Shell UK Ltd and others v Total UK Ltd and another

Tort – Damage to property – Economic loss – Exclusionary rule – Claim for loss of profits by first appellant as beneficial owner of oil tanks and pipelines damaged in fire – Claim dismissed at first instance – Whether recovery for economic loss confined to legal owner of property or person entitled to immediate possession – Whether economic loss recoverable by or on behalf of beneficial owner – Appeal allowed In December 2005, several large explosions and fires occurred at the Buncefield oil storage terminal, Hertfordshire, following the negligent overfilling of a fuel storage tank on the site. The first appellant claimed damages against the first respondent in respect of loss of profits flowing from the destruction of or damage to tanks and pipelines that it used for the storage or distribution of its oil. Legal title to the tanks and pipelines and the land on which they were situated was vested in two vehicle companies, which held them on trust for the first appellant and others pursuant to arrangements entered into in 1991. These included a deed of appointment, by which the first appellant and other participants had transferred ownership of the pipeline system to one of the vehicle companies, and a participants’ agreement of the same date. Pursuant to those arrangements, the vehicle companies managed, operated and maintained the fuel storage and pipeline assets on behalf of the participants through the agency of a further company, which was also partly owned by the first appellant. The participants were charged a notional tariff for using the assets, which were fixed so as to cover the cost of running and maintaining the assets; there was no profit element for the vehicle companies. They appointed the directors of those companies, who were obliged to act in accordance with the decisions of two co-ordinating committees established by the participants.The first respondent admitted liability for the destruction of the first appellant’s property, but disputed liability for the claimed loss of profits. It relied on the “exclusionary rule” that only a legal owner, or a party with an immediate right to possession, had the right to claim damages for economic loss resulting from damage to property. The first appellant contended that: (i) its shared equitable ownership of the tanks was sufficient to give it title to claim for economic loss, with the legal owners joined as parties if necessary; and (ii) in any event, it had a shared possessory title to the pipelines under the relevant agreements. At first instance, the first appellant’s claim for loss of profits was dismissed on the ground that it had no possessory interest and that the exclusionary principle applied to prevent recovery for economic loss. The first appellant appealed.Held: The appeal was allowed. (1) The exclusionary rule, which excluded any duty to a party that suffered loss as a result of damage to another’s property solely because of a dependence on that property or its owner, was intended to avoid opening the floodgates to claims by confining redress to the proximate and direct consequences of wrongful acts: Cattle v Stockton Waterworks Co (1875) LR 10 QB 453 applied. That consideration did not militate against allowing beneficial owners to sue for economic loss since it was their position as “owner” and not as contractor that had been damaged. Beneficial ownership went beyond contractual or non-contractual dependence on the damaged property and constituted the necessary “special relationship” between the defendant and the party that suffered economic loss. Although the first appellant’s right to have its fuel loaded into, carried in and discharged from the pipelines was contractual in nature, it was the co-beneficial owner of the pipelines and the contract to use them was only an incident of that beneficial ownership.Moreover, there was no principle that a legal owner that was a trustee could not sue for loss suffered by a beneficial owner unless it had itself also suffered that loss. It was well established that a trustee could sue in contract and recover damages for loss suffered by the beneficial owner and there was no reason why the law of tort should be different. A trustee could sue for economic loss that its beneficiary, and not itself, had suffered provided that the beneficiary was a party to the action to avoid any risk of double recovery: Obestain Inc v National Mineral Development Corporation Ltd (the Sanix Ace) [1987] 1 Lloyd’s rep 465 distinguished; Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1988] 2 Lloyd’s Rep 505 and Chappell v Somers [2003] EWHC 1644 (Ch); [2004] Ch 19 applied.Applying those considerations, a duty of care was owed to a beneficial owner of property, just as much as to a legal owner, by a party that could reasonably foresee that its negligent actions would damage that property. If that party damaged the property in breach of duty, it would be liable not merely for the physical loss of that property but also for the foreseeable consequences of that loss, such as the extra expenditure to which the beneficial owner was put or the loss of profit it incurred. Provided that the beneficial owner could join the legal owner in the proceedings, it was irrelevant that the beneficial owner was not itself in possession of the property: Leigh & Sillavan Ltd v Aliakmon Shipping Ltd [1986] AC 785 distinguished. Accordingly, the first appellant could claim for its provable loss as beneficial owner or, if necessary, the vehicle companies could recover the amount that the first appellant had lost and hold those sums on trust for the first appellant.(2) Had it been necessary for the first appellant to show a possessory interest, its claim would have failed. The structure of the participants’ agreement accorded possession of the pipelines to the vehicle companies, governed the participants’ right to use them and was inconsistent with any individual participant being entitled to call for immediate possession of the pipeline systems.Laurence Rabinowitz QC, Edwin Johnson QC and Richard Handyside QC (instructed by Simmons & Simmons) appeared for the first appellant; Lord Grabiner QC, Christopher Butcher QC, Alan Maclean QC and Alexander Antelme (instructed by Davies Arnold Cooper LLP) appeared for the first respondent.Sally Dobson, barrister