The recent decision of the New South Wales Court of Appeal in Rail Corporation New South Wales v Fluor Australia Pty Ltd & Alpcross Pty Ltd  NSWCA 344 provides a useful example of the duties owed between contracting parties to each other. The case also considered the delegable duties of rail authorities and the recoverability of losses sustained.
In October 2000 a passenger train owned by the State Rail Authority of New South Wales (SRA) derailed in Sydney on a section of track owned by Rail Corporation New South Wales (RailCorp).
The derailment was caused by faulty track work carried out by Alpcross Pty Ltd (Alpcross) at the derailment site. Alpcross carried this work out as a subcontractor of Fluor Australia Pty Ltd (Fluor) who had been engaged by RailCorp.
The derailment caused damage to the track and overhead lines owned by RailCorp, three carriages owned by SRA and minor injuries to a number of passengers.
This case concerned RailCorp's entitlement to recover from Fluor and/or Alpcross an amount of AU$5,207,299 paid by RailCorp to SRA for damage to the train and for passenger injuries.
At the initial trial before Justice McDougall these amounts were held not to be recoverable and RailCorp appealed the decision.
The principal issues on appeal were:
- Whether the payment by RailCorp to SRA was a reasonable settlement of an actual or arguable liability.
- Whether Fluor's liability to RailCorp was limited by the contractual provisions relating to insurance.
- Whether the payment by RailCorp amounted to pure economic loss which as such was not recoverable as a claim in tort against Alpcross.
- Whether RailCorp failed to mitigate its loss by not claiming indemnity under applicable insurance policies.
Reasonableness of payment by RailCorp to SRA
The trial judge Justice McDougall found that the fact faulty work was done by Alpcross as subcontractor of Fluor and not by RailCorp led to the conclusion that RailCorp was not in breach of its obligation to safely maintain the rail infrastructure. He considered it a delegable duty that could be satisfied by engaging an appropriately qualified and competent subcontractor.
In the Court of Appeal, Justice Macfarlan (who delivered the leading judgment with which Justices Allsop and Hodgson agreed in most respects) disagreed with this analysis. He noted that the duty was a contractual and not a tortious duty and that in general the principal contractor remains liable if a subcontractor fails to properly perform the contractor's obligations.
The Court of Appeal noted that there had been a well established line of authority which established that a highway authority owed a non-delegable duty of care to road users. (See Roads & Traffic Authority v Scroop (1998) 28 MVR 233 and RTA v Palmer  NSWCA 58.) Although the High Court of Australia in Leichardt Municipal Council v Montgomery (2007) 230 CLR 22 had overruled these decisions, the Court of Appeal considered it reasonable for persons settling claims in late 2003 to proceed on the basis that highway and comparable authorities owed non-delegable duties of care. The position was further supported by the decision of Justice Gillard in the Supreme Court of Victoria in Twentieth Super Pace Nominees Pty Ltd v Australian Rail Track Corporation Ltd  VSC 353 in which the judge stated that a 'train operator on a train network is extremely vulnerable and is very dependent upon the track owner keeping the track in a good state of repair and safe.' Accordingly, there appeared to be a stronger argument for a non-delegable duty of care in the case of a rail authority than a road authority.
Taking all into consideration, the Appeal Court found the settlement reached between RailCorp and SRA was a reasonable one.
Relevance of insurance provisions
Under the contract with RailCorp, Fluor's liability was limited to the maximum amount paid under insurance policies obtained in accordance with the contract. Fluor had a policy under which, by reason of the insolvency of the underwriter, the amount paid or to be paid was zero.
So Fluor said its liability to RailCorp was zero. But RailCorp countered by maintaining that under another policy the amount recoverable exceeded the claim such that there was no relevant limitation. That policy provided professional indemnity cover. The defective work carried out by Alpcross fell within the policy coverage. In addition, Fluor itself had been found to have breached its independent obligation to inspect the Alpcross work before the track was put back into service and that work too fell within the scope of the policy.
The Court ruled an exclusion in one of the policies for loss caused by defective or 'inefficacious goods' was inapplicable.
Accordingly, the defence based on insurance limitation failed.
Pure economic loss
Alpcross argued that RailCorp's loss amounted to one for pure economic loss and relied on the principle stated in Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' (1976-77) 136 CLR 529 at 555 per Gibbs J that 'as a general rule damages (in negligence) are not recoverable ...for economic loss which is not consequential upon injury to the plaintiff's person or property'.
On appeal it was found that RailCorp's loss being its payment to SRA was not 'pure' economic loss but was loss consequent on negligent damage to RailCorp's property.
The Court also rejected the argument that RailCorp had failed to mitigate its loss by claiming for its loss under applicable insurance policies. In the Court's view the policies relied upon did not respond to the loss and accordingly no question of failure to mitigate arose.
Accordingly, the Court of Appeal allowed the appeal and gave judgment for RailCorp against Fluor and Alpcross in the sum of AU$5,207,287 together with interest and cost of the appeal.
While the case may not establish new principles, it does provide a useful analysis of the contractual and tortious liability owed between rail operators and infrastructure providers. It also demonstrates the complexity that can arise with contractual arrangements for maintenance of infrastructure and the disputes which might occur as a result of such arrangements.
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