Network Rail Infrastructure Ltd v Handy [2015] EWHC 1175 (TCC)

"(a) In respect of any and all Performance Sums for which Network Rail and the Train Operator are liable in any Period, the aggregate liabilities of Network Rail and the Train Operator shall be set off against each other. The balance shall be payable by Network Rail or the Train Operator, as the case may be, within 35 days after the end of the Period to which the payment relates. (b) Subject to paragraph 12.2, and save as otherwise provided, all other sums payable under this Schedule 8 shall be paid within 35 days after the end of the Period to which such payment relates."

“The effect of timetabled journey time on demand has been well researched by the industry. The effect is usually expressed in terms of: “a 1% change in journey time leads to a X percent change in demand"”

“116. The value “X” is known in economic terms as the "elasticity" of rail demand to journey time. A typical value of X might be -0.9; that is, a 1% increase in timetabled journey time typically leads to a 0.9% decrease in demand (and hence revenue) on the relevant services. 117. In fact there is a little more to it than this. Rather than using the journey time between two stations, the industry uses a concept called "Generalised Journey Time", or GJT. This is a measure of timetable quality that takes into account not only the journey time between two stations, but also the frequency of services and (if applicable) the need to change trains as well. 118. Put simply, GJT is calculated by adding, to the average journey time between two stations, a number of minutes reflecting service frequency and the need to change trains. The less frequent the service, the more minutes are added; and the more interchanges are needed, the more minutes are added. Thus GJT can be reduced, and demand by implication increased, either by increasing the journey time (making the journey faster); or by increasing service frequency; or by reducing or eliminating the need to change trains. Elasticities of demand are then measured with respect to GJT, rather than to journey time. 119. The elasticity of demand to GJT varies between different types of service. The choice of the elasticities, based on available industry research, is one of the key issues in calculating MREs”

“…the deposit of dust is capable of giving rise to an action in negligence. Whether it does depends on proof of physical damage and that depends on the evidence in the circumstances. Dust is an inevitable incident of urban life and the claim arises on the assumption that the defendants have caused excessive deposits. Reasonable conduct and a reasonable amount of cleaning to limit the ill-effects of dust can be expected of householders. Subject to that, if, for example, in ordinary use the excessive deposit is trodden into the fabric of the carpet by householders in such a way as to lessen the value of the fabric, an action would lie. Similarly, if it follows from the effects of excessive dust on the fabric that professional cleaning of the fabric is reasonably required, the cost is actionable and if the fabric is diminished by the cleaning that too would constitute damage. Excessive dust might also be shown to have damaged electrical apparatus and there could no doubt be many other examples. The damage is in the physical change which renders the article less useful or less valuable. On the assumptions we are invited to make, that rather than any general concept of loss of utility is the appropriate test…”

“26. Mr Bartlett submitted that the appellants owed the respondents no duty in respect of their financial position under their contract with TOCs, or in respect of the reputation of the railways for reliability in the minds of the travelling public. These include policy-based penalties for lateness and predictions of losses to be suffered by TOCs over an indefinite period anywhere on the rail network by reason of customer reaction to the incident. The sums do not fairly or reasonably relate to the physical loss of use of their tracks suffered by the respondents. 27. The appellants should not have to pay for the financial consequences of "knock on" effects of the incidents on a range of companies across the rail network, some of which did not even run trains on the damaged track. Moreover, loss dependent on future customer choices driven not by the incident itself but by fear of future incidents was too remote to be recoverable. To define the kind of loss as the respondents' loss of revenue under the contract is too broad. The court has a responsibility to ensure that the scope of liability is kept within proper bounds. That was particularly important when, the respondent being in a monopoly position, there was no market by which the reasonableness of the amounts claimed can be judged.”

“149. It is plainly foreseeable that if railway lines are damaged, Network Rail will suffer a loss of revenue. There is nothing remarkable about the revenue losses which occurred in this case. If the main line running from London Kings Cross to the North of England and Scotland is put out of action for most of the day, it is hardly surprising that Network Rail suffers a loss of revenue of about £1 million. Nor is it surprising that if a smaller railway line is put out of action for five days, Network Rail suffers a loss of revenue of about £127,000. 150. In my view, this action should be characterised as a simple claim for loss of income consequent upon damage to revenue earning property. This is a well established category of recoverable economic loss. Network Rail's loss is the direct consequence of physical damage and it is a type of loss which is readily foreseeable. 151. Obviously a negligent driver approaching a railway bridge or level crossing, or the employer of such a driver, will know nothing of the detailed arrangements existing between Network Rail and the TOCs. Nor does he need to possess such knowledge, in order to be fixed with liability for Network Rail's loss of revenue while the rail track is unusable as a result of negligent driving. 152. The present litigation has involved a minute scrutiny of the formulae and calculations which are used to assess compensation for TOCs in respect of periods when railway lines are unavailable. There is nothing unusual or untoward in any of those formulae or calculations. It is hardly surprising that they are complex. 153. Absent some exceptional circumstance or obviously unreasonable feature in the claimant's business arrangements, in my view it is not appropriate for the court to explore in detail the build-up of any loss of revenue following damage to revenue generating property. It is sufficient for the claimant to prove that the loss of revenue has occurred. 154. The law of tort should, so far as possible, be clear and simple. This court should not superimpose a requirement for expensive legal inquiry upon categories of case where there is an established entitlement to recover economic loss. 155. The exploration of the build-up of Network Rail's revenue loss in the present case has not revealed any exceptional circumstance or unreasonable feature of Network Rail's business arrangements. The resultant figures do not appear surprising or disproportionate. It is now accepted that Network Rail's schedule 8 payments to the TOCs are arrived at on the basis of a reasonable assessment of the TOCs' losses flowing from the temporary closure of the lines. It is true that Network Rail's payments under schedule 8 include compensation for the TOCs' future loss of fares. That circumstance, however, cannot detract from Network Rail's claim against the defendants for loss of revenue.”

“One (for SDG/ATOC) [which] investigated the reasons why the demand for rail travel was higher than that forecast by the PDFH models. It identified four key weaknesses in the existing approach”

“The MRE component is, in my judgment, also recoverable in the circumstances. It depends on a medium to long term assessment of passenger choices over the network. Whether the "tipping point" of deterring potential rail passengers is reached depends not only on the disruption caused by the tort itself but, as claimed, on an assessment of potential passengers' fears that there will be further disruptions in the future. Provided a genuine attempt has been made to assess future loss of income from this cause, and on the evidence I am satisfied it has, a bar is not placed on recovery by reliance on passenger psychology with its fears of a repeat of the index event. That is enough to decide the issue in this case.”

"Punctuality remains the biggest single influence on satisfaction of passengers"

“Network SouthEast undertook a major research project in 1988/9 and this was included in the significant updating of the PDFH in November 1989. It broadly confirmed earlier conclusions but also suggested that commuters are more sensitive to the variability of delays than to the average delay itself. Whilst plausible, some inconsistencies were found in its application and so these results have been removed from the PDFH. Since 1994, the PDFSS has undertaken a number of research projects to develop the area. In particular, in February 2000, the seminal work of Bates et al appeared…”

“Evidence from surveys has consistently suggested that passengers value reliability very highly. Commuters in the South East have put it at the top of the list of priorities. Yet it has been found to be one of the more difficult areas in the PDFH to research. Nearly all of the evidence is based on stated preference studies because of the difficulties in isolating and observing the effects of actual changes and the service reliability. The first study of InterCity service reliability undertaken in 1984 by the Cranfield Institute of Technology…suggested that passengers value each minute late as equivalent to 2.5 minutes of in-vehicle time. Subsequent studies have broadly confirmed this finding. Attempts have been made to value the variability of delay and big delays. And the one revealed preference evidence has looked at the effects of runs of poor reliability at Euston. From these, questions have been raised about the approach to assessing reliability. In February 2000, the seminal contribution of Bates et al appeared which attempted to answer many of these questions. Subsequently a further study by MVA has been produced…”

"Travel time reliability: a review of lead time valuations, elasticities and demanding impacts in the passenger rail market in Great Britain"

“[T]he compensation available through [Schedule 8] of the franchised passenger operators’ track access agreements...provides [a] liquidated damages [regime] which [specifies] payments from one party to the other based on a reasonable pre-estimate of the expected loss to [the TOC] arising from [the incident that causes the relevant service disruption]” (“Provisional Conclusions on the Incentive Framework”, ORR, April 2000, Para. 7.16) “If the regime is to be effective, it is essential that payments between Network Rail and TOCs reflect, as closely as possible, the impact of changes in the level of performance on TOC revenues.” (ORR’s 2005 Performance Regime Review, Final Conclusions Para 2.5) “One of the key objectives of the performance regime is to provide appropriate compensation to TOCs for the loss of revenue resulting from lateness and any cancellation of their services. To fulfil this objective effectively, the payment rates from Network Rail to TOCs need to reflect, as accurately as possible, the effect on TOCs’ revenues of changes in Network Rail performance.” (ibid Para 3.5) “A Network Rail payment rate must reflect the effect of one minute change in performance away from the current level. It should therefore reflect the number of passengers associated with a service group and attach a ‘value’ to each passenger. This value is the marginal revenue effect (MRE). The MRE represents a passenger’s ticket value and the likelihood that they alter their mode of transport for making a journey based on changes in performance.”(“Review of Schedule 8 Payment Rates” by AEA Technology for the ORR, December 2005, p 5) “[T]he Network Rail payment rate is designed to reflect the impact of performance on a train operator’s long term revenue. It is composed of the estimated average marginal revenue effect (MRE) per passenger journey within a service group multiplied by the number of passenger journeys per day in that service group. The MRE represents the impact of a minute’s lateness on fare revenue over time.” (ORR’s 2013 Periodic Review, Draft Determination Para. 20.60) “The Network Rail payment rate sets the basis for compensation payments from Network Rail to train operators when Network Rail’s performance is worse than benchmark, and bonus payments to Network Rail from train operators when Network Rail’s performance is better than benchmark. Network Rail payment rates are set at a level to reflect the impact over time of performance on fare revenue.” (“Current Compensation Arrangements” in ORR’s “Final determination of Network Rail’s outputs and funding for 2014-19”

"Enough is enough I will not/can not take the risk that I will not make it to my destination next time round", whether that "next time round" is the following day, week, month or even year. Mr Palmer accepted (Day 7 Pages 7-8) that there is a lack of research in this area and that the opposing view namely that of Mr Segal was reasonable that passengers would be influenced by "large delays"

"If I was to drive to and from work, I might be affected by disruption to road traffic caused by a bridge strike either at the same bridge or elsewhere"

“…the principal incident (i.e. the one that has the largest number of Minutes Delay allocated to it that contribute to the lateness at that point). Where two or more incidents have had the same effect then the Reactionary Delay must be split equally between them.”