IF D negligently damages C's property and a third party, X, suffers financial loss as a result, the law has been clear since Cattle v. Stockton Waterworks Co (1875) L.R. 10 that, in general, X has no cause of action in negligence against D. But what if C and X have a contract permitting X to use C's property, under which C is obliged to make good X's financial loss if the property is damaged? Can C recover this amount from D as part of the loss consequent on the physical damage to C's property, or is this illegitimate, given that X would have had no direct claim for the loss in the absence of the contract? This was the problem at the heart of Conarken Group Ltd. v. Network Rail Infrastructure Ltd. [2011] EWCA Civ 644.

Network Rail owns the railway infrastructure (tracks, bridges, overhead cables etc) and makes agreements with the various train operating companies (“TOCs”) allowing them to operate trains on Network Rail's track. Each agreement provides a formula (in “schedule 8”) for Network Rail to compensate the TOC where the infrastructure is damaged and the train service is disrupted. Schedule 8 payments include two elements: an attempt to quantify the impact on the TOC of the fact that delays and cancellations make passengers less likely to travel by rail in future, plus reimbursement of liability incurred by the TOC under its franchise agreement with the Department of Transport.

Conarken was a test case, dealing with the common problem of motorists negligently crashing into Network Rail's property, triggering schedule 8 payments to the TOC. And it is clear why it was worthwhile for Network Rail and motorists' insurers to litigate about who bears responsibility for those payments. In one incident, a lorry driver negligently damaged overhead cables at Newark, disrupting the East Coast Main Line for seven hours: the cost of repairing the cables was less than £5000, but more than £1million was payable under schedule 8. Network Rail argued that the schedule 8 payments were straightforwardly consequent on physical damage to its property, that such financial loss was a foreseeable type of harm and therefore not too remote. The defendants countered that the TOC would not have been able to recover its financial loss if schedule 8 had not existed, so the existence of the agreement (to which the defendants were not party) should not reverse the common law allocation of liability: such contractual payments were outside the scope of a negligent driver's duty of care and too remote. At trial, Akenhead J accepted Network Rail's arguments and awarded damages in respect of the schedule 8 payments. The Court of Appeal unanimously dismissed the defendants' appeal, although the three appeal judges did not adopt identical reasoning.

All three regarded the fact that, if schedule 8 did not exist, the TOC would not have been able to sue for the equivalent financial loss as a red herring. The reality was that Network Rail suffered financial loss consequent on damage to its property, so the familiar problem of whether a duty of care is owed at all to someone suffering “pure” economic loss did not arise. What did arise, however, was a classic problem of remoteness of damage, that tricky value judgment about attribution of responsibility, about whether a defendant ought to be held liable for loss factually caused by his negligence. Although we now recognise (contrary to the vision of the Privy Council in Wagon Mound (No. 1) [1961] A.C. 388) that foreseeability is by no means the only relevant issue when making the value judgment, nonetheless it often provides a simple, clear and predictable means of doing so, bearing in mind that if the type of harm was foreseeable, its extent and the precise concatenation of events leading to it need not be. It is true that in personal injury cases, the “type of harm” is defined so broadly as to render the enquiry effectively pointless, but for property damage the test retains some meaning.

For Moore-Bick and Jackson L.JJ., that test provided the answer. Loss of revenue is a foreseeable type of harm when a commercial asset is damaged and it did not matter that it took the form of liability to the TOC under schedule 8. This was supported by authority, for example Ehmler v. Hall [1993] 1 E.G.L.R. where a defendant, who crashed into a car showroom owned by the claimant but let to a third party, was liable to the claimant for damages representing rent lost while the showroom was unusable.

Pill L.J.'s judgment was not so straightforward, principally because it did not seem to appreciate that foreseeability is a test (not the only test) to answer the value judgment commonly labelled “remoteness”, and so contained puzzling statements such as: “Foreseeability and remoteness are, in my judgment, to be considered together”; “Whether remoteness is to be regarded as a separate test or is to be incorporated into the test of what is reasonably foreseeable, an examination of the circumstances is required”; and “What is reasonably foreseeable cannot in my judgment be determined without having regard to remoteness”. Since he regarded remoteness and foreseeability as two separate concepts, it is unsurprising that Pill L.J. thought it “too simplistic” that the schedule 8 loss should be recoverable merely because it was a foreseeable type of harm. In addition, he thought it relevant to ask whether schedule 8 had been drafted responsibly and reflected a genuine attempt to assess the TOC's loss of income, in the light of government policy aims and the public interest in a punctual and reliable rail service, concluding (with some reluctance) that the answer was yes. With respect, it is a little hard to see how this extra enquiry fits into the usual approach to remoteness in the tort of negligence which is that the defendant takes his stranger-victim as he finds him, a principle that applies to contractual liabilities incurred by the claimant after the tort by way of mitigation (Lagden v. O'Connor [2004] 1 A.C. 1067) and therefore a fortiori to pre-existing liabilities.

Finally, Conarken demonstrates once again that Lord Hoffmann's “scope of the duty of care” reasoning (South Australia Asset Management Corporation v. York Montague Ltd. [1997] A.C. 191) is elegant sleight of hand. It is problematic enough to discern the “scope” of a statutory duty, where the notion of legislative intention shaping the duty is not entirely nonsensical. But the quest for the scope of the common law duty of care can only be another way of re-phrasing the familiar remoteness question, the value judgment about the limits of the defendant's responsibility. Unsurprisingly, though it was mentioned by all three judges in Conarken, Lord Hoffmann's principle ultimately provided no substantive help in deciding that the schedule 8 payments were recoverable.