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Recovering economic losses? Just use your common sens

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There has always been an air of uncertainty surrounding whether or not you can recover purely economic loss.  It has generally been held not to be recoverable where there is no duty owed to the person suffering the loss or where the loss is too remote and/or truly independent of the physical damage suffered as a result of negligence.  For instance, when a subcontractor working in a supermarket accidentally drills through some electricity cables causing the refrigerators to fail, it is arguable that he is liable to compensate the supermarket for the cost price of the goods ruined (physical damage arising as a direct result of the negligent act), but not the profit that the supermarket would have made on those goods had they been able to sell them; it would appear that is purely economic loss and the profit cannot be recovered.  However, in a recent case in the Court of Appeal, Conarken and Farrell v Network Rail Infrastructure [2011], the Court suggested it was a case of working out what was fair and reasonable and common sense.  

Facts of the cases

The case concerned two unrelated accidents involving lorry drivers from two transport companies causing damage to a railway bridge, and separately to overhead electricity cables. This resulted in damage to the railway tracks (owned by Network Rail) making them unusable whilst repairs were carried out.  Under a third party contract, Network Rail owed a liability to the train operators in that event, as the trains were either late or unable to run.  The losses claimed from Network Rail by the train operators included future losses, such as loss of future revenue from train fares where, for instance, customers had lost confidence in the train operator.   Network Rail sued the transport companies for recoverability of the payments they had to make to the train operators.  Network Rail argued that it was foreseeable that they would suffer financial loss as a result of damage caused to their property which meant disruption to the trains running on their tracks.  It was foreseeable and not too remote that this disruption meant that Network Rail would owe a liability to the train operators.   The transport companies accepted that they had to pay for the physical damage caused to the property but denied liability for the economic losses.  They argued that the losses being claimed for the delays and future losses were irrecoverable economic losses, and as the property of the train operators was not damaged, they could not be directly liable for the losses suffered by the train operators.  They also argued unfairness in that they could never know how the contracts between Network Rail and the train operators would calculate any payments in such situations; it was just too remote.

Court's decision

The Court of Appeal held that Network Rail could recover its losses because it was reasonably foreseeable that if the railway lines were damaged, Network Rail would suffer loss of income.  The point was that the lines were 'revenue earning property' and if such property is damaged, the lost income generated by that property was recoverable.  This was not pure economic loss.  The Court said the transport companies may not know how the third party contracts would calculate payments, but it was foreseeable to expect that Network Rail would have to compensate the train operators.  As long as there were no exceptional circumstances or something so obviously unreasonable within the contracts, the Court would not delve into the calculation of the loss of income arising from revenue generating property, as long as it could be proven that the lost income arose as a result of damage to that property.  The Court did say that it was not the case that they would simply approve any level of compensation agreed between Network Rail and the train operators; however, here it was accepted by all that the way in which the losses were calculated was a genuine attempt to estimate losses that would flow from such incidents, and so it was recoverable.   It is clear that you would have to consider the facts of each case and ensure that the losses being claimed flowed naturally and directly from the wrong done and could reasonably have been foreseen as a consequence of it.

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The author, Nazneen Hanif-Ahmed, is a solicitor in the Commercial Litigation department of Pearson Hinchliffe Commercial Law. To speak to her about a matter related to this article or any commercial litigation matter, please use the contact details below.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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