between them, in fact suffered from the particular loss for which damages are claimed."
Nolan LJ also warned against transplanting statements from Rust and "applying them to wholly different circumstances".
"The categorisation applied by the court should not be so narrow as to require foreseeability of the precise manner in which the particular injury came about or of its extent. The precise damage need not have been foreseen, and it is sufficient if damage of the same kind as occurred could have been foreseen in a general way."
"95. It is not always easy to discern the basis upon which the breadth of the relevant category is determined in the individual case. It does appear, however, that in the ordinary case a broad categorisation of the kind or genus of the loss will be appropriate. So it has been said that the liability of a defendant for shock is foreseeability of injury from the shock, the right to recover for injury by a fire is foreseeability of injury by fire (burning) and the right to recover for loss of business income is foreseeability of loss of business income. The adoption of a broad categorisation is consistent with the principle that it should not be necessary that the exact course of events which produced the injury was predictable or likely so long as the injury was foreseeable. It is furthermore supported by a number of cases referred to by the authors of Causation and Remoteness of Damage, [H Luntz, 4th Ed, 2002] which illustrate a general refusal of the courts to sub-divide bodily injury into harms of different kinds. It seems that those cases which descend to a further level of detail, such as Doughty and Rowe v McCartney, are those which involve an unusual injury or an injury which arises from a particularly unusual sequence of events.
96. It is important to bear in mind that the appropriate categorisation of the loss in a given case will be, in essence, a question of policy. In a case which involves an uncommon kind of damage, it may be useful to narrow the category of damage beyond simply 'economic loss' or 'physical injury', so as to require that the tribunal of fact be given the opportunity to consider its reasonable foreseeability.
97. In the present case, the narrow category chosen by the learned Magistrate is not appropriate as the loss alleged to have been suffered by Metrolink is not that which is of an unusual kind. I observe that much has been made by the respondent before this Court, and before the judge below, of the complexity of the Franchise Agreement. In the modern world, however, complexity of contracts, and the provision of items such as key performance indicators and other performance targets, could hardly be said to be unusual.
98. There is nothing unusual about the expectation that Metrolink would receive remuneration for the operation of its part of the tram network or that it would lose revenue in the event that it could not operate a part of its service. There is no reason of policy that compels a different approach to the recovery of losses calculated by reference to targeted performance obligations which have not been met because of the inability to conduct the service, and losses arising from the same cause which are to be calculated under a different remuneration structure. That this remuneration might be reduced or increased depending upon the operator's ability to provide the service is unremarkable. That the mechanism by which remuneration for this service is determined might be complex, and be calculated according to a number of key performance indicators, is similarly neither unusual, nor is its complexity a reason to treat it differently from a more simple form of remuneration. For this very reason, the respondent was compelled to concede that it was reasonably foreseeable that fares would be lost as a consequence of interruption to the operation. For liability to be dependent upon foreseeability of 'a reduction in benefit' or the 'imposition of a penalty', is to lose sight of the fact that these are contractual mechanisms which are part of the manner in which the overall remuneration for the provision of the service is calculated. To require foresight of this is to require what was described in Hughes as foresight of 'the concatenation of the circumstances which caused the loss' or as in Cambridge Credits, as 'the precise manner of its occurrence'.
99. For these reasons I conclude that the learned Magistrate erred in defining too narrowly the kind or genus of the loss suffered by Metrolink. The appropriate categorisation was simply one which required foreseeability of 'revenue lost as a result of the inability to operate the tram service'."
"10. There are no settled legal criteria for categorising the kind or genus of a loss suffered by a plaintiff. The breadth or narrowness of the categorisation may determine whether the damages suffered by the plaintiff are held to be reasonably foreseeable. As Redlich JA acknowledges in his reasons, the categorisation of the type of harm suffered by the plaintiff, is ultimately a question of policy. This is because the concept of remoteness of damage (like the anterior duty of care question) is used to define the outer limits of the liability of a negligent defendant.
11. The relevance of policy in categorising the type of harm suffered does not mean that determination of the question whether a particular kind of loss is too remote depends simply on the discretion of individual judges. In cases which have considered whether the scope of the duty of care should be expanded to cover a new type of harm, courts have proceeded incrementally and cautiously, reasoning by analogy from decided cases. The same approach must necessarily apply in deciding the kind or genus of loss suffered by the plaintiff and consequently whether a particular kind of loss is not compensable because it is too remote.
12. It is axiomatic that a loss may not be too remote simply because a reasonable person could not foresee the precise manner in which it occurred.
. . .
20. However, even assuming that the loss should be regarded as a financial loss consequent upon property damage and that a duty of care was owed by the respondent to avoid causing such loss, in answering the remoteness question I consider that the magistrate correctly described the kind of genus of loss as 'the reduction of a financial benefit payable by a third party to the plaintiff or the imposition of a financial penalty upon the plaintiff by a third party'.
21. The policy considerations which are taken into account in considering whether there is a duty of care to avoid causing purely economic loss also have some relevance in determining the remoteness question. Therefore, in categorising the kind or genus of financial loss consequential on property damage it is appropriate to take a view which is narrower than the broad categorisation of loss adopted in the area of personal injury. In this case, a broad categorisation of the kind or genus of loss suffered by Metrolink would expose a person who negligently damages a tram to an unacceptably broad range of potential liability.
22. In my opinion the categorisation of the genus of loss suffered by Metrolink as a loss of business income or a loss of revenue is too broad because it would mean that any loss arising as the result of disruption of a contract made with a third parties was potentially compensable. A loss suffered as the result of failure to meet performance targets under a contract with the State government is a loss of a different character to the loss of fares caused by a tram becoming inoperative because it is damaged.
23. This approach does not wrongly require a defendant to have foreseen the 'precise concatenation of circumstances which brought about the loss'. Nor is it based on the complexity of the contractual terms in the Franchise Agreement. Rather it recognises that a loss caused by the operation of a contract with a third party which covers the operation of the whole tram network is a loss of quite a different kind from loss of fares or the cost of repairing the tram."
"The nuisance from dust is, to my mind, established, and it is further established quite clearly by the evidence that, in the case of the second operation, the plaintiff's clients were seriously inconvenienced, that clients left, and that other clients declined to come. That seems to me to be the general effect of what took place. When the clients came to the hotel and were shown the rooms in July, and found all the windows shut because of the dust, it does not require very much imagination to suppose that a thing of that kind would deter any one from going to the hotel. I think that, on the evidence, there is proof of a substantial loss of actual customers, with, in the background, the inevitable repercussion that has on the reputation of an hotel. On the other hand, in this case, as in the other case, one must be careful not to penalize the defendant company by throwing into the scales against it the loss of clients caused by operations which it was legitimately entitled to carry out. It can be made liable only in respect of matters on which it has crossed the permissible line."
"This is eminently a case where a jury, or a judge sitting alone, should use common sense and their knowledge of affairs in relation to the evidence which is given."
"I therefore conclude that the third defendant should be held liable to the plaintiff, not in respect of the whole economic loss suffered by him, but only in respect of the physical damage caused to his stock of lobsters, and of course any financial loss suffered by the plaintiff in consequence of that physical damage. To that extent, I would allow the appeal."
"It is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable."
". . . on a claim in contract or tort, [impecuniosity] may on examination prove to be too remote."
Whether remoteness is to be regarded as a separate test or is to be incorporated into the test of what is reasonably foreseeable, an examination of the circumstances is required.
"Sometimes it is done by limiting the range of the persons to whom duty is owed. Sometimes it is done by saying that there is a break in the chain of causation. At other times it is done by saying that the consequence is too remote to be a head of damage. All these devices are useful in their way. But ultimately it is a question of policy for the judges to decide."
"A robust and sensible approach to this very important area of the study of remoteness will more often than not produce, I think, an instinctive feeling that the event or act being weighed in the balance is too remote to sound in damages for the plaintiff. I do not pretend in all cases the answer will come easily to the enquirer. That the question must be asked and answered in all these cases I have no doubt."
"It seems to me that in 1961 when this collision happened, it was or ought to have been, well known to a person in the position of the master of a foreign-going ship that governments in general often subsidize transport industries, whether on land, on sea, or in the air. It follows, in my view, that the master of the Daressa could reasonably have foreseen two things: first, that any ship with which he collided might be operating with the assistance of a Government operating subsidy; and, second, that if she was prevented from operating by being detained for repairs, her owners might lose such operating subsidy during detention.
In the result, assuming, in favour of the defendants, that reasonable foreseeability of loss of subsidy in particular, as distinct from loss of earnings in general, is a condition of recovery by the plaintiffs, I find that such condition is, as a matter of fact, fulfilled in this case."
"At bottom I think the question of recovering economic loss is one of policy. Whenever the courts draw a line to mark out the bounds of duty, they do it as matter of policy so as to limit the responsibility of the defendant. Whenever the courts set bounds to the damages recoverable - saying that they are, or are not, too remote - they do it as matter of policy so as to limit the liability of the defendant."
"If the test as to whether in some particular situation a duty of care arises may in some cases have to be whether it is fair and reasonable that it should so arise the Court must not shrink from being the arbiter."
LORD JUSTICE MOORE-BICK :
"14. A duty of care such as the valuer owes does not however exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered. Both of these requirements are illustrated by Caparo Industries Plc. v. Dickman  2 AC 605http://www.bailii.org/uk/cases/UKHL/1990/2.html. The auditors' failure to use reasonable care in auditing the company's statutory accounts was a breach of their duty of care. But they were not liable to an outside take-over bidder because the duty was not owed to him. Nor were they liable to shareholders who had bought more shares in reliance on the accounts because, although they were owed a duty of care, it was in their capacity as members of the company and not in the capacity (which they shared with everyone else) of potential buyers of its shares. Accordingly, the duty which they were owed was not in respect of loss which they might suffer by buying its shares. As Lord Bridge of Harwich said, at p. 627:
"It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless."
In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed.
15. How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874) L.R. 9 Ex. 125. In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor's duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking."
"62. (b) On any proper analysis, the sums payable to the TOCs were payable for the loss of use or availability of the rail tracks in question. This was the price, contractually agreed between Network Rail and the TOCs, which was payable in circumstances amongst others in which the rail tracks could not be used by reason of the negligence of drivers who damaged bridges or electricity cables over those rail tracks. One of the main uses to which Network Rail put the rail tracks was to license the TOCs to operate them.
(c) It cannot be said, and indeed it has not been argued as such, that the sums payable to the TOCs pursuant to the TAAs represented a penalty or were unreasonable or did not represent anything other than a best assessment basis of the loss to the TOCs of the use of the rail tracks for the period in question. . . .
(d) The loss of use can also legitimately be considered as a loss of revenue because in reality, by having to pay or allow the licensee TOCs the Schedule 8 sums, Network Rail's revenue from the TOCs was being reduced by the exactly the same amount.
(e) A key factor in the calculation under Schedule 8 is the amount of rail track or train delay caused in these cases by the negligently caused damage. That delay is made of the times reasonably taken for initial assessment by the emergency services and Network Rail of the accidents and damage and for the necessary and reasonable associated remedial works. There are no mitigation arguments left in this case as to whether Network Rail acted anything other than reasonably in these regards.
(f) The Defendants' negligence (that is, their breaches of duty causing physical damage and the need for the concomitant remedial works) therefore directly caused the delays which directly led to Network Rail not being in a position to make available the rail tracks in question for the periods of the delays, the direct financial consequence of which was that Network Rail had to pay or allow their licensees the Schedule 8 sums.
(g) The fact that within the calculation of those allowances there may have been or were included sums which the TOCs could not have claimed in negligence as against these Defendants is immaterial because it is necessary to consider in this case the position of Network Rail which clearly did have the right to sue for negligence in respect of the physical damage to its property. The reality is that, under the law as it now stands and has stood for many years, these Defendants would never have been liable in negligence to the TOCs for those losses because no property of the TOCs was physically damaged. The losses would therefore never have been recoverable directly by the TOCs. If the Defendants' arguments are right, the one innocent party, Network Rail, cannot recover its very real losses incurred directly in consequence of the Defendants' carelessness.
(h) It is irrelevant to consider what for instance the old British Rail, that is the organisation that historically owned the rail track and ran the train services before privatisation, would have been able to sue for. One needs to look at the position of Network Rail which only owns the rail track. . . .
(i) Where one has, as here, a duty of care the scope of which includes losses demonstrably consequential upon the physical damage, it must, objectively speaking, have been reasonably foreseeable by tortfeasors in the position of these defendants that, if they seriously damaged bridges over rail tracks or overhead electric cables providing electricity to the railways, the railway services could or would be disrupted for a period of time whilst remedial work was being done. Thus, a loss of use and of revenue was a reasonably foreseeable consequence of the negligence in this case. It is argued that objectively speaking the tortfeasors in this case could not reasonably have foreseen either that payments would be due to the TOCs for the loss of use or that the payments would include incentives. However, this is not material in circumstances where a loss of use is reasonably foreseeable and the loss of use is readily quantifiable in money terms. It is not necessary for the precise loss or machinery by which the loss is ascertainable to be foreseen or foreseeable. In any event, it can hardly be said that a loss of use or indeed a loss of revenue was not objectively speaking reasonably foreseeable by tortfeasors in the position of these Defendants; as was said in the Metrolink case, there was nothing unusual about the facts that Network Rail would receive payment and revenue for providing the rail track for use by rail companies or that it would lose revenue if it did not provide the track. The fact that Schedule 8 provides a somewhat complex formula for determining the value or cost for the non-provision of the rail track is immaterial.
(j) There is nothing as a matter of policy which can readily be deployed to gainsay either a duty of care existing or the scope of that duty extending to compensation for the loss of use, . . .
(k) . . . Schedule 8 is either or akin to a liquidated damages or demurrage clause which relates to certain types of delays on the rail tracks to the train services. The rates payable where there is delay attributable to one party or the other were negotiated to reflect what the parties thought realistically represented the likely losses which each should reasonably bear in the case of delay.
(l) I can not see any or much significant difference in principle between the current case and the negligent driver who drives into a building which houses a shop which is licensed by the owner to a third person. The owner can sue the negligent driver for damages which would include the loss of the sums due from the licensee or compensation payable for the licensee not being able to trade from the premises whilst the requisite reasonable remedial works are done.
(m) In my view, the Defendants too often in their arguments have confused the losses actually suffered by the TOCs with the losses actually suffered by Network Rail. The former are substantially immaterial in the context of cases brought by Network Rail against the defendants . . . "
LORD JUSTICE JACKSON :
Part 1. Introduction,
Part 2. The Law,
Part 3. Application to the Present Appeal.
"We found it difficult to see how, when the houses were put into repair, there could be a depreciation of rental, and in order that we might ascertain on what ground Mr. Clifton had given this sum, we asked him to attend here as he did yesterday, and state his views and his ground for giving this sum. He said that there was a prejudice against the locality by reason of the flood, and that this would cause the houses even when put into repair to command a less rental than they would otherwise have done. In my opinion that is not a legitimate ground for giving damages. It is not damage which is the natural result of nor directly caused by the flood. It is entirely different from injury to the structure of the houses, and in my opinion (and I believe the rest of the court agree) that sum of £332 must be struck out."
"I think that damages which flow directly and naturally, or in the ordinary course of things, from the wrongful act, cannot be regarded as too remote. The loss of the use of a vessel and of the earnings which would ordinarily be derived from its use during the time it is under repair, and therefore not available for trading purposes, is certainly damage which directly and naturally flows from a collision. But, further than this, I agree with the Court below that the damage is not necessarily limited to the money which could have been earned during the time the vessel was actually under repair. It does not appear to me to be out of the ordinary course of things that a steamship, whilst prosecuting her voyage, should have secured employment for another adventure. And if at the time of a collision the damaged vessel had obtained such an engagement for an ordinary maritime adventure, the loss of the fair and ordinary earnings of such a vessel on such an adventure appear to me to be the direct and natural consequence of the collision."
"Therefore, the Court is necessarily compelled to take some broad common-sense view of the situation, having regard to the evidence. One has to remember various things. People who go to hotels do not like having their nights disturbed. One has to remember that hotel custom is obtained, and, indeed, very largely kept, by recommendation. Those are matters of common knowledge. One also must not assume that, when a guest goes away from an hotel, he is satisfied only because he has not made a complaint at the office. Various matters of that kind must be remembered. On the other hand, there are in this case other circumstances, such as the lack of action taken. If there was a real outflow of guests, one would have expected action to be taken at the time. I take the view, that there was an injury done to the business at that time, an injury which did have a deleterious effect on its recovery; but having regard to the fact that I approach the matter on a different principle from that on which the learned judge approached it, the actual injury in that respect is, in my view, very much smaller than he found."
"The appellant's injuries were mainly caused by burns, and it cannot be said that injuries from burns were unforeseeable. As a warning to traffic the workmen had set lighted red lamps round the tent which covered the manhole, and if boys did enter the dark tent it was very likely that they would take one of these lamps with them. If the lamp fell and broke it was not at all unlikely that the boy would be burned and the burns might well be serious. No doubt it was not to be expected that the injuries would be as serious as those which the appellant in fact sustained. But a defender is liable, although the damage may be a good deal greater in extent than was foreseeable. He can only escape liability if the damage can be regarded as differing in kind from what was foreseeable."
"It is well settled that when a defendant by his negligence causes physical damage to the person or property of the plaintiff, in such circumstances that the plaintiff is entitled to compensation for the physical damage, then he can claim, in addition, for economic loss consequent on it. Thus a plaintiff who suffers personal injuries recovers his loss of earnings: and a shipowner, whose ship is sunk or damaged, recovers for his loss of freight. If and in so far as Mr. Dehn is entitled to claim for the material damage, then he can claim for the loss of production which was truly consequential on the material damage."
"The law is the embodiment of common sense: or, at any rate, it should be. In actions of negligence, when the plaintiff has suffered no damage to his person or property, but has only sustained economic loss, the law does not usually permit him to recover that loss. The reason lies in public policy. It was first stated by Blackburn J in Cattle v Stockton Waterworks Co. (1875) L.R. 10 Q.B. 453, 557, and has been repeated many times since. He gave this illustration: When a mine is flooded by negligence, thousands of men may be thrown out of work. None of them is injured, but each of them loses wages. Has each of them a cause of action? He thought not. So here I would ask: When an electric cable is damaged, many factories may be stopped from working. Can each of them claim for their loss of profit? I think not. It is not sensible to saddle losses on this scale on to one sole contractor."
"Mr Briden advanced two further arguments. One was that, because the damage to the premises would have been repaired long before the end of the nine-year lease, this was a case in which the plaintiffs had suffered no physical loss, but were claiming for a pure economic loss. This argument, however, seems to me again to involve transplanting some of the statements from the judgment in the Rust case and applying them to wholly different circumstances. The plaintiffs, unlike Mr Rust in respect of heading (B), suffered from physical damage to their building, which was an income-producing asset. The fact that the cost of repairs to the building was covered by insurance is neither here nor there. The loss of rent arising out of the damage to the building was consequential upon that damage: it was not pure economic loss.
Finally, Mr Briden suggested that, although the defendant could reasonably be expected to foresee that the showroom was being put to commercial use and that accordingly he might have to compensate the tenant for loss of profits whose computation would include any rent which the tenant might have to pay during the period of repair, the defendant could not have been expected to foresee the effects of clause 6(3), this being an unusual clause in a lease. Therefore, he said, the loss to the plaintiffs lay beyond the limits of reasonable foreseeability and was too remote to be recovered. In my judgment, however, this suggestion falls foul of the principle stated by Lord Reid in Hughes v Lord Advocate  AC 837, at p845, that a negligent defendant "can only escape liability if the damage can be regarded as differing in kind from what was foreseeable". Thus, it is clear that the defendant could not be expected to foresee the precise terms of the lease, but he could reasonably be expected to foresee that his negligence would cause physical damage and consequential financial loss to the owner or tenant of the premises. That was enough, in my judgment, to make him liable in damages to whichever of those parties, under the contractual arrangements between them, in fact suffered from the particular loss for which damages are claimed."
"This leads on to the question of mitigation. I agree with my noble and learned friend, Lord Hoffmann, that the judge and the majority of the Court of Appeal approached this question in the wrong manner. What Mrs Dimond was paying for here was more than the cost of hiring a car for a week. It was reasonable for her to pay the additional sum in order to obtain the additional benefits enjoyable under the scheme even though the accident hire company were under no legal obligation to do more than provide her with a car on credit. The sum which she paid, having regard to what she was to get was, on the evidence, reasonable. But she cannot claim the whole cost as the cost of mitigating the loss of the use of her car. The cost of that was, on the evidence, only about £24 per day. The remainder of what she paid was attributable to other matters and therefore should not be included in the cost of mitigation. This is the preferred way of looking at this aspect of the dispute between the parties on this point but there are other ways which lead to the same conclusion. One is that preferred by Judge LJ in the Court of Appeal. The excess cost was not reasonably incurred as the cost of hiring the substitute car. Mrs Dimond's right of recovery is limited to the reasonable cost, that is to say the lesser sum. Another way of looking at the matter is to say, as does my noble and learned friend, that, if the whole cost is to be brought into account, then the benefits must be brought into account as well."
"In such circumstances the test of reasonableness has an important role to play. This role goes further than the proposition that replacement from new has to be absurd for it to be rejected as the measure of loss. The loss has to be measured, and where what is lost is old and second-hand and coming towards the end of its life, it is not prima facie to be measured by the cost of a brand-new chattel, even where the market cannot supply a closer replica of what has been lost; and where such a measure would not be a reasonable assessment of what has been lost, it should not be used. As May J said in Taylor v Hepworths, cited with approval in Dominion Mosaics v Trafalgar Trucking and (at 356G and 369G) in Ruxley v Forsyth, damages ought to be reasonable as between claimant and defendant. I do not see why in the realm above all of remedies the common law cannot mould its principles flexibly to the needs of the situation, and as so often the test of reasonableness lies to hand as a useful tool. It may also be possible to speak in terms of proportionality, a closely analogous but not necessarily identical test: see Lord Lloyd in Ruxley v Forsyth at 367B and 369H"
"69. How, then, does one identify a plaintiff's "true loss" in cases of tort? This question has generated a vast amount of legal literature. I take as my starting point the commonly accepted approach that the extent of a defendant's liability for the plaintiff's loss calls for a twofold inquiry: whether the wrongful conduct causally contributed to the loss and, if it did, what is the extent of the loss for which the defendant ought to be held liable. The first of these inquiries, widely undertaken as a simple "but for" test, is predominantly a factual inquiry. The application of this test in cases of conversion is the matter now under consideration. I shall return to this in a moment.
70. The second inquiry, although this is not always openly acknowledged by the courts, involves a value judgment ("ought to be held liable"). Written large, the second inquiry concerns the extent of the loss for which the defendant ought fairly or reasonably or justly to be held liable (the epithets are interchangeable). To adapt the language of Jane Stapleton in her article "Unpacking 'Causation'" in Relating to Responsibility, ed Cane and Gardner (2001), p 168, the inquiry is whether the plaintiff's harm or loss should be within the scope of the defendant's liability, given the reasons why the law has recognised the cause of action in question. The law has to set a limit to the causally connected losses for which a defendant is to be held responsible. In the ordinary language of lawyers, losses outside the limit may bear one of several labels. They may be described as too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause. The defendant's responsibility may be excluded because the plaintiff failed to mitigate his loss. Familiar principles, such as foreseeability, assist in promoting some consistency of general approach. These are guidelines, some more helpful than others, but they are never more than this.
71. In most cases, how far the responsibility of the defendant ought fairly to extend evokes an immediate intuitive response. This is informed common sense by another name. Usually, there is no difficulty in selecting, from the sequence of events leading to the plaintiff's loss, the happening which should be regarded as the cause of the loss for the purpose of allocating responsibility. In other cases, when the outcome of the second inquiry is not obvious, it is of crucial importance to identify the purpose of the relevant cause of action and the nature and scope of the defendant's obligation in the particular circumstances. What was the ambit of the defendant's duty? In respect of what risks or damage does the law seek to afford protection by means of the particular tort? Recent decisions of this House have highlighted the point."
"If, therefore, such property is, in breach of duty, damaged by the defendant, that defendant will be liable not merely for the physical loss of that property but also for the foreseeable consequences of that loss, such as the extra expenditure to which the beneficial owner is put or the loss of profit which he incurs."
i) Economic loss which flows directly and foreseeably from physical damage to property may be recoverable. The threshold test of foreseeability does not require the tortfeasor to have any detailed knowledge of the claimant's business affairs or financial circumstances, so long as the general nature of the claimant's loss is foreseeable.
ii) One of the recognised categories of recoverable economic loss is loss of income following damage to revenue generating property.
iii) Loss of future business as a result of damage to property is a head of damage which lies on the outer fringe of recoverability. Whether the claimant can recover for such economic loss depends upon the circumstances of the case and the relationship between the parties.
iv) In choosing the appropriate measure of damages for the purposes of assessing recoverable economic loss, the court seeks to arrive at an assessment which is fair and reasonable as between the claimant and the defendant.