Network Rail Infrastructure Limited v Handy, Ingram, Hatfield, Parry and Godly (2015)
In this case, Mr Justice Akenhead has determined the correct approach to considering an economic loss claim, calculated by using a contractual formula. This case is of obvious interest to motor insurers. It is also of (less obvious) interest to property insurers and other claimants pursuing damages for financial loss calculated on a contractual formula.
The case concerns the right of Network Rail, as the operator of the British railway network, to recover from motorists (or rather their insurers) losses suffered by Network Rail as a result of trains on the network being delayed or suspended when motorists hit bridges or other parts of the infrastructure. Contracts with train operating companies (“TOCs”) make Network Rail contractually obliged to make payments to TOCs when the service is delayed.
In a previous case (Network Rail Infrastructure v Conarken Group 2010) , the Court of Appeal held that these payments were recoverable by Network Rail from motor insurers. However, the same defendant insurer challenged the payments on a different basis in this new decision, unsuccessfully.
The major challenge, and why it is of interest to claimants generally, was the assertion that there should be a minute examination of the mechanism by which payment was calculated to see whether, in each and every respect the payments made by Network Rail to TOCs reflected the loss suffered by the TOCs. The court decided that the formula designed to take account of a large number of factors, including, for example, long term disaffection with railway transport by the customers who were affected, should not be subject to close investigation by the court when the contractual formula is overall a reasonable and responsibly constructed attempt to reflect the likely losses.
This may have consequences for other attempts in drafted contracts, such as provisions to calculate for loss of profits in the form of liquidated damages. Clearly, if the sums thereby calculated were grossly disproportionate to the loss, they would be classed as penalty charges and would be unenforceable (there was no suggestion of that in the Network Rail cases). If on the other hand, they were a reasonable and responsible attempt to formulate the loss, the court said they should be upheld and it should not be open to a defendant (whether motorist or other damage doer) to question each one of the numerous elements that have been considered in comparison with the actual loss suffered on the particular occasion.
The court was also originally asked to consider whether such economic losses could be recovered where a claim is one of trespass without damage actually having being suffered. This can be a situation where the line is stopped while the possibility of damage is investigated but there is no damage. In fact the defendants conceded that trespass and damage are the same thing in this instance. However, the judge made it clear that physical damage is not a pre-requisite of the right to claim for the economic losses in trespass, so that claimants in general can recover this.
This should resolve, once and for all, how the courts should approach formulae for determining financial loss, which, of course, are a good thing when the alternative might be a very complex investigation into minutiae which would be disproportionately costly.