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COURT OF APPEAL
11, 12 October; 25 November 2005
____________________
HSBC RAIL (UK) LTD
v
NETWORK RAIL INFRASTRUCTURE LTD
[2005] EWCA Civ 1437
Before Sir ANDREW MORRITT C, Lord Justice LONGMORE and
Lord Justice LLOYD
Negligence - Rolling stock damaged as result of Hatfield crash Rolling stock leased by owner to train operating company at time of
crash - Insurer paying for repairs and bringing subrogated
proceedings in name of owner of rolling stock - Owner of rolling
stock having reversionary interest only - Whether owner entitled to
sue - Whether damage to rolling stock constituted permanent
injury - Whether insurer entitled to sue in reversioner's name by
way of subrogation.
These proceedings arose out of the train derailment at the Welham
curve near Hatfield on 17 October 2000. The claimant (HSBC) was
the owner of the rolling stock involved. The rolling stock was being
operated by Great North Eastern Railway (GNER) under a lease from
HSBC entitled the Master Operating Lease Agreement (MOLA) dated
14 March 1995. The defendant (Network Rail) was the owner and
operator of the railway track infrastructure pursuant to a licence
granted under the Railways Act 1993. As a train operating company,
GNER was permitted by Network Rail to use the country's railway
infrastructure.
The crash occurred because one of the rails carrying the northbound
express shattered, derailing the train. A number of passengers were
killed and many more were injured. Two coaches were damaged
beyond economic repair, their written off value being £1,420,516.67.
The remaining coaches were damaged and repaired at a cost of
£3,823,659.55.
HSBC brought the present proceedings against Network Rail in
negligence. HSBC alleged that Network Rail was well aware of the
dangerous condition of the rail but had failed to replace the rail or take
any other step to reduce the danger. Network Rail admitted liability
for the purpose of the proceedings.
Under MOLA, GNER assumed all risk of loss, damage or
destruction of the rolling stock from any cause whatsoever, and GNER
was obliged to continue to pay rent to HSBC despite such loss or
damage. In the event of a total loss, GNER was obliged to pay HSBC
the "Agreed Value", defined as being represented by the projected
replacement value for insurance purposes. The agreed value was
payable within 120 days after the event of loss or upon receipt of
insurance proceeds whichever was the earlier. Upon such payment,
GNER then had the option of acquiring HSBC's interest in the rolling
stock, and the lease of the lost rolling stock would terminate. GNER
undertook liability to repair
358
any rolling stock which was accidentally damaged, unless HSBC
elected to do so itself.
As regards insurance, all risks property insurance was to be taken out
in the names of both HSBC and GNER for their respective rights and
interests. Any proceeds payable as a result of a total loss were to be
paid to HSBC and applied by HSBC in discharging GNER's
outstanding obligation to pay the agreed value. If GNER had already
paid the agreed value, the proceeds were to be applied by way of
rebate of rent.
The joint material damage insurers were St Paul International
Insurance Company Limited (St Paul). Following examination by the
manufacturers, all but two coaches were repaired. As regards the two
coaches that were constructive total losses, St Paul made payments,
less the deductible, to HSBC at GNER's request. As regards the
coaches that were repaired, GNER paid the repairers' invoices and,
following approval of the invoices by the loss adjusters, was
reimbursed by St Paul.
St Paul brought the present subrogated proceedings in the name of
HSBC.
On 19 October 2004 Cooke J ordered the trial of a preliminary issue
inter alia as to whether HSBC was entitled to recover the loss and
damage claimed.
HSBC argued that, despite only having a reversionary interest in the
carriages, it was entitled to recover the repair costs and the full value
of the lost coaches. It had been indemnified as to its respective right
and interest under the insurance policy, and, as matter of policy, such
insurance payment should be disregarded by the court.
Network Rail contended that as reversioner, HSBC was only entitled
to recover in respect of any permanent injury to its reversionary
interest and no such injury had occurred.
At first instance, David Steel J held that Network Rail's contention
was correct, and he dismissed the claim.
HSBC appealed.
-Held, by CA (Sir ANDREW MORRITT C, LONGMORE and LLOYD LJJ)
that the appeal would be dismissed.
(1) An owner of goods without possession or the immediate right to
possession was entitled to sue in tort provided that the defendant's
wrongful act had the effect of depriving such owner either temporarily
or permanently of the benefit of his reversionary interest whether
because the goods were destroyed or seriously damaged or because
they were wrongfully disposed of by a transaction whereby the
disponee acquired a good title, so preventing recovery of them. Actual
damage was necessary (see para 22).
(2) Apart from certain well-established exceptions, a claimant could
recover only for loss that he had suffered, not for loss that somebody
else had suffered. Ignoring insurance, the position in the present case
was that HSBC had been paid the full value of the carriages which
were beyond repair, and the repairable carriages had been repaired.
HSBC was not out of pocket in any way and, on ordinary principles,
had suffered no loss and could make no recovery (see para 23).
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(3) HSBC's right during the term of the lease of the carriages was a
bare proprietary right which did not carry with it any right to
possession. Accordingly, HSBC had to prove actual and permanent
injury to its reversionary proprietary interest. There was actual injury,
but once HSBC was compensated the injury was not permanent (see
para 25);
-The Sanix Ace [1987] 1 Lloyd's Rep. 465 and East West Corporation
v DKBS A/S [2003] 1 Lloyd's Rep. 239; [2003] QB 1509 considered.
(4) HSBC was not entitled to recover the value of the unrepairable
carriages and the cost of repairing the carriages which had been
repaired because HSBC's reversionary interest had, as matter of fact,
not been damaged (see para 30).
(5) As to insurance, it was not HSBC but GNER who suffered the
real loss and was indemnified by insurers in respect of that loss.
HSBC had, in the event, suffered no damage to its reversionary
interest because GNER had fully indemnified it, not because it has
been indemnified by insurance (see paras 36 to 38).
____________________
The following cases were referred to in the judgments:
Albazero, The (HL) [1976] 2 Lloyd's Rep. 467; [1977] AC 774;
Bradburn v Great Western Railway (1874) LR 10 Ex 1;
Charlotte, The (CA) [1908] P 206;
Dee Trading Co (The) v Baldwin [1938] VLR 173;
East West Corporation v DKBS AF 1912 (CA) [2003] 1 Lloyd's
Rep. 239; [2003] QB 1509;
Ehmler v Hall (CA) [1993] 1 EGLR 137;
General Accident Fire & Life Assurance Corporation Ltd and
Another v Midland Bank Ltd and Others (1940) 67 Ll L Rep
218; [1940] 2 KB 388;
Gordon v Harper (1796) 7 TR 9;
Jones v Llanrwst Urban District Council [1911] 1 Ch 393;
Mayfair Property Company v Johnston [1894] 1 Ch 508;
Mears v London and South Western Railway Co (1862) 11 CB
(NS) 850;
Metropolitan Association for Improving the Dwellings of the
Industrious Classes v Petch (1858) 5 CB (NS) 504;
Morris v CW Martin & Sons Ltd (CA) [1966] 1 QB 716;
Obestain Inc v National Mineral Development Corporation Ltd
(The Sanix Ace) [1987] 1 Lloyd's Rep. 465;
Parry v Cleaver (HL) [1970] AC 1;
359
Longmore LJ
Petrofina (UK) Ltd and Others v Magnaload Ltd and Others
[1983] 2 Lloyd's Rep. 91; [1984] 1 QB 127;
Simpson v Savage (1856) 1 CB (NS) 347;
Tancred v Allgood (1859) 4 H & N 438;
Transcontainer Express Ltd v Custodian Security Ltd (CA)
[1988] 1 Lloyd's Rep. 128;
Winkfield, The (CA) [1902] P 42.
____________________
This was an appeal by the claimant HSBC Rail (UK) Ltd from
the decision of David Steel J ([2005] 2 Lloyd's Rep. 343)
dismissing its claim for damages against the defendant Network
Rail Infrastructure Ltd.
Christopher Butcher QC and James Brocklebank, instructed by
Burges Salmon LLP, for the claimant; Michael Crane QC and
Katherine Watt, instructed by Kennedys, for the defendant.
The further facts are stated in the judgment of Longmore LJ.
Judgment was reserved.
Friday, 25 November 2005
____________________
JUDGMENT
Lord Justice LONGMORE:
Introduction
1. English law has traditionally regarded both the tort of
wrongful interference with goods (whether by way of trespass
or conversion to use now old-fashioned terms) and the tort of
negligent damage to goods as being torts which infringe the
possession or right to possession of goods. Thus in Gordon v
Harper (1796) 7 TR 9, where the claimants had let a house and
furniture to a tenant and the furniture had been taken by the
sheriff in execution before the lease had expired, it was held
that the claimant could not sue because during the lease he had
no possession or right to possession of the furniture. The
corollary of the rule was that since the bailee of goods was the
only person with the right to sue, he was under an obligation to
account to the true owner. In The Winkfield [1902] P 42, which
decided that the bailee could recover the full value of the goods
(but was obliged to account for that value to his bailor) even
though he was not contractually liable to his bailor for loss or
damage
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to the goods, Sir Richard Henn Collins MR referred to the fact
that originally only the bailee could sue but added (page 58):
though afterwards by an extension, not perhaps quite logical,
the right to sue was conceded to the bailor also.
It is the ambit of this "not quite logical" extension that is at the
heart of this appeal, which concerns carriages which were
owned by HSBC Rail (UK) Ltd ("HSBC"), leased to Great
North Eastern Railway Ltd ("GNER") and damaged as a result
of the train derailment at the Welham Curve near Hatfield on 17
October 2000.
The facts
2. The facts are admirably set out by the judge and I can repeat
them in almost his own words. HSBC was the owner of the
derailed rolling stock. This rolling stock was being operated by
GNER under a lease from HSBC entitled the Master Operating
Lease Agreement ("MOLA") dated 14 March 1995, as amended
in October 1996.
3. The defendant ("Network Rail") was the owner and operator
of the railway track infrastructure pursuant to a licence granted
under the Railways Act 1993. As a Train Operating Company
("TOC"), GNER was permitted by Network Rail to use the
country's railway infrastructure. The contractual arrangement
between GNER and Network Rail was contained in various
agreements including a Track Access Agreement ("TAA") and
a Claims Allocation and Handling Agreement ("CAHA").
4. Mr Andrew Gilbert, a partner in the firm of Kennedys, who
was formerly head of litigation at the British Railways Board
from 1993 to 1995, gave evidence about the background to
CAHA. He outlined the arrangements for privatisation of the
railway system, including the allocation of the infrastructure to
Railtrack (later Network Rail) and the transfer of passenger
train operations to TOCs. Ownership of the rolling stock was
made over to Rolling Stock Companies ("Roscos") one of
which HSBC was in due course to become.
5. CAHA grew out of concerns on the part of the Department
of Transport that, following privatisation, third parties would
have difficulty in identifying the appropriate defendant to any
claim, industry parties might attempt to avoid liability by
blaming each other and litigation could thereby increase and
become prolonged.
6. CAHA therefore made arrangements for a third party
claimant to deal with a "Lead Party" on behalf of all
"potentially liable industry partners" (ie parties to CAHA) under
a contractual ADR system. Also included in CAHA were
limitation provisions. Clause 16 established a cap of £5
360
Longmore LJ
million on the aggregate net sum payable for property damage
by any parties to CAHA who were liable for the relevant loss.
7. However, since the Roscos merely leased the rolling stock
to the TOCs, they were not involved in operating any train,
station or other property. Therefore they were not obliged to
obtain any licence from the Rail Regulator under section 6 of
the Railways Act 1993. It followed that there was no statutory
power to require Roscos to enter into agreements on regulated
terms with other industry parties. In the result, Roscos, such as
HSBC, were not parties to CAHA.
8. The crash at the Welham Curve occurred because one of the
rails carrying the northbound express shattered, derailing the
train. Some four passengers were killed and dozens more were
injured. Two coaches were damaged beyond economic repair,
their written off value being £1,420,516.67. The remaining
coaches were damaged and repaired at a cost of £3,823,659.55.
9. HSBC's case against Network Rail in these proceedings was
pleaded in negligence. HSBC contended that Network Rail was
well aware of the dangerous condition of the rail (attributable to
gauge corner cracking) but had failed to replace the rail or take
any other step to reduce the danger. Network Rail has admitted
liability for the purpose of these proceedings.
10. As regards the terms of the MOLA, the position was as
follows. By virtue of clause 4.2, GNER assumed all risk of loss,
damage or destruction of the rolling stock from any cause
whatsoever. Consistent with that, clause 5.9 provided that
GNER's obligation to pay rent was to continue despite such loss
or damage. Clause 11.1(b) dealt with events of loss (including
actual or constructive total loss). It provided that, in the event of
a total loss, GNER was obliged to pay HSBC the "Agreed
Value". This was defined as being represented by the projected
replacement value for insurance purposes. This agreed value
was payable within 120 days after the event of loss or upon
receipt of insurance proceeds whichever was the earlier. Upon
such payment, GNER then had the option of acquiring HSBC's
interest in the rolling stock and the lease of the lost rolling stock
would terminate. The question of repair was covered by para
7(b)(iii) of schedule 3 of the MOLA. GNER undertook liability
to repair any rolling stock which was accidentally damaged
(unless HSBC elected to do so themselves).
11. The position as regards insurance cover was set out in
schedule 5 of MOLA. All risks property insurance was to be
taken out in the names of both HSBC and GNER for their
respective rights and interests. Pursuant to para 7(a) of schedule
5 Part 1,
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any proceeds payable as a result of a total loss were to be paid
to HSBC and "applied by [HSBC] in discharging [GNER's]
outstanding obligation under clause 11.1(b)". This was subject
to a proviso that if GNER had already paid the agreed value, the
proceeds were to be applied by way of rebate of rent.
12. The joint material damage insurers were St Paul
International Insurance Company Ltd ("St Paul"), on terms
which I can most usefully set out in the part of this judgment
which deals with insurance. As regards the two coaches that
were not worth repairing and were thus constructive total
losses, St Paul made payments (less the deductible) to HSBC at
the joint request of HSBC and GNER "as GNER's insurers", to
quote the judge. The deductible was thereafter paid by GNER
direct, following which HSBC acknowledged that rental was no
longer payable.
13. Arrangements for repair were made by GNER following
issue of GNER's purchase orders. On completion, GNER was
invoiced by the manufacturers and duly paid them. Following
approval by the loss adjusters, reimbursement of those
payments was duly made by St Paul to GNER.
14. Initially St Paul sought to recover these sums from
Network Rail in the name of GNER and, in March 2004, GNER
commenced arbitration proceedings against Network Rail under
the terms of the TAA. In its defence, Network Rail admitted
liability but relied on the provisions limiting liability to an
aggregate sum of £5 million. St Paul in purporting to exercise
its rights of subrogation in the name of GNER were also faced
with a plea by Network Rail that the primary responsibility for
the damage fell on two maintenance contractors who were also
parties to CAHA and thus liable to contribute to the £5 million
limit. St Paul then sought and has apparently obtained a stay of
the arbitration proceedings pending trial of the present
proceedings which were issued in June 2004, this time in the
name of HSBC. The convenience of HSBC as bailor being able
to sue for substantial damages (if they are entitled so to do) is
that, in such an action, the contractual limitation clause may be
neatly side-stepped.
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Longmore LJ
16. There is no longer any controversy about the first issue.
The judgment below was solely concerned with the second.
HSBC's basic contention was and is that, despite only having a
reversionary interest in the carriages, it was entitled to recover
the repair costs and the full value of the lost coaches. Network
Rail, in contrast, contended that as reversioner, HSBC was only
entitled to recover in respect of any permanent injury to its
reversionary interest and no such injury has occurred. It is
common ground that the lease of the rolling stock was for a
term of eight years. During that term, GNER had possession of
the carriages. HSBC, as owner and bailor of the carriages, had
no immediate right to possession, merely a proprietary interest
in the reversion. David Steel J held that Network Rail's
contention was correct, answered question (b) in the negative
and dismissed the claim. His reasons for so holding were:
(1) that a lessor or bailor of chattels, who was not entitled to
possession during the term of the lease, could only sue for
damage to his reversionary interest;
(2) that damage was essential to the tort of negligence and
that unless there was damage to the reversionary interest no
action would lie;
(3) that there could be no damage to the reversionary interest
unless there was permanent damage to the chattel;
(4) any damage which could not be remedied would
constitute permanent damage;
(5) any damage which could be remedied but was not going
to be remedied would likewise constitute such permanent
damage;
(6) where the subject of complaint is remedied or renewed
during the term, the lessor or bailor cannot sue;
(7) on the facts, the carriages had been repaired or HSBC had
been compensated for their value so no cause of action
accrued and HSBC could not, therefore, recover;
(8) the fact that the source of the repair and compensation
was insurance monies made no difference to that conclusion.
Contentions of the parties
Proceedings below
15. On 19 October 2004 Cooke J ordered the trial of
preliminary issues in this action:
(a) Whether the claimant is the owner of the rolling stock
and
(b) subject to an assessment of quantum, whether the
claimant is entitled to recover the loss and damage claimed.
17. Mr Butcher QC for HSBC accepted that HSBC was not in
possession of nor had a right to possession of the carriages and
thus had to show there was permanent damage to the carriages
but submitted that the judge's conclusion was wrong because:
(1) HSBC as the owner of the carriages nevertheless had a
right to sue Network Rail in tort for negligence since the
carriages had themselves suffered permanent damage;
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(2) the fact that the carriages which were economically
repairable had been repaired by the time of trial and HSBC
had been compensated for those that were economically
unrepairable did not mean that they had not suffered
permanent damage. Permanent damage to the carriages itself
was sufficient to entitle HSBC to sue for damages; there did
not have to be permanent damage to the reversionary interest,
if that was something different;
(3) there could, in any event, be no more permanent damage
than damage which caused two of the carriages to be
completely written off;
(4) unless damage to the carriages constituted damage which
entitled the owner to sue, it would be impossible to say when
any cause of action accrued to the owner;
(5) if any claim was only defeated by the fact of repair and
compensation, the cost of that repair and compensation had
been paid to HSBC pursuant to the terms of an insurance
policy which had insured HSBC in respect of its interest and
should therefore be ignored.
18. Mr Crane QC for Railtrack supported the judge for the
reasons he had given. He accepted that HSBC was the bailor as
well as the lessor of the carriages to GNER but submitted that it
was a bailor who was neither in possession of the carriages nor
did it have the right to possession. In those circumstances
HSBC had to show permanent damage to their reversionary
interest not just damage to the carriages. This HSBC could not
do if it had been fully compensated by being paid the value of
the lost coaches and by repair of the repairable coaches.
Development of the right of suit on the part of a bailor not in
possession
19. This is traced in a valuable article by Professor Andrew
Tettenborn, an editor of the current (18th) edition of Clerk &
Lindsell on Tort and, in particular, chapter 14 on wrongful
interference with goods. This article is to be found in [1994]
CLJ 326 and is entitled "Reversionary Damage to Chattels". He
makes the point that the courts had fashioned a remedy in
favour of the reversioner in respect of trespass to land and
nuisance in respect of damage that was likely to affect the lessor
if and when he recovered possession; he then says that an
analogous remedy was awarded in respect of damage to chattels
with, no doubt, the position of the reversioner of land being in
the minds of the judges, see page 328 and note 24 in particular.
This is shown by a series of cases starting with Hall v Pickard
(1812) 3 Camp 187, going though Tancred v Allgood (1859) 4
H & N 438 and culminating in Mears v
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Longmore LJ
London and South Western Railway Co (1862) 11 CB (NS) 850,
establishing that a reversionary owner of chattels can sue a
negligent wrongdoer if there is permanent damage to his
reversionary interest. What constitutes such permanent damage
is, however, debatable.
20. Unsurprisingly most of the authorities that analyse the
concept of "permanent damage" or "damage to the reversion"
are cases of leases of land. In such cases there cannot be
permanent injury in the sense of the land itself being lost
although no doubt the removal of trees which have been cut
down or the abstraction of soil can constitute a loss of part of
the land. Such cases will be regarded as damage to the
reversion. So also will causing water to flow over the land or an
obstruction of light because it will be assumed the water or the
obstruction will remain unless stopped or otherwise remedied
and thereby an easement for the flow of water may be acquired
or a right of light defeated, see Simpson v Savage (1856) 1 CB
(NS) 347, 361 per Cresswell J, sitting with Williams J and
Crowder J (see page 325) and Metropolitan Association for
Improving the Dwellings of the Industrious Classes v Petch
(1858) 5 CB (NS) 504 per Cockburn CJ, Williams, Willes and
Byles JJ, followed in Mayfair Property Co v Johnston [1894] 1
Ch 508 and Jones v Llanrwst UDC [1911] 1 Ch 393.
21. Mears v London and South Western Railway Co (1862) 11
CB (NS) 850 was, however, a case of damage to a bailed
chattel. The case turned on a pleading point. The declaration
pleaded that the plaintiff owned a barge "let to hire" to a bailee,
a Mr Scott Russell, who had possession, the reversion being in
the plaintiff. The defendants were unloading a boiler from the
barge but carelessly dropped it into the barge "and greatly
damaged and injured the same; whereby the plaintiff had been
deprived of the use of his said barge for a long space of time".
The defendants demurred and Mr Milward in support of the
demurrer submitted that an owner of a chattel had no cause of
action for injury to that chattel while it was out of his
possession. Williams J observed that previous authorities in
relation to chattels had been considered in Tancred v Allgood
(1859) 4 H & N 438 where it was held that such an action did
exist if the owner had sustained damages by way of a
permanent injury. Mr Milward then shifted his ground to say
that the declaration did not show any permanent damage: "non
constat that Scott Russell would not have repaired the barge".
Erle CJ said the owner had the right to sue, since Tancred v
Allgood (1859) 4 H & N 438 had by implication decided that
action for a permanent injury to a chattel could be maintained.
Williams J said that, in the course of a gratuitous bailment
either the bailor or the bailee could sue and that
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although, in the case of a hiring for reward, the owner could not
bring trover because he had parted with possession, it had never
been doubted that the owner could bring an action against a
person whose wrongful act had caused a permanent injury.
Presumably the fact that Scott Russell might repair the barge in
the future was nothing to the point. Unrepaired, the alleged
damage was permanent. The rest of the court (which probably
included Willes J, see page 805) concurred.
22. These authorities, together with Transcontainer Express
Ltd v Custodian Security Ltd [1988] 1 Lloyd's Rep. 128, 137,
justify the proposition in Clerk & Lindsell on Tort (18th edn)
para 14-143:
The action for reversionary injury lies, it is suggested, in
respect of any act which would, but for the problem of the
claimant's lack of title to sue, amount to [trespass] negligence
[or conversion], provided it has the effect of depriving him
either temporarily or permanently of the benefit of his
reversionary interest whether because the goods are destroyed
or seriously damaged or because they are wrongfully disposed
of by a transaction whereby the disponee acquires a good title,
so preventing recovery of them. But actual damage is
necessary . . .
In this case there is no doubt that the carriages were destroyed
or seriously damaged. The cases do not, however, assist much
or at all on the amount of damages which the owner is entitled
to recover. In both Mears v London and South Western Railway
Co (1862) 11 CB (NS) 850 and Dee Trading Co v Baldwin
[1938] VLR 173, a case from the state of Victoria to which we
were also referred, the chattel had not been repaired at the time
when the action was brought. As I see it, the real problem in
this appeal is to assess the damages to which HSBC is entitled.
HSBC's loss
23. It is trite law that a claimant cannot sue in negligence
unless he has suffered damage and can then only recover to the
extent that he has been damnified. Apart from well-established
exceptions (like that of the bailee as settled in The Winkfield
[1902] P 42) he can recover only for loss that he has suffered
not for loss that somebody else has suffered. The appropriate
measure of damage is "that sum of money which will put the
party who has been injured, or who has suffered, in the same
position as he would have been in if he had not sustained the
wrong for which he is now getting his compensation or
reparation" see Livingstone v Rawyards Coal Co (1880) 5 App
Cas 25, 39 per Lord Blackburn. If one ignores insurance for the
moment, the position in the present case is that
363
Longmore LJ
HSBC has been paid the full value of the carriages which were
beyond repair and the repairable carriages have been repaired.
In these circumstances whatever may have been the position
shortly after the derailment occurred, HSBC is now not out of
pocket in any way and, on ordinary principles, has suffered no
loss and can make no recovery.
24. It is true that there are exceptions to this principle. Most of
the exceptions occur in the law of contract in cases in which the
contract (although not a contract of agency) can be regarded as
a contract made for the benefit of persons other than the
contracting party. These exceptions are considered by Lord
Diplock in his speech in The Albazero [1976] 2 Lloyd's Rep.
467, 474-475 col 1; [1977] AC 774, 846C-847F in which he
said, however, that the particular exception he was considering
(viz the right of a consignor to recover damages from the carrier
even when he had been paid for the goods) "should not be
extended beyond what is justified by its rationale". Even fewer
exceptions in a mercantile context exist in tort; the primary
exception is that of The Winkfield [1902] P 42 which decided
that a bailee in possession, or with the immediate right to
possession, can sue for the full value of the goods, even if he is
not liable to the true owner.
25. But HSBC can cite no authority in support of their
proposition that a goods-owner without possession, or the
immediate right to possession, can recover the value of the
goods even where he has been compensated by his bailee. In
both The Charlotte [1908] P 206 and Obestain v National
Mineral Development Co (The Sanix Ace) [1987] 1 Lloyd's
Rep. 465 the claimants were goods-owners with the right to
possession at the time of the loss. It was held that they could
recover the value of the goods even though they had been paid
by the persons to whom the goods had been sold. Normally of
course ownership carries with it the right to possession and thus
the right to sue for full value but Hobhouse J put the law
correctly in the latter case when he said (page 468):
It has long been settled law that the owner of goods is
entitled to sue and recover damages in respect of loss or
damage to those goods. The only qualification is that, if he is
suing in tort, his claim may be defeated if his title was a bare
proprietary one and did not include any right to possession of
the goods.
In the present case HSBC's right during the term of the lease
of the carriages can only be described as a "bare proprietary
right" since it did not carry with it any right to possession. In
these circumstances, as Mance LJ observed in East West
Corporation v DKBS A/S [2003] 1 Lloyd's Rep. 239;
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HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd
[2003] QB 1509, at para 31, the owner's reversionary claim has
stricter preconditions than a possessory claim viz:
the requirement for proof of actual and permanent injury to
the reversionary proprietary interest.
In the present case there was actual injury but once the owner
was compensated it was not permanent.
26. Other cases where a goods owner without possession has
been entitled to sue a tortfeasor in negligence do not assist. If
Mrs Morris had recovered her fur in Morris v Martin [1966] 1
QB 716 or if she had been compensated for its loss by the first
bailee, she would have had no claim against the actual cleaner.
Similarly, if the hirer of the vehicle in Dee Trading Co v
Baldwin [1938] VLR 173 had paid to the finance company the
outstanding instalments and the cost of repair of the car, the
finance company as owner would have had no claim (and no
reason to claim) against the tortfeasor.
27. HSBC also sought to rely on the paragraph from Professor
Tettenborn's article cited by the judge. It is not necessary to set
it out, but it can be summarised by saying that a plaintiff
goods-owner can generally recover the cost of repairs from a
tortfeasor even if he can require the repair to be done by
somebody else, eg his bailee. That is, no doubt, true but
Professor Tettenborn does not say that the owner can recover
the cost of repair even where the bailee has, in fact, repaired the
goods. When, moreover, Professor Tettenborn comes to discuss
in general the measure of damages to which the goods-owner is
entitled, he does appear to contemplate that a claim to damage
by a reversionary owner depends "on proved loss".
28. Mr Butcher further submitted that if the bailee in
possession can sue for the full value of the goods and can be
accountable to the owner to the extent that he (the bailee) has
suffered no loss, it would be a modest and sensible extension of
the law to grant the bailor/owner of the goods a similar right to
sue for the value of the goods, likewise being accountable to his
bailee to the extent that the loss is that of the bailee. The law
would then have a pleasing symmetry.
29. Attractively as the argument was deployed, I cannot accept
it. The reason why the bailee can recover the full value of goods
from a tortfeasor who damages or destroys them is, as Collins
MR put it in The Winkfield (page 60):
As between bailee and stranger possession gives title - that is
not a limited interest but absolute and complete ownership,
and he is entitled to receive back a complete equivalent for the
whole loss or deterioration of the thing itself.
364
Longmore LJ
By contrast the bailor who does not have possession (or the
immediate right to possession) does only have a limited interest
and he has no other quality which can give him absolute and
complete ownership. It would thus be anomalous to give a
bailor with a limited interest the right to recover the full value
of the goods. In cases where the bailor has not been
compensated (eg because his bailee is unwilling or unable to
repair or replace the goods) the bailor will have suffered a real
loss and will be compensated accordingly. So also if a lessor
has to forgo rent as in Ehmler v Hall [1993] 1 EGLR 137. There
is, however, just no need for a bailor or lessor to be
compensated if the goods have been repaired or replaced and he
has suffered no loss. The limitation or exception clause in his
contract with the tortfeasor which a bailee wishes to avoid is no
part of the bailor's loss.
30. I would therefore reject HSBC's contention that it is
entitled to recover the value of the unrepairable carriages and
the cost of repairing the carriages which have been repaired;
that is because HSBC's reversionary interest has, as matter of
fact, not been damaged. To that extent I would uphold the
decision of the judge not because no cause of action ever
accrued but because, apart from insurance considerations,
HSBC has, in fact, suffered no loss. It is, therefore, necessary to
turn to HSBC's alternative contention that the only reason why
they have suffered no loss is that they have been compensated
by insurance which must, in accordance with Bradburn v Great
Western Railway (1874) LR 10 Ex 1 and Parry v Cleaver
[1970] AC 1, be left out of account. That necessitates looking at
the insurance position more closely.
Insurance
31. The relevant insurance policy contained an All Risks
section and a Third Party Risks section. It was under the All
Risks section that a claim was made. The schedule to the policy
gave the period of insurance as being from 13 August 2000 to
12 August 2001 and described the insured as being
(i) GNER
(ii) "Any company or person which is the holder of an
interest in the property insured . . ."
and (iii) Angel Trains Ltd HSBC (Rail) Ltd each a "Rosco"
"for their respective rights and interests".
The property insured was defined as meaning "passenger
rolling stock the property of the Roscos or leased by the Roscos
or for which the Roscos are responsible" and the insuring clause
provided:
In the event of accidental loss destruction of or damage to the
property insured . . . the insurers
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HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd
will pay to the insured the value of the property insured as set
out in the General Conditions of this policy.
32. General Conditions 1, 18 and 20 are potentially relevant.
They provide:
1 Indemnity (up to nine years)
The basis upon which the indemnity for property insured by
this policy is calculated in the event that damage occurs within
eight years 364 days from the completion of manufacture of
property insured is as follows:
(i) in the event of loss or destruction the value of the
property insured is (b) below and
(ii) in the event of damage the amount of the damage is the
lesser of (a) and (b) below
(a) the actual cost of repair plus in so far as this policy
provides due allowance for the additional cost of
reinstatement to comply with statutory and mandatory
requirements
or
(b) the replacement value of the vehicle or its equivalent as
set forward in appendix 3 to this policy plus additional
allowances for inflation during the period of the policy and
order and rebuild period of up to 30 per cent of such
replacement value. Should the insured be entitled to
replacement value under this clause 1(b) the Roscos with
title to or responsibility for the property insured suffering
damage may elect to receive the cash value of such property
insured.
Replacement value is then defined as:
the cost of replacing a vehicle or unit with the same or
similar type or its equivalent at the values set out in
appendix 3 . . .
18 Severable interests
This contract shall be treated in all respects save as to
average as though it were a separate divisible contract in
respect of each insured to the extent of that insured's interest in
the property insured subject to The insurers liability not being
increased thereby. Except to the extent that any Insured knew
or ought reasonably to have known (but did not disclose to
insurers) of any representation misrepresentation disclosure
non-disclosure or any other act omission or error whatsoever
or any breach of duty or obligation or any breach of duty or
obligation or terms or conditions of this policy by any other
Insured none of the above acts or omissions by one insured
shall affect the rights of any other insured under its distinct
and severable contract of insurance.
20 Loss payee
365
Longmore LJ
The insurers shall indemnify the Rosco having title to the
property insured at the time of the loss or if no Rosco holds
title the Rosco responsible for the property insured at the time
of the loss except that
(a) where such Rosco has provided the insurers with notice
in writing to pay any other insured under this policy payment
shall be in accordance with such notice
(b) where indemnity of £25,000 or less is due as a result of
a repair instituted by a train operating company such
indemnity shall be made to the train operating company
instituting such repair.
Payment in accordance with this clause shall be a full
satisfaction against all of the insureds of the amount so paid.
33. In the light of these conditions and what actually happened
when St Paul (1) paid HSBC the replacement value of the
carriages which could not be economically repaired and (2)
settled the repair invoices as described earlier, Mr Butcher
submitted that HSBC was indemnified as to its respective right
and interest under the policy and that such insurance payment
should, therefore, be disregarded by the court.
34. If one looks at the matter apart from authority this is an
odd conclusion. While it is true that HSBC was the owner of the
carriages and thus had an "interest" in not being deprived of that
ownership, it was not in any real sense the party at risk in the
transaction. By the terms of the MOLA, rental for the carriages
was payable by GNER even if they were being repaired or were
not otherwise in use; moreover GNER was obliged to replace
the carriages if they were destroyed or pay their replacement
value and were also obliged to repair the carriages if they
needed repair. The financial risk was, therefore, all upon GNER
rather than HSBC provided, at any rate, that GNER was
solvent. It is, therefore, unrealistic to regard an insurance policy
which insures the respective rights and liabilities of both HSBC
and GNER as indemnifying HSBC rather than GNER. One can
test the matter in this way; if insurers were indemnifying HSBC
and only HSBC they would presumably, on payment, be
subrogated to HSBC's rights under the MOLA against GNER;
would insurers in the name of HSBC then be able to sue GNER
if GNER had not paid the replacement value or the costs of
repair? The answer is: of course not. GNER would be able to
defend any such proceedings by saying that they were
themselves insured under the self same policy as HSBC, that its
liability to HSBC was just as much a "respective right and
interest" under that policy and that the very insurers who were
suing it in the name of HSBC would have to meet their own
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HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd
claim, see Petrofina (UK) Ltd v Magnaload Ltd [1983] 2
Lloyd's Rep. 91; [1984] 1 QB 127 and MacGillivray, Insurance
Law (10th edn), paras 22-97 to 22-100.
35. Mr Butcher took us carefully through the relevant clauses
of MOLA, as well as of the insurance. He emphasised the fact
that under schedule 5 of MOLA it was for the lessor (HSBC) to
take out All Risks Property Insurance and for the lessee
(GNER) to take out Third Party Liability Insurance. Clause 7 of
para 7 of Part I of schedule 5 then provided that as between
lessor and lessee all insurance proceeds received as a result of
an "Event of Loss" (defined) were to be paid to the lessor and
applied by it in discharging the lessee's obligations as to
payment of the Agreed Value and liability to repair, all as set
out in para 26 of his skeleton argument. He reminded us of the
Loss Payee clause and then took us through the mechanics of
payment under the insurance. As set out in paras 12 and 13
above, GNER and HSBC made a joint request that the
insurance monies in respect of the carriages which were
write-offs should be paid to HSBC. Payment (minus the
deductible) was made to HSBC who signed a receipt. HSBC
invoiced GNER for the deductible and GNER paid it to HSBC.
The other carriages were repaired by contractors who invoiced
GNER for the cost. The adjusters, instructed by insurers,
recommended insurers to make payment to GNER and insurers
did so.
36. The legal significance of what happened against the
background of the MOLA and the insurance policy is that
GNER's liability to HSBC to the MOLA was discharged. The
party who was liable ultimately to pick up the bill for the
damaged coaches was GNER; it was GNER who suffered the
real loss and was indemnified by insurers in respect of that loss.
It is true that, under the composite insurance policy, HSBC had
its own claim for its own interest and could say that it had, as
lessor, "lost" the value of the coaches in one sense but the
366
The Chancellor
reason why it was paid for the written off coaches was merely
to short-circuit the process whereby, if insurers had paid GNER,
GNER would have had to pay the self-same sum to HSBC. As
far as the repaired coaches were concerned, the money went
only to GNER and never got to HSBC although HSBC had, as
it was entitled to do, the benefit of the repair of the coaches so
far as concerned it. Since rental was payable in any event it was
not, in the event, concerned at all.
37. In these circumstances, I do not see how the judge can be
criticised for saying that the assured who sustained the loss was
GNER and that GNER was duly indemnified by insurers.
Whether the judge was also right to say that HSBC had no valid
claim against insurers is more debatable and, anyway,
irrelevant. My own view is that, if it never acquired the value of
the written-off coaches or if it had itself incurred the cost of
repair, it might well have a claim but the whole point of a
composite policy for the parties' "respective rights and
interests" is that that point does not need to be tested. The
parties together make a claim and the resulting insurance money
is dealt with pursuant to the contractual position between them a matter with which insurers are not (and do not want to be)
concerned. General Accident Fire & Life Assurance
Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 which
was cited to us at some length does not touch this problem,
although it does show that there can be circumstances (eg fraud)
where insurers may indeed for their own purposes wish to
unravel the separate rights and interests of their insured.
38. The reality of this case is that HSBC, as lessor, has, in the
event, suffered no damage to its reversionary interest because
GNER has fully indemnified it, not because it has been
indemnified by insurance. As the judge rightly held, the claim
must fail. I would therefore dismiss this appeal.
Lord Justice LLOYD:
39. I agree.
The CHANCELLOR:
40. I also agree.