Shell UK v Total UK [2011] QB 86

Key Point

  • If the beneficial owner of trust property can join the legal owner in the in tort proceedings for claiming economic loss, it does not matter that the beneficial owner was not themself in possession of property; the beneficial owner can sue the defendant directly for their losses, both direct and consequential

Facts

  • Fuel storage tanks, pipelines and other equipment was damaged in explosions and fires caused by the negligent overfilling of a fuel storage tank by the defendants, Total
  • Legal title to those tanks, pipelines and equipment was held on bare trust by two vehicle companies, UKOP Ltd and WLPS Ltd, for both the claimant Shell and two other petroleum companies
  • Shell and the two other companies together held the entire issued share capital of the vehicle trustee companies UKOP and WLPS
  • Shell sued the defendants in negligence, joining the trustee companies UKOP and WLPs in the proceedings as claimants
  • The defendants accepted liability for destruction of the claimant’s trust property, but contested liability for loss of profits – consequential economic loss – relying on the rule in The Aliakmon
  • The defendants succeeded at first instance; the claimants appealed

Held (Court of Appeal)

  • Appeal allowed; the claimants could sue the defendants in negligence for the consequential economic loss

Waller LJ

  • “We … would be prepared to hold that a duty of care is owed to a beneficial owner of property (just as much as to a legal owner of property) by a defendant, such as Total, who can reasonably foresee that his negligence actions will damage that property. If, therefore, such property is, in breach of duty, damaged by the defendant, that defendant will 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 is put or the loss of profit which he incurs. Provided that the beneficial owner can join the legal owner in the proceedings, it does not matter that the beneficial owner is not himself in possession of the property.”: [142]
  • ‘We must confess to being somewhat influenced as was Neuberger J by what Lord Goff of Chieveley in White v Jones called “the impulse to do practical justice” … [H]owever much one may think that, in general, there should be no duty to mere contracting parties who suffer economic loss as a result of damage to a third party’s property, it would be a triumph of form over substance to deny a remedy to the beneficial owner of that property when the legal owner is a bare trustee for that beneficial owner.”: [143]

Commentary

  • The Vandepitte procedure allows a beneficiary to sue upwards towards their trustee, and then the trustee sues across to the third party, in order to recover for consequential economic loss
  • The procedure was not intended to change the substantive rights of the parties; but there is a case for saying that here, where the beneficiary need only join the trustee as a party to sue in their own right for consequential economic loss, that this modification undermines or changes the substance of the Vandepitte procedure
  • Note Waller L.J.’s highly proprietary language when describing Shell’s beneficial interest in the trust property; Shell are consistently labelled the “beneficial owners” – the ‘“real” owners’ of the trust property
  • Notable is the language of Waller L.J.’s conclusion: “We would reverse the judge on this aspect of the case and hold that Shell can recover for its provable loss, or, if formality is necessary, that WLPS and UKOP can recover the amount which Shell has lost but will hold the sums so recovered as trustees for Shell.”: [144] (emphasis added)