A car driven by Ryan Inglis collided with a tram owned and
operated by Metrolink Victoria Pty Ltd (Franchisee) causing damage
to the tram and obstructing roadways. Inglis conceded that his
negligence caused the accident and agreed to pay the cost of the
As a further consequence of the collision, several tram services
operated by the Franchisee were significantly delayed.
The franchise agreement governing the relationship between the
Franchisee and the Director of Public Transport (Franchisor)
included an incentive scheme under which the Franchisee must follow
a master timetable and is penalised for any major disruptions and
delays. Pursuant to this incentive scheme, the Franchisee was
liable to pay an operational performance penalty of A$7,000.77
(Penalty) to the Franchisor for the delayed tram services following
the collision with Inglis.
The Franchisee commenced proceedings to recover the Penalty from
To successfully claim the Penalty from Inglis, the Franchisee
needed to show that the loss was a reasonably foreseeable
consequence of the collision.
Inglis denied liability for the Penalty arguing that he was not
a party to the franchise agreement and therefore the Penalty was
not a reasonably foreseeable consequence of the collision.
Inglis was initially successful in the both the Magistrates
Court and the Supreme Court. In the initial decisions, the courts
narrowly defined the Penalty as "the reduction of a financial
benefit payable by the Franchisor to the Franchisee or the
imposition of a financial penalty upon the Franchisee by the
Franchisor ". This was not a reasonably foreseeable loss.
The Franchisee appealed the decision to the Victorian Court of
Appeal. The Court overturned the previous decisions finding that
the loss should be defined broadly as "the revenue lost as a
result of the inability to operate the tram service". This was
a reasonably foreseeable loss and the Franchisee could recover
payment of the Penalty from Inglis.
The majority in the Victorian Court of Appeal found that it is
"highly likely or at least a real risk that the disruption of
the provision of any service might result in a loss of revenue to
the person who is responsible for the provision of that
This decision is likely to impact companies operating under
incentive systems or operating under arrangements where a failure
to meet minimum performance requirements results in a quantifiable
loss to the Company.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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