England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		17 July 2003

Mr Justice David Steel :

Introduction

1. In these proceedings, the Court is being asked to resolve a number of issues of construction which have arisen under insurance policies in connection with claims for business interruption losses resulting from the Hatfield rail disaster which occurred on 17^th October 2000.
2. The Claimants in both actions are train-operating companies ("TOCs") owned by National Express Group plc. They each operate passenger rail services on various parts of the UK mainland railway network ("the network"). The network was owned and operated by Railtrack plc ("Railtrack").
3. The Defendants are six insurance companies which insured the Claimants against, amongst other risks, loss of revenue and increased costs of working caused by interruptions to and/or interferences with the Claimants' business, as follows: -

(a) in Folio 1062 ("the CGNU action"), the Defendants, together with Independent Insurance Company Ltd (which is in provisional liquidation), insured the Claimants against business interruptions in the period from 1^st November 1997 to 31^st October 2000 under a Property Damage and Business Interruption policy number FX954P12555 ("the CGNU Policy"); and

(b) in Folio 1219 ("the St Paul action"), the Defendant insured the Claimants against business interruptions in the period from 1^st August 2000 to 31^st October 2000 under a Public Services Insurance Agreement number UCPOP 3252462 ("the St Paul Policy").

4. With the exception of the Third Defendant in Folio No. 1062, the Defendants are all represented by Messrs. Herbert Smith. They are referred to as the Herbert Smith Defendants. The Third Defendant in Folio No. 1062 is referred to as Eagle Star.
5. On 17^th October 2000 at about 12.23 pm, a Kings Cross to Leeds passenger train derailed on a curved section of the Down Fast line on the East Coast Main Line ("ECML") between Welham Green and Hatfield, approximately half a mile south of Hatfield junction. Four passengers were killed and a number of others were seriously injured. The train, track and other infrastructure in the immediate vicinity of the derailment suffered extensive damage.
6. The derailment was caused by a broken rail, which in turn was caused by gauge corner cracking ("GCC"), a type of rolling contact fatigue ("RCF") which can occur in the head section of rails. The existence (albeit not the extent) of the cracking was known to Railtrack and re-railing was scheduled to start only six weeks later.
7. A section of the ECML between Alexandra Palace and Stevenage was closed immediately following the derailment. Trains scheduled to run on that section of line were diverted via an alternative route, known as the Hertford Loop, and operated on a reduced service. The section of the line remained closed until mid-November 2000, while the damaged train and accident debris were removed, the accident was investigated and the damaged track and other infrastructure were repaired.
8. In the immediate aftermath of the derailment, on 17^th and 18^th October 2000 Railtrack imposed emergency speed restrictions ("ESR"s), or reduced the maximum permitted line speed, on all sites across the network where GCC was known to exist and which had previously been identified for renewal. On 19^th and/or 23^rd October Railtrack issued further instructions requiring inspections of all known GCC sites and specifying a number of mandatory actions to be taken where cracking or spalling was found. The particular actions, which depended generally upon the degree of cracking found, included speed restrictions, ultrasonic examinations, rail grinding and rail renewal.
9. In the weeks and months following Hatfield, Railtrack issued a number of further instructions relating to RCF. Pursuant to these instructions and the instructions referred to in the previous paragraph, a large number of speed restrictions were imposed on numerous sections of track across the network and a considerable amount of re-railing or other remedial work was carried out (which in some instances required temporary closures of sections of track, or "possessions", while the work was carried out). The scale of the operation was such that it was later described as "a watershed for the industry" and "the biggest programme of work on the network for more than a century…".
10. These measures (the collective content of which are referred to for convenience as "the Railtrack Programme") caused disruption to the Claimants' services. The resultant losses of revenue and increased working costs that some of the Claimants have suffered are the subject of claims under the Policies.

The terms of the policies

(a) The CGNU Policy

11. The terms of the CGNU Policy are contained in: (a) a slip stamped and initialled on behalf of each of the Defendants on various dates between 29^th October 1997 and 4^th November 1997; (b) a Commercial Union policy wording dated 19^th May 1997; (c) an endorsement applying to the period from 1^st November 1999 to 31^st October 2000 dated 16^th February 2000; and (d) a further endorsement dated 13^th May 2000.
12. The slip provides as follows: -

TYPE: All Risks of physical loss, destruction or damage or interruption to the business by any cause

FORM: Commercial Union Wording as agreed

ASSURED: National Express Group PLC and/or Subsidiary Companies and/or Associated Companies as advised to Insurers

BUSINESS: All activities of the Insured as permitted by the Memorandum and Articles of Association.

INTEREST: …

Section Two– Business Interruption

The revenues derived by the Insured from the Business anywhere within the territorial limits, excluding Government Grants or Subsidies.

SUM INSURED: …

Section Two

… in respect of Train Operating Companies the following sub limits apply:

Gross Revenue

(24 month indemnity period) £50,000,000

DEDUCTIBLES: £5,000 each and every claim, combined for Sections One and Two, and increasing as follows:

…

B I - Gatwick Express £50,000 each and every

claim

B I – Other Train Operations £100,000 each and every

claim"

13. The Policy Wording provided as follows: -
"INTRODUCTION

The Insurers agree (subject to the terms definitions exclusions provisions and conditions of this Policy) that if after payment or agreement to pay the first premium any of the Property Insured as defined in the Policy be accidentally lost destroyed or damaged during the period of insurance (or any subsequent period for which the Insurers accept a renewal premium) the Insurers will insure in the manner provided in this Policy or any subsequent endorsement duly attached thereto…

…

SCHEDULE … DEDUCTIBLES

"In the event of loss destruction or damage involving Section 1 & or Section 2 arising out of a single event or series of losses arising from a single event the loss destruction or damage shall be regarded as one claim from which shall be deducted the following amount on a combined deductible basis (unless otherwise stated)…

In respect of: - …

Midland Main Line - Section 1 £5,000

- Section 2 £100,000

Gatwick Express - Section 2 £50,000

…

All other operations of the Insured… -All Sections £1,000

…

PART E GENERAL EXCLUSIONS & EXCLUDED PROPERTY

This policy does not cover

1. DAMAGE or CONSEQUENTIAL LOSS caused by or consisting of:

1.1 inherent vice, latent defect, gradual deterioration, wear and tear, frost, change in water table level, its own faulty or defective design or materials

but this shall not exclude subsequent DAMAGE or CONSEQUENTIAL LOSS which itself results from a cause not otherwise excluded

…

PART J SECTION 2 BUSINESS INTERRUPTION

THE COVER

The Insurers agree that if any Property Insured or any building or other property used by the Insured at the Premises for the purpose of the Business be accidentally lost destroyed or damaged during the period of insurance the Insurers will pay to the Insured the amount of the loss resulting from interruption of or interference with the Business of the Insured consequent upon such Incident…

DEFINITIONS

…

INCIDENT:

Loss or destruction of or damage to Property used by the Insured at the Premises for the purpose of the Business.

…

PREMISES EXTENSION

Any loss as insured by this section resulting from interruption of or interference with the Business in consequence of loss destruction or damage at the under noted situations or to property as under noted shall be deemed to be an Incident provided that after the application of all other terms conditions and provisions of the policy the liability under the following clauses in respect of any occurrence shall not exceed the percentage of the sum insured to this section or limit of liability as specified in the Schedule to this Policy or the amount shown below as the limit whichever shall be the lower amount.

…

(4) DENIAL OF ACCESS IN RESPECT OF TRAIN OPERATING COMPANIES

The insurance by this Section shall subject to all the terms and conditions and provisions of the Policy extend to include loss resulting from interruption of or interference with the Business carried on by the Insured in consequence of the following occurrences and such occurrences being deemed an Incident subject to the liability under this extension in respect of any occurrence shall not exceed the percentage of the sum insured to this section or Limit of Liability as specified in the Schedule to this Policy…

The Insured being prevented from or hindered in the use of or access to any station depot or track or other part of the rail network owned or operated by British Rail Board Rail track Group plc and other CAHA parties and caused by

(a) the action of the Insured or other competent authority for reasons of public safety other than disease hygiene or sanitation

(b) extreme climactic conditions

(c) landslip heave or subsidence of the site immediately surrounding adjoining or adjacent to the Property used by the Insured

(d) loss or destruction of or damage to property not being used by the Insured but in the immediate vicinity thereof"

14. The endorsement referred to in paragraph 12(c) above sets out the sums insured and the limits applicable to the third year of cover (1^st November 1999 to 31^st October 2000) and provides for a single sum insured (£50 million) for all the TOCs. The endorsement referred to at paragraph 12 (d) above varied the indemnity period under the business interruption section of the Policy from 24 months to 36 months.

(2) The St Paul Policy

15. The terms of the St Paul Policy are contained in the following documents: (a) various renewal schedules, endorsements and updated sections of the standard policy wording which the Defendant stamped and initialled on 21^st August 2000; and (b) the Defendant's previous standard policy wording, except for those parts which were replaced by the updated sections referred to in (a).
16. The Renewal Schedule provides as follows: -

"INSURED Prism Rail PLC and Subsidiary Companies and/or Associated Companies

…

BUSINESS Passenger Rail Operators and associated and ancillary activities"

17. The Claimants, together with various other companies, are named as subsidiary companies of Prism Rail plc in general endorsement number 1.
18. The Business Interruption Schedule provides as follows: -

" Maximum Sum Insured

Indemnity

Period

(months)

1. Gross Revenue 12 £10,000,000

2. Additional Increase Cost of Working 12 £5,000,000

3. Gross Revenue 12 £10,000,000

4. Additional Increase Cost of Working 12 £5,000,000

5. Gross Revenue 12 £10,000,000

6. Additional Increase Cost of Working 12 £5,000,000

7. Gross Revenue 12 £10,000,000

8. Additional Increase Cost of Working 12 £5,000,000

…

The above items are applicable to the business of the Companies as shown below: -

Items 1 & 2 LTS Rail Limited

Items 3 & 4 Wales & West Passenger Trains Limited

Items 5 & 6 Cardiff Railway Company Limited

Items 7 & 8 WAGN Railway Limited

…

Deductible £100,000"

19. The standard policy wording provides, amongst other terms, as follows: -
"OPERATIVE CLAUSE

The Insured having made a Proposal (as defined below) to St Paul International Insurance Company Limited (the Company) which is the basis of this contract and having paid or agreed to pay the premium

The Company will provide the insurance specified in the operative Sections during the Period of Insurance… subject to the terms exclusions and conditions contained herein or endorsed hereon…

…

BUSINESS INTERRUPTION ALL RISKS – SUB SECTION B

IN THE EVENT OF any building or other Property used by the Insured anywhere in the Territorial Limits for the purpose of the Business being accidentally lost destroyed or damaged during the Period of Insurance and in consequence the Business carried on by the Insured be interfered with then the Company will pay to the Insured in respect of each item in the Schedule the amount of loss resulting from such interruption or interference…"

20. The updated policy wordings referred to in paragraph 16(a) above provide, amongst other terms, as follows: -
"BUSINESS INTERRUPTION SUB-SECTION B

EXTENSIONS…

The insurance by this Sub Section shall subject to all the Exclusions and Conditions of the Policy…extend to include loss resulting from interruption of or interference with the Business carried on by the Insured in consequence of any of the following events (such an event being deemed Damage)

1 Prevention of Access

The Insured being prevented from or hindered in the use of or access to any station depot or track or other part of the rail network owned or operated by British Rail Board Railtrack Group plc and other CAHA parties and caused by

(a) the action of a competent authority for reasons of public safety other than disease hygiene or sanitation

(b) extreme climactic conditions

(c) landslip heave or subsidence of the site immediately surrounding adjoining or adjacent to Property used by the Insured

(d) loss or destruction of or damage to property not being used by the Insured but in the immediate vicinity thereof

Special Condition – Applicable to Prevention of Access Extension

…

2. The action of a competent authority shall not include

…

(ii) restrictions placed upon the use of the infrastructure not consequent upon loss or destruction of or damage to the infrastructure

(iii) continuing restrictions placed upon the use of the infrastructure following the reinstatement of infrastructure lost destroyed or damaged

…

MATERIAL DAMAGE AND BUSINESS INTERRUPTION SECTION EXCLUSIONS – APPLICABLE TO SUB SECTIONS A AND B

This Policy does not cover

1. DAMAGE or CONSEQUENTIAL LOSS caused by or consisting of:

(a) inherent vice, latent defect, gradual deterioration, wear and tear, frost, change in water table level, its own faulty or defective design or materials

but this shall not exclude subsequent DAMAGE or CONSEQUENTIAL LOSS which itself results from a cause not otherwise excluded"

21. Finally, General Endorsement 3 provides as follows: -

"Aggregate Stop

The Deductibles stated in the Schedules applicable to… Business Interruption- Sub-Section B shall apply to each and every loss or series of losses arising from one event subject to any Aggregate Stop stated below in respect of claims arising under each Sub-Section of the Policy and arising during an Annual Period of Insurance as detailed below."

The Issues

(a) Issues arising in the CGNU action

22. Against this background, the following issues arise in the CGNU action: -

(1) Whether, on its true construction, the occurrences (or deemed Incidents) referred to in the Denial of Access clause were,

(a) any of the matters set out in sub-clauses (a) to (d) thereof, which cause the Insured to be prevented from or hindered in the use of or access to any station depot or track or other part of the rail network owned or operated by British Rail Board Railtrack Group plc or other CAHA parties, or

(b) the Insured being prevented from or hindered in the use of or access to any station depot or track or other part of the rail network owned or operated by British Rail Board Railtrack Group plc or other CAHA parties, and caused by any of the matters set out in sub-clauses (a) to (d) thereof?

(2) Whether, on whichever is the correct construction of the Denial of Access clause,

(a) Railtrack's decision to implement the Railtrack Programme or the communication of that decision to the Zones or the implementation of the Programme constituted an occurrence (or deemed Incident) which occurred in the policy period; or

(b) each speed restriction or line closure imposed by Railtrack constituted a separate occurrence (or deemed Incident) only some of which occurred during the policy period; or

(c) each instruction issued by Railtrack following the Hatfield derailment constituted a separate occurrence (or deemed Incident), only some of which occurred during the policy period?

(3) Whether the Claimants' business interruption claims are excluded by Exclusion 1.1, which involves the following sub issues:

(a) whether Exclusion 1.1 is capable of applying at all to claims under sub-paragraph 1(a) of the Denial of Access Extension; if so

(b) whether RCF of rails is a form of "gradual deterioration" or "wear tear"; and

(c) whether "gradual deterioration" or "wear and tear" in the form of RCF of rails was a proximate cause of the Claimants' losses?

(4) Whether, if the Court concludes that each speed restriction or line closure imposed by Railtrack or instruction issued by Railtrack constituted a separate occurrence,

(a) there is a separate deductible for each such occurrence; or

(b) each individual TOC is entitled to aggregate its insured losses on the grounds that such losses arise out of one event, namely:

(i) the Hatfield derailment; alternatively,

(ii) the Railtrack Programme?

(b) Issues arising in the St Paul action: -

23. Most of the issues arising in the St Paul action are almost identical to the issues arising in the CGNU action save for the following additional issues: -

(1) Who bears the burden of proof in relation to Special Conditions 2(ii) and 2(iii) of the Policy?

(2) Whether, on a true construction, Special Condition 2(ii) required that the relevant restriction upon the use of the infrastructure be consequent upon loss, destruction or damage to the part of the infrastructure to which that restriction applied or only that it be consequent upon loss, destruction or damage to any part of the infrastructure?

(3) Whether the relevant restrictions (either the Railtrack Programme or each ESR or each instruction) were consequent upon loss or destruction of or damage to the infrastructure, namely the Hatfield derailment, within the meaning of Special Condition 2(ii)?

(4) Whether ESRs which either continued in force or were first imposed after the reinstatement of the ECML at Hatfield were "continuing restrictions placed upon the use of the infrastructure" within the meaning of Special Condition 2(iii)?

24. It was not suggested by any of the parties that the differences in wording between the two policies gave rise to any disparity in construction (save of course for the effect of Special Conditions 2(ii) and (iii) which only applied to the St. Paul policy). Accordingly I propose to try and avoid confusion by concentrating on the CGNU policy. The conclusions that I reach on the proper meaning and effect of that policy apply pari passu to the St.Paul Policy.

The insured peril

25. The threshold issue relates to the construction of the Denial of Access extension. It was Eagle Star's case, later adopted by the Claimants, that the "occurrences" referred to in the first paragraph were the events specified in the lettered sub-paragraphs to the second paragraph. The Herbert Smith Defendants submitted that the "occurrences" in the first paragraph were the events specified in the entirety of the second paragraph.
26. It was common ground that the relevant initiating activity for the purpose of the present case was that specified in sub-paragraph (a), namely the action of a competent authority (Railtrack) for reasons of public safety. Thus the scope of this dispute on construction was as follows: -

a) If the Claimants and Eagle Star were correct, the relevant insured peril provided by the extension was the action or actions of Railtrack in that regard occurring before the expiry of cover on the 31^st October.

b) If the Herbert Smith Defendants were correct, the relevant insured peril provided by the extension was the prevention or hindrance in the use of track caused by Railtrack's action or actions prior to the expiry of cover.

27. The impact of the resolution of this dispute was somewhat narrowed by the supplementary argument deployed by the Claimants and Eagle Star that there was a single action by Railtrack in the form of the Railtrack Programme or, alternatively, a single prevention or hindrance which incorporated all the ESRs issued under what was termed the Railtrack Programme, whereby in either case all losses sustained whether before or after the expiry of cover were recoverable.
28. That said, the determination of the threshold issue of construction has an important influence on this secondary issue as to whether there was a single insured peril or multiple perils. The fact remains that, as is explained in greater detail later in this judgment, it may be easier to identify the Railtrack Programme as a composite action of a competent authority than as both such a composite action giving rise in turn to a composite prevention of access.

The construction issue

29. Considerable oral and written argument has been devoted to the topic of the nature of the occurrence or deemed Incident. Nonetheless I believe I can take the matter very shortly. Reflection has not dispelled my initial impression that the Herbert Smith Defendants' analysis is to be preferred: -

a) The structure of the extension clearly suggests that the "following occurrences" referred to in the first paragraph are what in fact follows in the second paragraph.

b) This is confirmed by the phrase "and caused by" which requires to my mind that the prevention, appropriately caused, is to be the occurrence.

c) The contrary argument gives rise to the surprising outcome that the assured will be enabled to claim under the policy in respect of an action occurring within the policy period even though by the time cover terminated, no prevention or hindrance had yet occurred: this outcome is particularly difficult to reconcile with a policy that otherwise only responds in the event of some occurrence which by definition has an impact on the insured's business.

30. The Claimants placed considerable emphasis on the fact that "following occurrences" was expressed in the plural. I derive no assistance from that, not least because in the same breath the clause provides "such occurrences being deemed an Incident". In short, on either view of the clause, four different classes of occurrence are provided for.
31. I conclude that the cover has been extended inter alia to encompass the peril of losses in consequence of an insured being hindered in the use of track which hindrance was caused by the action of a competent authority.

Prevention of Access

32. On the basis of their construction, which I have found to be sound, the Herbert Smith Defendants go on to contend that, in consequence, individual ESRs which came into effect prior to midnight on the 31^st October 2000 fall within the period of cover provided by the policies and (subject to exclusion, deductibles, aggregation etc.) losses attributable to each of them are insured under the policy. On the other hand ESRs coming into effect after that time fall outside the period of cover and consequent losses are recoverable (if at all) under any successor policy.
33. The Claimants and Eagle Star submit that, albeit there were numerous ESRs both before and after the 31^st October, they constitute only one prevention or hindrance of access. In short, it is submitted that there was only one occurrence. That occurrence is formulated in somewhat different ways: -

a) The Claimants say that the occurrence took the form of Railtrack's decision to implement the Railtrack Programme or, alternatively, the communication of that decision to the Railtrack zones, or, in the further alternative, the implementation of the programme, whereafter the imposition of all the ESRs for incidents of GCC up to May 2001 and beyond was inevitable as the "die was cast".

b) Eagle Star say that the prevention and hindrance of each Claimant's use of the tracks was a single occurrence in the form of a "continuing state of affairs" caused by the adoption and the implementation of the Railtrack programme during the policy period.

The historical background.

34. A vast quantity of documentary material was placed before the court dealing with the inspection and maintenance regime pursued by Railtrack both prior to and after Hatfield, supplemented by experts' reports put in by all three parties. To the extent that this material helped put into context the nature, scope and extent of the "Railtrack Programme" which followed upon the derailment, its presentation was legitimate and helpful. But, as I reiterate later, to the extent that it formed the basis of a submission by both the Claimants and Eagle Star that the pre-Hatfield procedures were "woefully inadequate", it was both illegitimate and unhelpful. I should make it plain that in outlining the circumstances leading up to the derailment and the immediate response to it, nothing I set out should be perceived as constituting an express or even implicit criticism of the procedures adopted by Railtrack.

RCF

35. Before recounting some of the background, it is necessary to explain, albeit briefly, the phenomenon of rolling contact fatigue ("RCF") and one of its specific manifestations, gauge corner cracking ("GCC"). This is rendered easy by virtue of the joint memorandum of the experts on this topic: -

i) RCF is a form of fatigue that occurs as a result of rolling and sliding of one component over another. The relevant example is a rolling-stock wheel on a railway rail, giving rise to cracks that begin at, or slightly beneath, the surface of the rail. It is caused by the high stresses close to the point of contact between the two components. Many wheel passes are required for the development of RCF.

ii) GCC is a form of RCF in which cracks appear in the "gauge corner" of the rail. Head checking ("HC") is a term variously used to refer to cracks on the top of the railhead as opposed to the gauge corner, or to cracks anywhere on the railhead (so that GCC is a subset of HC).

iii) RCF is a complex phenomenon brought about by a number of factors including:

Track usage (number and the speed of trains).

Weight and type of rolling stock.

Acceleration and braking.

Type of steel used in the rail.

Imperfections in the wheel and/or the rail.

Wheel and rail geometry.

Maintenance procedures.

Presence of contaminants between the wheel and rail.

Pre Hatfield

36. Railtrack's inspection and maintenance requirements were inherited from British Rail in 1994. The standards at that time were set out in BR's Track Maintenance Handbook published in September 1993. This handbook required routine visual and ultrasonic track inspections to be carried out at intervals dependant on the tonnage and speed of the traffic concerned. For the type of track thus identified as requiring the highest frequency of inspection, visual inspection was required twice per week and ultrasonic inspection once every six months. The ultrasonic testing involved used what was termed the U3 test which involved positioning the probe above the centre section of the railhead only.
37. An appendix to the handbook specified the minimum actions called for on discovery of a rail defect. The only action required for GCC was to report its extent and location with a view to its inclusion in the rail-grinding programme. The new Railway Group Standard published by Railtrack in September 1995 made no change to these requirements.
38. On the 2^nd of December, 1995 Tony Hind, Railtrack's Permanent Way Maintenance Engineer, wrote to all zone engineers as follows: -

"Gauge corner cracking, sometimes referred to as "head checking", is a defect type which has been detected visually on heavily used curves and in vertical S & C for a number of years. Occasionally, these cracks have propagated into broken rails, notably at Euston Station, Kilsby and Willington Power Station, all in 1988. Those at Euston and Willington caused derailments. In addition, in 1993, a large fatigue crack emanating from a gauge corner crack was found at Red Lion curve on the WCML in 1978 rail. This discovery raised the concern that gauge corner cracking could lead to rail failures on heavily used curves and that, in addition, the risk of failure may be related to the age of rail.

As a consequence, a research project was undertaken by BRR, Derby, and a report produced with recommendations for testing and subsequent minimum actions. The testing procedure (U14 copy attached) and minimum actions referred to in the report have been submitted to the Civil Engineering Subject Committee for approval…"

39. The letter went on to say that, pending the committee's evaluation of the recommendations, where any "tache ovale type" defect was discovered during periodic ultrasonic testing with the U3 test, at a location where GCC was also present, a further ultrasonic test was to be carried out using the U14 procedure. (The U14 procedure uses the same probe as the U3 procedure but is positioned approximately 10mm closer to the gauge corner of the rail). The letter went on to state that where any defect was detected using the U14 procedure, a temporary speed restriction of 20 mph was to be imposed and the rail was to be changed within 36 hours (i.e. what was termed a 1A defect).
40. This reference to "tache ovale" type defects requires some explanation. Tache ovale defects are fatigue defects that develop internally. Strictly speaking the term should only be used to describe the kidney shaped cracks which develop from a hydrogen induced shatter crack created in the manufacturing process, but the term has often been used loosely in the UK railway industry to describe RCF defects in general. It is clear from the draft testing procedure that it was being used in the latter sense.
41. The use of the U14 procedure at GCC sites was incorporated into issue 2 of the Railtrack Line Standard on Track Inspection Requirements in April 1997 with the effect that the minimum action required on discovery of GCC, whether visually or ultrasonically, was amended so as to require not merely a report for inclusion in the rail grinding programme but also the application of U14 in the next testing cycle.
42. By means of a letter dated 15^th December 1997 from Dr Allen, Railtrack's Permanent Way Development Engineer, an experimental change to the procedures for dealing with RCF on the West Coast Main Line (WCML) was introduced. The experimental procedure required sites with visible head checking to be inspected routinely using the U14 procedure every 3 months in addition to the routine U3 inspections which were to continue at the normal frequency (i.e. every 6 months). A range of mandatory actions was prescribed for defects discovered using the U14 procedure depending on the level of flaw indication produced by the U14 tests and on the extent to which the U3 procedure also resulted in a flaw indication. In particular it was only if a significant flaw indication was obtained using both U3 and U14 that 1A action was to be implemented. In April 1999 issue 3 of the Line Standard was promulgated. The effect of a new appendix D.4 was to adopt the experimental procedures introduced on the WCML for the whole network.
43. On the 5^th May 1999, a meeting took place between the Zonal Track Engineers. Their discussion focused on two relatively recent examples of RCF related rail failures. One example had been a broken rail at Hemel Hempstead in a switch diamond attributable to a tache ovale type defect emanating from gauge corner cracking. The formal investigation into the incident revealed that the track had been subjected to the appropriate weekly visual and 3 monthly U3 ultrasonic inspections thereby satisfying the requirements of the line standard. Since no GCC was visible at the site, no U14 inspections had been carried out.
44. The enquiry concluded that the cracks in the gauge corner area of the rail had not been identifiable visually and were only visible after treatment by magnetic particle inspection (MPI). The fractures had in fact occurred at locations where there was severe lipping to the bottom of the gauge face contact area. The board concluded that there was "no developed technique for examining rails with lipping to the base of the contact gauge face area to identify the presence of cracks". The outcome was to embark upon examination by U14 and U3 testing of similar S & C layouts. It also became mandatory to remove all lipping in S & C layouts to be followed up by MPI.
45. On the 12^th December 1999 the head of Track Asset Management at Railtrack, David Ventry, wrote to all zone track engineers on the issue of management of head checking : -

"Rail head check defects are rapidly increasing on our high speed and high tonnage routes. If allowed to develop they will result in rail breaks. Current evidence indicates that there is a risk of rail breaks occurring at around 80EMGT (i.e. equivalent million gross tonnes) traffic carried after head checking is first observed."

46. A note was attached to the letter setting out what was Railtrack's current best practice for management of RCF. This reflected the existing standards as supplemented by the letter itself but also recognised that shallow cracks underneath the surface of the railhead could deflect a signal from ultrasonic probes resulting in the loss of "bottom echo". The attachment prescribed that the procedure identified in appendix D4 should be followed in these circumstances with modifications. In short, in the event of loss of bottom echo, such was to be treated as a defect and, if the defect was isolated, the rail was to be clamped and changed within 7 days (and, if it was not possible to clamp or if the defect was not isolated, then a 20 mph ESR was to be imposed and the rail changed within 36 hours).
47. At a meeting of the Zonal Track Engineers on the 7th March 2000 it was decided to postpone discussion of the management of head checking until the next meeting. Concerns were being expressed that the problem was getting out of control. Urgent comments from the zones were requested so that the matter could be considered in some detail.
48. The next meeting duly took place on the 19^th April 2000. At that meeting a paper by Simon Hardy, Railtrack's Principal Asset Manager, on the management of head checking was handed out and discussed. The paper focused particularly on the prospect of management of head checking by grinding. David Ventry's view as expressed in the minutes was that Simon Hardy's work "was leading towards rewriting the guidelines and eventually, if necessary, changing the standards – at present the emphasis is on collecting and understanding of all the data."
49. At the track engineers' meeting on the 5^th July 2000, Simon Hardy circulated a further paper, this time relating to broken rails. Some 917 broken rails had been reported for 1999/2000 (an increase of about 20%) but there were doubts as to the root cause of the failures. The meeting recognised that the problem of head checking was a national one and it was decided that the whole question of ultrasonic testing needed to be looked at again.
50. A further paper was circulated by Simon Hardy at the meeting on the 26^th September 2000 (three weeks before the derailment) entitled "Inspections and Actions for Head Checking/Rolling Contact Fatigue". The paper proposed the following: -

1. The contractors should establish a system to record railhead conditions and in particular the development of head checking.

2. All rails with head checking should be examined visually at intervals of not less than 3 months.

3. Inspection should cover lengths of 36 metres beyond the points which were previously recorded as the limits of the affected lengths of track. Where cracks occurred at less than 36metres intervals, all affected rails should be considered and reported as one site, categorised according to the worst crack size.

4. The site should be categorised as having light, medium or heavy head checking. Light to be less than 10mm, medium to be 10-20mm, heavy to be greater than 20mm.

5. Sites should be inspected ultrasonically using the U14 procedure at the following intervals in high risk areas:

Light cracking 6 monthly

Medium cracking 3 monthly

Heavy cracking 4 weekly

If an ultrasonic response was obtained at a position on the time base beyond 1.5 positions, the rail should also be inspected using U3.

6. If during visual inspection heavy cracking was identified then, if the length of any crack exceeds 30mm, the remedy should be to clamp the rail and replace within 7 days or, if clamping was not possible, to apply a 20 mph ESR and change the rail within 36 hours. Any cracks with a length in the range 21 – 29 mm should also be clamped if possible and ultrasonically inspected within 7 days. Again if clamping was not possible, apply to a 20mph ESR until inspection has been undertaken. If during visual inspection localised heavy lipping was identified clamp the rail and replace within 7 days or if clamping is not possible apply a 20mph ESR and change the rail within 36 hours (on the basis that lipping was always associated with cracks but hidden by it).

The effect of the Hatfield derailment.

51. The derailment occurred at 12.23 pm on the 17^th October, 2000. It is the Claimants' and Eagle Star's submission that the Railtrack Programme began that afternoon or evening when the National Control Centre of Railtrack issued a letter of instruction marked for the urgent attention of all zone track engineers and entitled "Identification of gauge corner cracking sites with high risk potential". The instruction provided (albeit amended slightly the following day) as follows: -

"All sites which have gauge corner cracking that are in the current year's renewal plan, or which have been deferred from this or a previous year's renewal plan. Action: Impose a TSR of 20 mph at any site where there are signs of pieces of the running surface of the rail breaking out. On other sites reduce the maximum permitted speed of passenger trains by one third of the site's permitted speed. Reduce the maximum permitted speed of freight trains by one third of the site's permitted freight speed. "

52. On the 19^th October 2000 Railtrack issued a memorandum to zone directors and track engineers entitled: -

"Immediate Actions for Head Checking (Gauge Corner Cracking)."

It was accompanied by a memorandum which was in large part the same as the memorandum presented by Simon Hardy to the track engineers meeting on the 26^th September 2000. The memorandum applied to all sites which had been identified for ERSs following the derailment and was expressed to be mandatory. It stated that those sites were to be inspected as soon as reasonably practical and classified as severe, heavy, moderate or light according to the length of the longest visible cracks. A number of remedial actions were prescribed for sites of different degrees of cracking as follows: -

1. Severe i.e. sites with spalling which precluded the ability to test the rail ultrasonically and sites with visible cracks 30mm or longer. In both cases a 20 mph ESR was required and the rail was to be changed as soon as reasonably practicable.

2. Heavy i.e. sites with visible cracking 20 – 29mm long a 20 mph ESR was required until the rail had been examined ultrasonically. If the ultrasonic testing detected a defect, the ESR was to remain in place and re-railing to take place within 3 months; if no defect was found by ultrasonic testing, periodic visual and ultrasonic inspections were required at the frequencies specified.

3. Moderate i.e. visible cracks 10 – 19 mm and light i.e. less than 10 mm long - no speed restrictions required but visual and ultrasonic inspections were to be carried out at specified frequencies. If any defects were detected by ultrasonic inspection they were to be treated as prescribed in an appendix.

53. On the 23^rd October 2000, the scope of the remedial activity was greatly enlarged by a further memorandum from David Ventry to all zone track engineers which called for all known GCC sites on the network, regardless of whether ESRs had already been imposed at those sites, to be subjected to the criteria applied by the 19^th October instructions.
54. On the 24^th October 2000, David Ventry issued a further letter of instruction, this time relaxing the requirements for sites with heavy RCF. It read as follows: -

"The scale of the problem with Gauge Corner Cracking (GCC) is larger than anticipated and there are risks associated with large numbers of emergency speed restrictions (ESR's) on the network).

It has therefore been agreed by Chris Leah and Jonson Cox that the actions for Heavy GCC with visible cracks between 20mm and 29mm long with be revised forthwith.

For Heavy GCC the rail must be ultrasonic tested by midnight on Sunday 29^th October 2000. Until the rail is ultrasonic tested line speed may remain. If defects are found by ultrasonic testing, a 20 mph must be imposed immediately. If not, line speed may remain but visual and ultrasonic testing in accordance with my instructions dated 19^th October 2000 must be introduced.

For severe GCC the existing instruction must be applied i.e. a 20 mph ESR must be imposed."

55. The impact of these instructions as at Wednesday 24^th October is revealed by a briefing note prepared by Railtrack for the information of the train companies. At that time it was currently thought that there were some 1,800 sites where gauge corner cracking was suspected to be a problem. Of those, some 300 were severe sites which, following the grouping together of some sites, had produced 181 ESRs. It was anticipated at that stage that further inspections would lead, by the end of the month, to a further 150 – 200 ESRs.
56. Railtrack issued two further instructions on the 26^th and 27^th October putting back the date by which ultrasonic testing of the heavy sites was required to be completed to the 31^st October and 5^th November 2000 respectively. In addition a risk assessment procedure was introduced on the 27^th October to be performed by a multi-disciplinary team at sites where ESR's had been imposed with a view to making recommendations to a central review panel for the prescribed speed of the ESRs to be increased.
57. However, it remained the case that, on all sites where the railhead had spalled, a 20 mph speed limit was mandatory. A further memorandum that same day emphasised that those locations where there was a loss of the rail bottom signal from the probe should be classified as severe due to the potential for the defects being hidden beneath the surface. This latter matter was varied by yet a further memorandum issued on the 30^th October 2000 which provided that the risk assessment procedure could nonetheless be applied to sites with spalling where the rail was ultrasonically testable and no defects had been found on testing.

Post Policy Period

58. The period of cover under both policies terminated on the 31^st October 2000. November saw the first references in any document to some form of "programme" or "plan". For instance, on the 2^nd November, the Chief Executive of Railtrack, sharing a platform with John Prescott, then Transport Secretary, announced progress on the "National Track Recovery Plan". (Mr Prescott had announced on the 27^th October that such a plan would be "up and running within two weeks".) On the 3rd November, Railtrack duly wrote to Central Trains under the heading of "GCC Recovery Programme".
59. On the 4^th November, Permanent Way Special Instruction (PWSI) No.1 was issued by Railtrack on the management of head checking. It had the express status of a Line Standard and it superseded all previous instructions, in particular those issued on or after the derailment. The instruction dealt separately with three different scenarios: -

1) Type A. Plain line and full section rails in switches and crossings where head checking either affects more than 200mm rail or was within 4.5 metres of any other defect. The steps to be taken varied according to the severity of the observed head checking and were substantially the same as those in the instructions dated 19^th October 2000 subject to some variations in periodic inspection frequencies and the actions required following ultrasonic inspection.

2) Type B. Plain line and full section rails in switches and crossings where head checking neither affects more than 200mm of rail nor is within 4.5 metres of any other defect. For moderate and light defects, the steps to be taken were substantially as for Type A. For either severe or heavy head checking, the actions were now the same in either case and required re-railing as soon as reasonably practicable. However in the meantime an immediate 20 mph ESR was only required if the defect either could not be clamped or was in any part of switch, stock or crossing rail.

3) Type C. Planed rails in either switches, and crossings or expansion switches. Broadly speaking the actions to be taken here were stricter than for Types A and B and in the case of severe and heavy checking required the imposition of an immediate 20 mph ESR and re-railing as soon as reasonably practicable.

60. The first amendment to PWSI 1 was made on the 7^th November. On the 9^th November, Railtrack made a presentation to both the Prime Minister and the deputy Prime Minister entitled National Recovery Programme. The press release following this meeting stated:

The massive programme of safety inspections undertaken following the Hatfield accident has now been completed. The data from these inspections is now being fed into a comprehensive re-railing plan which will be finalised in consultation with the train operating companies over the next two weeks.

The network currently has around 500 speed restrictions in place with over 150 restrictions already lifted since the Hatfield tragedy and some 50 miles of rail replaced.

61. Thereafter on the 17^th November and 28^th November 2000, PWSIs 2 and 3 were issued which afforded degrees of relaxation of the procedures that had been put in place since the derailment.
62. In the meantime, a presentation had been made by Railtrack to the TOC's and a further presentation to the Prime Minister of what had now been renamed the National Recovery Plan. The response of the Rail Regulator in a letter dated the 29^th November to Steven Marshall, the new chief executive of Railtrack was highly critical:-

"No recovery programme can be comprehensive or complete until the scale of the problem has been fully understood. I am very concerned that six weeks after the Hatfield crash, Railtrack still does not appear to have reached that level of understanding, has yet to complete its inspection programme and is still imposing new speed restrictions. Railtrack's Report to Ministers of the 24^th November makes it clear that not even all sites with 'severe' gauge corner cracking GCC have been ultrasonically tested, whilst of the 1409 'moderate' or 'light' GCC sites only 600 have been tested.

…

Firm plans for recovery need to demonstrate how, and when, the concerns that have given rise to GCC speed restrictions will be addressed, and therefore when all such restrictions can be safely removed to allow the resumption of normal operation.

..

..you must realise that Railtrack has a duty to produce a robust and reliable plan that safely returns the industry to normal operation."

63. On the 8^th December, Railtrack produced a document entitled "National Recovery Plan". Its executive summary describes the "initial reaction" by Railtrack to the discovery that GCC was a significant factor in the Hatfield derailment as being to impose speed restrictions at sites thought to be at risk. Subsequent inspections revealed the extent of the problem albeit that ongoing research had allowed relaxation of some of the restrictions. "The National Recovery Programme (NRP) involves eliminating the risk associated with existing GCC sites and tackling the basic causes of the phenomenon." The programme contemplated a return to normal working by Easter 2001.
64. On the 2 January 2001, the Rail Regulator, following a submission by the TOC's, made an Order under Section 55 of the Railways Act 1993 requiring Railtrack to provide "a robust and fully risk-assessed national recovery plan before the 18^th January 2001" on the grounds that it was otherwise in contravention of its licence. An updated plan was duly produced by that date followed by further revisions in February and March. It was eventually wound up and replaced by an Infrastructure Improvement Programme in May by which time something approaching a normal timetable had been restored.
65. In April 2001, PWSI 4 was issued which replaced PWSIs 1 to 3. This update reflected, as its introduction stated, Railtrack's developing knowledge of RCF. This in turn was replaced in December 2001 by PSWI 4 Issue 2 with its particular emphasis on grinding.

The impact of the instructions

66. There is a wealth of evidence to the effect that the implementation of the instructions caused a massive degree of disruption across the whole rail network as a consequence of the imposition of ESRs and the work necessary for them to be removed. The problem is pictorially represented for the Scottish zone in a graph put in evidence showing speed restrictions applied in great numbers in the immediate aftermath of the accident but continuing to this day.
67. The scale of the problem can be comprehended by reference to the following table: -

Date	Cumulative no of GCC sites identified	Cumulative no of Temporary Speed Restrictions Imposed	Balance Remaining
5 November 2000	2829	571	533
30 November 2000	3732	852	572
8 December 2000	4000	919	555
12 January	4953	1002	441
Easter 2001	6769	1270	268
21 May 2001	6821	1286	151

68. These figures compare with the usual number of ESRs within any 4 week period of between 150 and 200. It is probably unnecessary to spend time on explaining the impact of the large number of ESRs being imposed over a 7 month period. But I heard evidence on this topic from a number of directors and other executives of the Claimant companies. The thrust of their evidence was as follows: -

i) Timetables, which are normally prepared 15 months in advance, incorporate an allowance for 1 or 2 ESRs that are likely to be present at any given time.

ii) The effect of, say, half a dozen speed restrictions requiring deceleration and acceleration inevitably leads to significant delay, further exacerbated if the restriction itself covers a substantial length of line.

iii) Late arrival can lead to delay or cancellation of succeeding services, with the added factor of trains thereby being put out of position and train crews out of hours.

iv) The disruption to one train operating company (TOC) will affect another if trains use or cross the same routes.

69. A good example of the sort of evidence to this effect is contained in the statement of Mr Ian Kay the Performance Manager of Central Trains: -

"We suffered particularly heavy disruption on the route from Stafford via Crewe to Liverpool, especially north of Crewe. By January 2000 this had become so severe that 10 of 16 services per day north of Crewe were planned not to run for 12 weeks. Other routes were subject to lengthy delays and cancellations as a result of ERSs on them. Our cancellations were often partial in that often some of our longer stopping services became so delayed en-route that we had to stop them before they reached their final destination and turn them back. That step results in two partial cancellations, as the return service from the final destination also of course cannot run. This happened in particular on the longer routes.

As well as ESRs on our own lines we also suffered badly from the disruption to the main lines which our services cross. As I have said, under normal circumstances the timetables are designed to mesh together so that we can cross other lines without having to wait for mainline services to pass on those lines. After Hatfield, most TOCs timetables were in a state of disarray and many services were either cancelled or ran with severe delays. The impact on our services was therefore that they were held at junctions for lengthy periods until the mainline services, which were themselves usually running very late, had passed by.

70. The scale of the work needed to remove these speed restrictions (which of course needed to remain in force until the remedial work was completed) is reflected in the following table relating to re-railing as at the end of January 2001: -

		13/11/00	12/01/01	Easter 01	% achieved	Scope to complete
TSRs	Imposed Removed Balance	852 280 572	1002 561 441	1050	53%	489
Rerailing Miles	To be replaced Completed Balance	426 124 302	450 258 192	450	57%	192
S & C Units	To be replaced Completed Balance	600 - 600	750 221 529	750	29%	529

71. In the event by May 2001 the re-railing requirements had risen to 500 miles with some 1150 S & C units requiring replacement.
72. It is also clear from the evidence that, where re-railing was required, ESRs remained in place for longer periods than might otherwise be expected on account of problems encountered by Railtrack in obtaining replacement rail, providing engineering trains and making competent staff available. Against that background a potential for anything near a normal network timetable capability was not restored, as I have already recorded, until about May 2001. Even then most TOCs found it impossible to meet timetables in the face of the continuing imposition of ESRs.

The Law

73. The issue here is whether there was one occurrence or event in the form of the overall impact of the implementation of the Railtrack programme as the Claimants and Eagle Star contend (and thus all ESR losses occasioned by virtue of the implementation of the programme over the entire 36 month extended period of indemnity are covered) or whether the imposition of each individual ESR was a separate occurrence or event (and thus only the losses resulting from ESRs imposed before midnight on the 31^st October 2000 are covered).
74. It has to be borne in mind that the question here is not one of the construction of an aggregation clause nor strictly speaking does it involve the determination of whether the losses were all in consequence of the same event. It is simply whether there was one hindrance to access consequent upon action of a competent authority (the Railtrack Programme and its implementation) or numerous hindrances consequent upon action of a competent authority (each and every ESR). Whether, if this latter construction is correct, those losses are to be aggregated is a different matter.
75. It follows that direct help may not be forthcoming from previous authority in determining the nature of what is in effect a unique factual situation. That said the present context makes it plain that the two words "occurrence" and "event" in so far as they define the scope of the peril insured against are to be regarded as synonymous: see also Kuwait Airways Corporation v Kuwait Insurance Co. [1996] 1 Lloyd's Rep 664 at p.686, Murray Arnold Scott v The Copenhagen Reinsurance Co. (UK) Ltd, [2002] Lloyd's Rep IR 775 at p. 784 and [2003] EWCA Civ 688 at para 54 & 55.
76. The conventional starting point of what constitutes an "occurrence" or "event" is the decision of Mr Michael Kerr QC (later Kerr LJ) sitting as an arbitrator in the Dawson's Field Arbitration in 1972 (albeit his award did not enter the public arena until 1998). The arbitration arose out of the hijacking of four aircraft, three of which were flown to Dawson's Field airstrip in Jordan and one of which was flown to Cairo. Mr Kerr QC held that the destruction of the aircraft at Dawson's field, which were all blown up within a period of about 5 minutes, was one occurrence, but the loss of the other aircraft at Cairo was a separate occurrence. He put the matter in this way: -

"Whether or not something which produces a plurality of loss or damage can properly be described as one occurrence therefore depends on the position and viewpoint of the observer and involves the question of degree of unity in relation to cause, locality, time, and, if initiated by human action, the circumstances and purposes of the persons responsible.

I consider that I have to approach the present problem by putting myself in the position of an informed observer at Dawson's Field on 12^th September 1970, watching the preparations for the blowing up of the aircraft, the evacuation of the immediate vicinity and the blowing up of the aircraft. During this period he would of course have seen a multiplicity of actions and events including a number of separate explosions which destroyed the aircraft. Would he then say that the destruction of the aircraft was one occurrence or a series of occurrences? The answer must be subjective. No one contended that each explosion was a separate occurrence. In my view there was one occurrence, one event, one happening; the blowing up of three aircraft in close proximity, more or less simultaneously, within the time span of a few minutes, and as the result of a single decision to do so without any one being able to approach the aircraft between the first explosion and their destruction. I cannot regard this as a "series of occurrences" any more than the example of a mass execution by a firing squad, which was one of the illustrations put forward on behalf of the Respondents. It seems to me, with respect, an excellent illustration, but I cannot begin to see how any one could sensibly contend that the victims died in a series of occurrences."

77. This approach is not dissimilar to the observations of Lord Mustill in Axa Reinsurance v Field [1996] 1WLR 1026 at p.1025: -

"In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way…A cause is to my mind something altogether less constricted. It can be a continuing state of affairs; it can be the absence of something happening."

78. In Kuwait Airways Corporation v Kuwait Insurance Co. [1996] 1 Lloyd's Rep, 664, Rix J having cited Caudle v Sharp [1995] LRLR 433 and the Dawson's Field Award went on: -

"It seems to me that these authorities justify the following propositions. An "occurrence" is not the same as a loss, for one occurrence may embrace a plurality of losses. Nevertheless, the losses' circumstances must be scrutinised to see whether they involve such a degree of unity as to justify their being described as, or as arising out of, one occurrence. The matter must be scrutinised from the point of view of an informed observer placed in the position of the insured. … In assessing the degree of unity regard may be had to such factors as to cause, locality and time and the intentions of human agents. An occurrence is not the same thing as a peril, but in considering the viewpoint or focus of the scrutineer, one may properly have regard to the context of the perils insured against."

79. The issue of unity arose again in Mann v Lexington [2001] LR IR 179. A retrocession contained a limit of $5m "per occurrence" and applied a deductible "each location any one occurrence", against the background of reinsurance which spoke of "each and every loss, each and every location". The losses were at 67 supermarket stores each in different locations, which had been damaged over the course of two days by rioters in Indonesia. The retrocessionaire's case, that the total riot damage constituted one occurrence, was based on the allegation that all of the rioting was deliberately orchestrated by the government then in power.
80. The Court of Appeal held however that, in its contractual context, an "occurrence" had to occur at a particular location and therefore all of the losses could not be aggregated. But Waller LJ went on to consider what would follow on the assumption that the word "occurrence" was not limited to an occurrence at a particular location; -

"42. …The question which would have to be answered is whether the damage suffered by the properties was one of occurrence or resulted from one occurrence, and that would not be so simply because they were suffered as a result of one peril even if there was some unity of time.

43. During the course of argument different examples were given what might or might not be one occurrence. For example, damage caused by a typhoon to two semi-detached properties, was something Mr Swainston was inclined to accept might be one occurrence or resulting from one occurrence…..

44. But in any event in the instant case it is not one typhoon which has caused damage at one moment in time. What have caused the losses are the acts of rioters over a wide area, at different locations, and over two days. It seems to me that Mr Flaux had to accept that he could not point to any unity in time nor any unity as to place. All he could point to as a unifying factor was the fact (as his clients would seek to prove), that the riots were centrally orchestrated by the government, and that there were agents provocateurs present at each of the locations where damage was suffered. He submitted that if his clients could establish that unifying factor, they would be able to establish there was "one riot", and thus one occurrence.

45. In my view, even if there might be a circumstance in which an occurrence could cover damage to more than one property, it seems to me difficult to conceive of a situation in which if the properties were some distance apart, and if there was lack of unity of time, there could still be one occurrence by virtue of some factor as "orchestration". The reasoning of Mr Michael Kerr QC and Rix J seems to me applicable to a general consideration of the meaning of the word occurrence in the insurance context, and I find no support in their reasoning for Mr Flaux's submission…."

81. The most recent foray into the arena is to be found in the decision in the Court of Appeal in Scott v Copenhagen Insurance Co. (UK) Ltd. [2003] EWCA Civ.688 which was concerned with the loss of a BA aircraft at Kuwait International Airport at the beginning of the 1990 war and, in particular, whether its loss arose from the same event that had led to the loss of the KAC aircraft following the invasion and capture of the airport. Rix LJ gave the lead judgment. He disagreed with the submission made by the appellant that the test of the "unities" was inappropriate in a case where one event led to both immediate total losses and to other total losses more distant in time and went on to say: -

"81. Are the losses to be aggregated as all arising from one event? That question can only be answered by finding and considering all the relevant facts carefully, and then conducting an exercise of judgment. That exercise can be assisted by considering those facts not only globally and intuitively and by reference to the purpose of the clause, but also more analytically, or rather by reference to the various constituent elements of what makes up one single unifying event. It remains an exercise of judgment, not a reformulation of the clause to be construed and applied.

82. In a Dawson's Field situation lack of unity of time may be critical; it was also stressed in Mann v Lexington. In the latter case, the lack of unity of time and place was not made good by an assumed orchestration of purpose. In the present case, however, there was unity of place only. There was no unity of time, only an identical starting point for enquiry. That was indeed something, but there was no unity of purpose or intent or of cause. Was the element of an identical starting point for enquiry enough? As the judge said; "The need for and the passage of time before the loss is established" – I would prefer to say "before the loss actually occurred" – "and in the intervening events in my judgment make it more and more difficult to characterise the loss as one arising from the invasion…" I agree.

83. In sum, if, on the facts found, and for the purposes of the issue of aggregation, the question is asked "Did the aircraft's loss arise from the same event as the loss of the KAC fleet, or some separate event?", or even (to put the question in a form which contains the specific options) "Did the aircraft's loss arise from the invasion and capture of the airport, or from the war or the aircraft's destruction in the war?" I would agree with the judge's intuitive response. It did not arise from the invasion. In particular it did not arise out of the same event as the loss of the KAC fleet. It arose from its own particular circumstances, a different event. I would be inclined to say that it arose from the event of the war. If the same question is put with the assistance of the "unities", it seems to me that the intuitive response is confirmed. The loss of the BA aircraft arose from circumstances which differed markedly from those which governed the loss of the KAC fleet. Only their location, and the timing of the start of the story, were the same. Both those factors, as they concerned the BA aircraft, were a matter of chance, whereas the KAC fleet was at home, where Iraq intended to seize it and make it its own, as part of a policy of Kuwaiti plunder, based on historical claims to sovereignty over Kuwait. The tortuous events of international diplomacy and coalition building which led to war, and the loss of the BA aircraft in and as a result of war, some six months later, had nothing to do with the loss of the KAC fleet."

82. Against this background, the criteria for testing the existence or otherwise of one event were not controversial and can be summarised as follows: -

i) There must be a sufficient degree of unity to justify the label of an event.

ii) The assessment of unity will be by reference to time, locality, cause and motive.

iii) The matter is to be scrutinised from the perspective of an informed observer in the position of the assured.

iv) The assessment is to be made both analytically and as a matter of intuition and common sense.

One occurrence: one insured peril

83. The Claimants' submission was, first, that the measures taken by Railtrack in the wake of the Hatfield derailment were all part of a single and systematic programme, albeit adapted over time as the company's knowledge and understanding of RCF developed. Put another way, it was said that "there was a sufficiently common thread running through all the instructions to justify them being regarded as a single programme". Second, it was submitted, that, even if the relevant occurrences or events (as indeed I have found it to be) were the TOCs being prevented from or hindered in their use of or access to the network by a sequence of ESRs, they in turn could be properly regarded as one occurrence since the "die was cast" from the moment that Railtrack issued the first post Hatfield instruction on the 17^th October 2000. From that moment, the argument ran, the Claimants were effectively hindered in their use of or access to the network by a "logical, systematic and inevitable progression of restrictions of access" and that, accordingly, "the overwhelming impression to be gained from the facts" was that there was only one occurrence or event, namely Railtrack's decision to implement the Railtrack Programme or the communication of that decision to the Zones or the ensuing implementation of the programme.

The Railtrack Programme

84. One of the features of the case is the difficulty in identifying precisely what the Claimants mean by the term "programme". The pleaded case is as follows: -

"15. Immediately following the derailment, Railtrack adopted and implemented an emergency programme of inspection of the network, imposition of emergency speed restrictions ("ESRs") and re-railing on those parts of the network affected by gauge corner cracking. This programme is referred to hereafter as "the Railtrack Programme". The Railtrack programme took effect from 17^th alternatively from about 18^th October 2000 and included the following:

(1) At 22.00 hours on 17^th October 2000 (immediately following the derailment), Railtrack imposed ESRs on numerous sections of track across the network on account of and as a precaution against the risk of gauge corner cracking suspected to exist at these sites. Railtrack is empowered to impose such ESRs on the Claimants under their TAAs.

(2) On or about 18^th October 2000 Railtrack issued instructions to its zones as evidenced by a slide presentations given by Railtrack to TOCs on 19^th October 2000 and entitled "Immediate Inspections and Actions for Head Checking/Rolling Contact Fatigue", requiring inspection of the network, imposition of ESRs on those sections of track found to be affected by gauge corner cracking and re-railing of affected sites.

(3) The instructions referred to in (2) above were subsequently embodied in more detailed form in Permanent Way Special Instructions ("PWSIs") issued by Railtrack and expressed to be mandatory on Railtrack and its contractors. There have been four relevant PWSIs, dated respectively 7^th November 2000, 17^th November 2000, 28^th November 2000 and 27^th April 2001."

85. This definition immediately reveals some of the tensions in the Claimants' argument: -

i) The programme is said to encompass instructions issued (and action prompted thereby) over a period of 6 months, yet the implementation is said in the same breath to have taken place prior to the expiry of cover some two weeks after the derailment.

ii) The programme is said to include the imposition of both the emergency speed restrictions and the re-railing, yet the Claimants in their closing submission were at pains to distinguish between the imposition of ESRs (which were said to have caused the disruption and consequent losses) and Railtrack's attempts to remove the ESRs and restore access; the former it was said was the subject of the Railtrack Programme whilst the latter was the subject of the National Recovery Plan.

86. The Claimants' case is further undermined by the rather different case as to the nature and content of the programme advanced by Eagle Star. It was their primary submission that the programme was made up of the three sets of instructions issued on the 17, 19 and 23^rd October. These were, it is true, issued during the currency of the policy but, on the other hand, they were almost immediately superseded by PWSI 1 on the 4^th November. Furthermore, it was to be noted that Eagle Star's case was that the Railtrack Programme, far from being something separate from the National Recovery Programme, simply underwent a change of title.
87. It is not difficult to see why the Claimants at least were anxious to divorce the National Recovery Programme from the Railtrack Programme. The recovery programme was heavily criticised by the TOCs and the rail regulator as not constituting any form of robust and risk-assessed plan at all. The plan, having emerged in embryonic form in December, was updated and revised over the following months and never received any final approval.
88. I accept the Herbert Smith Defendants' submission that the term "the Railtrack Programme" is in effect an invention for the purpose of these proceedings. There is no reference to such a programme in any of the contemporary documents prior to the expiry of the policies. Although the Network Management Statement in 2001 refers to "the biggest programme of work for more than a century", this is a convenient label to encompass the overall response to the derailment.
89. The incremental development of inspection and repair is spelt out in the statement itself : -

"Following the restructuring and privatisation of the railway traffic grew significantly on the network: between 1994/95 and 1999/00 passenger traffic increased by a third and freight traffic by 40%.

These trends were temporarily disrupted by the Hatfield accident last October, which initial investigations concluded was caused by a broken rail. Once it had been established that the defect known as Gauge Corner Cracking (GCC) was the likely initiating cause of the accident, Railtrack inspected the entire network and imposed 571 emergency speed restrictions as a precautionary safety measure, as sites showing severe and heavy incidence of GCC. The network was then subject to an ongoing programme of inspection that identified around 30%of the network as having, or being susceptible to GCC.

In response, Railtrack imposed a large number of additional Temporary Speed Restrictions (TSRs) and, in co-operation with its train operator customers and contractors, drew up and began delivery the National Rail Recovery Plan. (NRP). This massive undertaking was aimed at restoring the network to normal operations in the quickest and safest possible time. It entailed a major increase in the rate of engineering activity on the network – with around 500 miles of track, and over 1150 switches and crossings (S&C) needing to be replaced. From 21 May 99% of services have been operating normally, and most operators' traffic levels are returning to pre-Hatfield expectations."

90. Of course, the immediate impact of the derailment was that Railtrack came to appreciate that GCC was a problem that needed to be addressed as a matter of urgency. But first impressions do not begin to lead to the conclusion that there was a time (or a place) where Railtrack decided to issue and implement a Railtrack Programme. To the contrary the impression is of a series of instructions and measures undertaken with a view to understanding the scale of the problem and then to remedy it.
91. The Claimants relied on the scale and cost of the measures taken to deal with RCF after the derailment. This was said to reflect a fundamental change to Railtrack's approach to the problem, in stark contrast with what would have happened, it was contended, if the derailment had not taken place. This was said to reinforce the conclusion that there had indeed been a Railtrack Programme.
92. But it has to be pointed out that at the time the initial instructions were issued in the wake of the derailment, it was anticipated that no more than 80 to 100 sites would prove to be in need of remedial work. Only later events proved that an enormous number of sites required urgent action, a process spread out over the following 7 months.
93. As to what would have happened if the Hatfield derailment had not taken place, there was considerable debate. I confess I was never persuaded that the exercise had any value. It simply restated the issue. It is certainly common ground that at the time of the Hatfield derailment there was a large amount of GCC affecting the entire rail network. A report dated the 25^th October 2000 (a week after the Hatfield accident) by Transportation Technology Centre Inc made an assessment of Railtrack's previous methods and plans for managing broken and defective rails. In their report they indicated the proposed programme of action for dealing with the increase in rail breaks as from September 2000. These included: -

i) Briefing note on head checking: November 2000.

ii) Good practice guide: December 2000.

iii) Increase in rail grinding capacity: January 2001.

iv) Reintroduction of Railtrack's ultrasonic

test unit 2000/1.

94. To the extent that it is relevant, I think it is probable that the new criteria for dealing with RCF suggested in the run up to Hatfield would have been adopted within 6 or 12 months. This would in turn have led to the unearthing of many of the GCC sites albeit they would have been dealt with in a manner which would not have caused disruption on anything like the scale which in fact occurred.
95. I have not forgotten the evidence of the directors and executives of some of the TOCs. They spoke variously of "a rolling programme across the network", "a single management response", "a single unified programme" and so on. But I derive no assistance from this material since I am not persuaded that this evidence reflected views contemporary to the events. Further, and in any event, they were clearly trespassing on the decision that was for the court.
96. In summary, I am unable to accept that there was a "Railtrack Programme" in anything other than anecdotal sense of there being a range of measures brought into play in reaction and response to the derailment for the purpose of ascertaining the extent of the GCC "infection" and the best means of eliminating it.

One prevention or hindrance.

97. A decision or a plan cannot constitute an event or occurrence. It is the promulgation and application of the programme that might. Since the insured peril is only brought about in the event of a prevention or hindrance, it is the ESRs that has to constitute the occurrence or event. It is in this context that the Claimants assert that the "die was cast" i.e. that there was a single but continuing prevented. But each ESR related to a specific incidence of GCC, prevented access to a specific length of track and prevented its unrestricted use for a specific period. No individual ESR was the natural or necessary consequence of any other. If, contrary to my view there was a Railtrack Programme in any singular and coherent sense, its existence simply led to the situation that a large number of ESRs were likely to be imposed across the network for many months.
98. Eagle Star's approach was to assert that the imposition of the ESR's was a "continuing state of affairs" caused by the adoption and the implementation of the Railtrack programme. But even on the assumption that there was a Railtrack Programme, a continuing state of affairs is not an "event".
99. These impressions are confirmed when regard is had to the degree of unity of time, of place, of cause and of intent as it would appear to an informed observer. On the face of it:

i) There is no unity of time. The ESR's were imposed over a long period running into months if not years. Indeed, on one view, they continue to be imposed today.

ii) There is no unity of location. The ESRs were imposed at hundreds if not thousands of different locations over the entire network.

100. Whilst there is a degree of unity of cause and intent in the form of the adoption and implementation of instructions issued in the aftermath of the derailment, yet, as has been explained, the response to Hatfield was incremental and variable. The justification for the ESRs was the discovery of individual incidents of GCC of sufficient severity to call for action under the instruction then in force, not by way of imposition of a unitary programme issued on a particular day.
101. For all these reasons, I accept the submission of the Herbert Smith Defendants that only losses sustained as a result of ESRs imposed before the end of October are within the scope of the cover.

The wear and tear exclusion

102. The threshold issue here is whether the general exclusion of damage caused by wear and tear is applicable to the denial of access provisions at all. The Claimants placed particular reliance upon the definition of CONSEQUENTIAL LOSS : -

"Loss resulting from interruption of or interference with the business carried on by the insured at the premises in consequence of accidental loss or destruction of or damage to property used by the insured at the premises for the purposes of the business."

103. It was accordingly submitted by the Claimants that, since cover under the extension was triggered by a deemed incident or damage rather than actual damage or loss, it followed that by definition there could be no CONSEQUENTIAL LOSS caused by or consisting of wear and tear.
104. I reject this submission primarily on the grounds that the denial of access clause expressly states that the extension is to be "subject to all the terms and conditions and provisions of the policy". Furthermore, it is common ground that the philosophy of the extension to the basic cover was to substitute a different specified event as a deemed incident. It follows, in my judgment, that losses which are consequent upon the prevention of access are incorporated into the definition of CONSEQUENTIAL LOSS.

RCF. Is it caused by wear and tear or gradual deterioration?

105. Although this matter was debated at some length, I have no doubt that RCF is a paradigm example of wear and tear. The general discussion earlier in this judgment reflects the agreement on the nature and cause of RCF. The important section of the experts' joint memorandum is set out in the section headed "Conclusions" as follows: -

"Conclusions.

6.1 Agreement

The existence of RCF of a particular type on a particular piece of track is influenced strongly by characteristics of the vehicles running over the track; characteristics of the track (including the rail itself), the operating conditions (including speed of trains) and environmental conditions (including water, discharge of toilets, grease-based wheel-rail lubricants, leaked fuel and leaked vehicle lubricants).

6.2 Disagreement

Dr Grassie believes that where RCF in general and HC/GCC in particular develop on rails, not only does this occur as a result of normal use of the network, but it is also an inevitable result of current rails carrying modern designs of railway vehicles under particular operating conditions. Where these operating conditions (in particular, high traction and contact stresses between wheel and rail) do not exist, RCF is similarly absent. Mr Clark suggests that the term "normal use" is not defined such that it can be applied in this context, not does he believe that GCC or RCF in the form of head checking is inevitable.

Whereas Mr Clark and Mr Grassie agree that RCF is absent from much (if not most) of the UK railway system, they disagree on the significance of this observation.

Mr Clark suggests that it indicates that head checking and GCC are not inevitable. Mr Clark suggests that where head checking and GCC has occurred, it is possible to eliminate the conditions associated with maintenance and management policies of track and vehicles which lead to the generation of such RCF, and to apply engineering and management solutions to significantly reduce the conditions associated with track and vehicle designs which lead to such RCF. He further suggests that it is not possible to select a specific location on the railway and know that it will develop RCF. In view of these points, he believes that head checking and GCC are not inevitable.

However, Dr Grassie suggests that the fact that RCF is absent from much (if not most) of the UK railway system indicates simply that the conditions for RCF do not exist on all parts of the system, and this does not detract whatsoever from his statement regarding inevitability of RCF during "normal use" of those parts of the network on which it does occur.

Dr Kapoor agrees with Dr Grassie. He adds (and Dr Grassie agrees) that many factors that contribute to RCF are difficult to control (rainfall, sharp curves in existing infrastructure etc.), and that it is his opinion that the usual compromise made is to suffer a degree of RCF on some portions of the rail network and to take suitable measures to ensure safe operation. He suggests that the alternative, which would be to design and operate railways to run at low speed, with low loads and few curves, is an option which few railway systems would find attractive."

106. In reality there is in fact no disagreement between the experts. Their approach to the incidence of RCF is on all fours with the definition of wear and tear to be found in Arnould Law of Marine Average and Insurance 16^th edition para 780: -

"Loss or damage under a hull policy is to be attributed to ordinary wear and tear… when it …is merely the result of ordinary service conditions operating upon the hull or machinery, as for example when the relevant part wears out, having reached the end of its expected working life, or when initially sound materials have undergone some process of deterioration, such as corrosion, which was introduced in the ordinary course of trading and remains uncorrected."

The fact that its emergence and spread is unpredictable is not to the point. Equally irrelevant is whether the wear and tear could have been controlled by proper maintenance.

107. The Claimants sought to persuade me that the evidence demonstrated that "the condition of the network was plainly a consequence of years of inadequate maintenance, under investment and neglect". Quite apart from the fact as I have already intimated that it would be wholly improper to embark on a critique of Railtrack's husbandry of the railway network on the limited material and argument before me, it would be a pointless task for present purposes. The fact that wear and tear can be controlled by proper maintenance does not change the nature of the deterioration: it remains wear and tear.
108. Of course, deterioration may not be attributable to wear and tear. One example is provided by the Canadian decision in The La Pointe [1991] 1 Lloyd's Rep 89 where repairers negligently installed the wrong type of cap screws whereby a flange failed. But in contrast, RCF, as one commentator put it, "will always be present in one form or another". Or again, Railtrack were advised that "no administration has reported a means to prevent the occurrence of head-checking while operating a commercially viable railway". The only way of eliminating the incipient development of RCF is to replace the rail (albeit the process may start again). Grinding may slow its development but the failure to grind does not change the nature of the process – it is still wear and tear.

Proximate cause

109. The wear and tear exclusion would only be operative if the excluded peril was the proximate cause of the loss. But I agree with the Claimants that wear and tear was not the proximate cause of the losses in the present claim. The proximate or effective cause of the Claimants' losses was the imposition of the various ESRs. The issue is sometimes put forward as essentially one of common sense. What brought about the loss? RCF was a known feature of the network (albeit the scale of it was not). It was formerly dealt with as part of routine maintenance with little, if any, disruption to the timetabled services. The losses are brought about by the myriad of ESRs imposed to try and bring the network back to a safe shape as soon as possible. The gradual development of cracks in numerous RCF sites was no more than the underlying state of affairs providing the occasion for action. It was not the event that triggered the cover.
110. Accordingly, I conclude that the general exclusion does not provide a defence to the claim.

Special Condition 2(ii)

111. It is common ground that the special condition in the St Paul policy was introduced in response to the Ladbroke Grove disaster. The immediate cause of that crash was the fact that one of the trains had passed a red light which was ill-sited. Further, when Paddington Station reopened following repairs and temporary modifications, there were a number of long-term speed and route restrictions imposed pending permanent modifications.
112. Special condition 2(ii) provides: -

"The action of a competent authority shall not include…

(ii). restrictions placed upon the use of the infrastructure not consequent upon loss or destruction of or damage to the infrastructure".

St. Paul contended that the Claimants' losses caused by the imposition of ESRs were thus to be excluded because they were not consequent upon loss or destruction of or damage to the infrastructure.

113. The Claimants' submitted that this argument was not well founded for two principal reasons: -

a) A construction whereby the restriction must be imposed because of physical damage to the section of line in question would deprive the cover furnished by paragraph 1A of the extension of any meaningful effect since cover would always be available under the general insuring clause in sub-section B of the policy.

b) Accordingly on a proper construction of the clause, damage anywhere in the network leading to the imposition of ESRs would allow recovery. Here, damage caused by the Hatfield derailment itself led to the restrictions placed upon the network elsewhere.

114. In response St.Paul submitted as follows: -

a) There are limitations upon the extent to which the fact that a particular construction occasions redundancy furnishes assistance in the proper construction. In any event the extension would not be deprived of effect since it would make it clear that cover is provided where, in consequence of physical damage, a competent authority acts to restrict access since otherwise it might be argued that the act of the competent authority and not the damage was the cause of the loss.

b) More importantly, the ESRs were not consequent upon the Hatfield derailment. The derailment was merely the occasion for identifying other GCC sites. The requirement that the restriction be "consequent upon" damage means, in the insurance context, proximately caused by such damage.

115. At one stage, I was attracted to the view that a distinction should be drawn between wear and tear simpliciter (e.g. thinning) and wear and tear giving rise to damage (e.g. cracks) and that the clause only operated to exclude the impact of the former. But this is not tenable since it is common ground that GCC is not damage if, as I have held, it is not fortuitous but attributable to wear and tear.
116. It also occurred to me that, read in its special context of a response to the Ladbroke Grove incident, the clause should not be construed so as to enlarge the wear and tear exclusion to circumstances where wear and tear was not the proximate cause of the insured peril, but should be treated as exhibiting a common intention to exclude the impact of restrictions brought about by defects in track design or layout as opposed to physical damage. But this approach is presented with the same difficulty since the infrastructure in the first part of the condition is presumably the same as the infrastructure in the second part. Thus it is perhaps not surprising that it was not an analysis promoted by any of the parties.
117. Approaching the matter more conventionally, I accept that the expression "consequent upon" will, in the insurance context, usually import the application of the notion of proximate cause: see e.g. Lloyds TSB v. Lloyds Bank [2002] Lloyd's Rep IR 113 at p.123. On this approach, the special condition raises the question: what was the proximate cause of the ESRs? The answer is not, in my judgment, the Hatfield derailment. The only restriction proximately caused by the derailment was the closure of the East Coast mainline. The proximate cause of the other closures or speed limits was the individual decision to impose them as an outcome of the re-assessment by Railtrack of its approach to GCC.
118. Accordingly I conclude that special condition (ii) furnishes a defence to St Paul.

Special Condition 2(iii)

119. This reads: -

"The action of a competent authority shall not include…

(iii) continuing restrictions placed upon the use of the infrastructure following the reinstatement of the infrastructure lost, destroyed or damage."

120. It was the Claimants' case that the phrase "continuing restrictions" following reinstatement applied only to the sort of on-going or long-term restriction that ensued after the Paddington repairs. This construction was said to be supported by the word "placed" where in its context it meant, "first imposed" after reinstatement.
121. St.Paul contended that the exclusion or condition applied to all continuing restrictions which remained in place after the physical damage had been reinstated and thus all losses incurred after the 10^th November (when the damage caused by the Hatfield derailment was reinstated) fall outside the policy.
122. I prefer the Claimants' construction. Once there is damage to the relevant part of the infrastructure, the context clearly supports the construction that, once that damage is repaired, any restriction then imposed is outside the cover.

The deductible

123. Again, there is no need to distinguish between the two policies. Aggregation is permitted for a series of insured losses arising from one (or a "single") event. It is common ground that this event must be different from and wider than the "occurrence" or "event" under the denial or prevention of access extensions. The Claimants submitted that the event, out of which the series of losses attributable to ESRs arose, was the derailment. The Defendants contended that the ESRs and the losses sustained as a result did not "arise out of" the derailment: in short that they were not proximately caused by the derailment.
124. In Axa Reinsurance v. Field supra, Lord Mustill contrasted "event" with "originating cause":-

"…the word "originating" was in my view consciously chosen to open up the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate".

125. This approach was followed by Hobhouse LJ in Municipal Mutual Ins Ltd v. Sea Ins Co Ltd [1998] Lloyd's Rep IR & Reins 421 at p.433 by way of contrast between "any one occurrence" and a series of occurrences attributable to "one source or original cause".
126. In the present case the right of aggregation can only arise if there was a single event from which a series of insured events arose. To restrict the qualifying single events to those which proximately cause the series of losses would render the aggregation clause nearly redundant. I prefer the Claimants' argument. In my view the qualifying single event can properly include the original causative event: see Caudle v. Sharp [1995] Lloyd's Rep IR 433. Here, the original cause of the ESRs was the derailment since it provided the unifying factor in the form of the occasion for a complete review of GCC on the network. In that sense, the losses all arose from one event and can be aggregated.