This led to the courts affording a certain degree of latitude to railway carriers, permitting them to make agreements for the purpose of protecting themselves against the new risks and dangers of carriage inherent to the goods they were transporting.

It was not long before the railway companies were exploiting this new freedom, taking advantage of their dominance of the transport sector to impose stringent and often oppressive terms of business that limited their exposure to risk.

The courts felt compelled to give effect to these agreements to which the parties to the contract had deliberately agreed unless there was evidence of fraud or illegality.

As Sir Alexander Cockburn told the House of Lords in 1863:[4] There cannot be a doubt that, practically speaking, the introduction of railways has destroyed the competition which formerly existed, and the effect of which was to secure to the goods owner fair and reasonable terms [...] [T]he absence of other means of conveyance, as well as the increased rapidity of transport, compels the owner of goods, at least for all the purposes of business, to resort to railway conveyance.

The Act was promoted by Edward Cardwell, the President of the Board of Trade and chairman of the select committee responsible for the examination of the various amalgamation bills passing through Parliament.

The definitive judgment on the question was delivered by Justice Blackburn in Peek v The North Staffordshire Railway Company (1863)[4] where he said that: a condition exempting the carriers wholly from liability for the neglect or default of their servants is prima facie unreasonable.

To reach an agreement which would be considered as "just and reasonable", a carrier had just to offer a customer the option of purchasing insurance for negligence at a reduced cost.

Judges considered that the availability of a fairly priced alternative to limited liability gave adequate protection against coercion on the part of the carrier.

This was followed up by another select committee inquiry led by Lord Carlingford, President of the Board of Trade, which proposed the creation of a "Railway and Canal Commission" to oversee the rail industry.