Legalese: July 2010 Duty of care owed to beneficial owners of property

Introduction

In the case of Shell UK Ltd v Total UK Limited and Othersand Total UK Ltd v Chevron Ltd [2010] EWCA Civ 180, the English Court of Appeal (the "Court of Appeal") recently considered the duty of care owed to beneficial owners of property. In particular, the Court of Appeal addressed the issue of whether a defendant who has negligently damaged property is liable for the resultant economic losses suffered by a claimant, where the claimant is not the legal owner of the property, but merely the beneficial owner.

Facts

The dispute related to the negligent overfilling by Total UK Ltd ("Total") of a fuel storage tank at Buncefield Oil Storage Terminal in Hertfordshire which caused considerable damage to the tanks and pipelines through which Shell UK Ltd ("Shell") distributed and supplied oil to its customers in the South East of England. It was accepted that Total was vicariously liable for the negligence with Total conceding that the damage caused to the facilities was a reasonably foreseeable consequence of their negligence. As a consequence, Shell suffered widespread economic losses through its inability to supply fuel.

Legal title to the tanks and pipelines were vested in "vehicle" companies, which had been set up to hold the property on trust for Shell. The relevant companies did not trade, had no employees, made no profits nor held any assets on their balance sheets. Shell only had a part beneficial interest in the damaged facilities, but was a shareholder of the vehicle companies and it also owned the oil flowing in the pipelines. On this basis, the Court of Appeal still allowed the claim in negligence for its economic losses.

Court of Appeal’s Findings

The general rule is that there can be no recovery for economic loss caused by negligence unless it is the foreseeable consequence of physical damage to the property. It is not enough for the claimant to have had only contractual rights in relation to such property (Leigh and Sillavan Ltd v Aliakmon Ltd [1986] AC 785).

However this case illustrates that the exclusionary rule is not absolute. The Court of Appeal established that a duty of care is owed to the beneficial owner of property by a defendant who can reasonably foresee that his negligence will damage that property. The defendant in breach will not only be liable for physical damage, but also for foreseeable economic losses such as extra expenditure or loss of profit incurred by the beneficial owner. Provided that the beneficial owner can join the legal owner in the proceedings, it does not matter that the beneficial owner is not in possession of the property.

In this instance, Shell was the beneficial owner of the pipeline. Although it had a contract to use the pipeline, it was only an incident of its beneficial ownership. Shell was the "real" owner, with the "legal" owner being little more than bare trustee. Furthermore, both the legal and beneficial owners were parties to the proceedings. The Court found that it would be too legalistic and "a triumph of form over substance" to deny a remedy to Shell.

This judgment demonstrates that the Court will not be overly concerned with titles and form when assessing the duty of care owed to the beneficial owners of property.