Metrolink Victoria Pty Ltd (Yarra Trams) was recently successful in the Victorian Court of Appeal in a matter that will shape the future application of the test of reasonable foreseeability and redefine the range of losses recoverable from tortfeasors. In the case of Metrolink Victoria Pty Ltd v Inglis  VSCA 227, Yarra Trams successfully argued that losses sustained under a contractual incentive regime were recoverable from a third party who had negligently caused delays to the tram network.
Yarra Trams operates its services pursuant to a franchise agreement with the State Government. The agreement contains an incentive scheme by which Yarra Trams is financially rewarded for its close adherence to a master timetable and is penalised for deviations from it. Any delay occasioned to the tram network results in a loss to Yarra Trams under the incentive regime, either by way of a reduction in the payment it receives or an increase in the penalty it pays under the regime. Tram delays are measured by sophisticated equipment that monitors the location and movements of each tram in the network. That data is then used to assess compliance with the master timetable and, in turn, used to calculate losses incurred under the incentive regime.
Yarra Trams successfully argued that the losses it incurred under the incentive scheme were recoverable from the respondent. The respondent had, by his negligent driving, caused a motor vehicle accident resulting in damage to a tram and significant delays to the tram network.
Prior to the commencement of the proceedings in the Magistrates' Court, the respondent had admitted negligence and paid for the costs of repairing the damaged tram. However, the respondent denied liability for and refused to pay the contractual losses sustained by Yarra Trams under the incentive regime on the basis that they were not reasonably foreseeable and too remote at law.
The respondent was successful in the Magistrates' Court and in an appeal of that decision brought by Yarra Trams in the Supreme Court. However, on 2 October 2009, the decision was overturned by the Court of Appeal majority comprising Justices Redlich and Williams (with Neave JA dissenting).
In considering whether the loss suffered by Yarra Trams pursuant to the incentive scheme was recoverable from the respondent, the majority confirmed that the test for remoteness of damage at law is that established by The Wagon Mound case and more recently applied by the Victorian Court of Appeal in National Australia Bank Ltd v Nemur Varity Pty Ltd  VSCA 18. The appropriate test to be applied was whether the damage claimed was "of such a kind or genus that a reasonable person should have foreseen".
The Court of Appeal observed that the application of the test required two processes. Firstly, a court must identify the particular kind or genus to which the loss belongs. Secondly, a court must determine whether a reasonable person in the position of the defendant ought to have foreseen loss of that particular kind or genus.
The Court of Appeal (including the dissenting Neave JA) accepted that the categorisation of the type of genus of loss was a question of law as the categorisation involves questions of policy, precedent and reasoning by analogy, all of which are not consistent with the role of a tribunal of fact.
The Magistrate had categorised the kind or genus of the loss claimed as "the reduction of a financial benefit payable by a third party to the plaintiff or the imposition of a financial penalty upon the plaintiff by a third party". The majority of the Court of Appeal determined that such a categorisation was too narrow as it required the foreseeability of the precise manner in which the loss came about, not just its kind or genus. The Court of Appeal noted that requiring such a detailed description of the loss was contrary to strong precedent which rejected the need for the reasonable person to foresee "the concatenation of the circumstances which caused the loss".
The majority instead stated that the courts should favour a broad categorisation of the type or genus of loss, save where the damages claimed were so uncommon that public policy demanded a more confined approach. In this regard, the majority held that, "...[i]n the modern world, however, complexity of contracts, and the provisions of items such as key performance indicators and other performance targets, could hardly be said to be unusual." Accordingly, there was no reason for policy considerations to interfere with the recovery of losses under the franchise agreement, losses which Redlich JA broadly defined as "revenue lost as a result of the inability to operate the tram service".
Turning to the second question, having categorised the loss as loss of revenue, the majority found that the loss was real and not far-fetched or fanciful and therefore not too remote. The majority stated that "it is in fact 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 service".
The decision is of financial benefit to Yarra Trams and other public transport operators conducting their services under contracts with the State Government, including those companies that have been granted the tram and rail franchises from 1 December 2009. The decision is also likely to have far broader implications for companies operating under incentive regimes or where measured performance indicators can result in quantifiable losses under a services contract.
The decision also reflects the ability of the law to adapt to the increasing complexity of business dealings – a complexity of which a reasonable person is now deemed to be aware.
The respondent made an application for special leave to appeal to the High Court of Australia. The respondent's main submission before Chief Justice French and Justice Kiefel was that a "salient features" test ought to be incorporated into the categorisation of loss, which would assist lower courts in correctly characterising the loss. Kiefel J questioned whether the "salient features" test would assist the lower courts, or whether it would simply cloak the exercise of characterisation of loss in other terms. The High Court did not consider that the matter was one which warranted a grant of special leave and the respondent's special leave application was refused with costs.
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