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 tram repairs.
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 Inglis.
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 service."
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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