Caltex Oil (Australia) Pty Ltd & Anor v The Dredge Willemstad & Anor
136 CLR 52911 ALR 227
(Judgment by: GIBBS J)
Caltex Oil (Australia) Pty Ltd
Australian Oil Refining Pty Ltd
v. The Dredge Willemstad
Decca Survey Australia Ltd
Judges:
Gibbs JStephen J
Mason J
Jacobs J
Murphy J
Subject References:
Negligence
Shipping and Navigation
Judgment date: 9 December 1976
SYDNEY
Judgment by:
GIBBS J
The appeals now before us are from judgments delivered in three of four actions which were heard together by Sheppard J. in the Supreme Court of New South Wales.
The actions were brought to recover damage caused when a dredge, the "Willemstad", fractured a pipeline which was laid on the bed of Botany Bay and which connected an oil refinery at Kurnell, on the southern shore, with an oil terminal at Banksmeadow, on the northern shore. Both the refinery and the pipeline (which in fact comprised four pipes) were owned by Australian Oil Refining Pty. Ltd. ("A.O.R.") and the terminal was owned by Caltex Oil (Australia) Pty. Ltd. ("Caltex"). The pipeline was used to carry products of the refinery to the terminal. By agreement between Caltex and A.O.R., Caltex supplied crude oil to the refinery for processing, and the product was delivered to Caltex either into a vessel at the A.O.R. wharf or by way of the pipeline to the Caltex terminal. Although the product carried through the pipeline belonged to Caltex, the agreement provided that the risk of damage or loss rested with A.O.R;
The damage occurred on the night of 25th-26th October 1971. On that night the dredge was being used to dredge a deep water channel in the bed of the bay. The western boundary of the area which was to be dredged at that time (area A) was about 100 feet to the east of the pipeline, part of which lay within another area (area D) which adjoined area A to the west. It was intended that after the dredging of area A had been completed the pipeline would be removed and replaced elsewhere and that the dredging of area D would commence thereafter. On the night in question the dredge repeatedly passed over the pipeline and its suction pipes caused damage extending over about 300 feet of the line. It is not in doubt that the dredge was off its proper course and that the negligent navigation of the dredge was a cause of the damage to the pipes. The dredge was able to navigate, not only by conventional means, but also by the use of equipment supplied by Decca Survey Australia Ltd. ("Decca"), by which the position of the dredge could be fixed with great accuracy by receiving and plotting radio signals transmitted from the shore. To enable Decca's system to be used, there was prepared a track plotter chart showing the area to be dredged, and on which the track of the vessel could be seen and if necessary recorded. An employee of Decca had drawn on the track plotter chart parallel lines showing the western boundary of area A, beyond which dredging ought not to be carried out, lest it endanger the pipeline, and showing also the pipeline itself. The lines were incorrectly drawn, in that they were placed at the wrong angle to the chart; the error was of about sixty degrees. This error meant that a navigator who sailed his dredge up to a position which, according to the markings on the chart, would have been 100 feet to the east of the pipeline, would, if he were on the northern side of the dredging area, have been much further away from the pipeline than that, but if he were on the southern side of the dredging area would in fact have crossed the pipeline.
A.O.R. and Caltex each brought an action in rem in the Admiralty jurisdiction of the Supreme Court against the "Willemstad". Each also brought an action in the Common Law Division against Decca. There were third and fourth party proceedings but the details of those proceedings do not concern us. The learned trial judge found that the damage to the pipeline was caused by the negligent navigation of the dredge and also by the negligence of a servant or agent of Decca in wrongly marking the lines on the chart. In the actions in rem he gave judgment for the plaintiffs against certain Netherlands companies who were respectively the owner and the charterers of the dredge, but he refused to enter judgment against Captain Henneman, who was the master of the dredge on the night of 25th-26th October 1971. However, in the action in rem brought by Caltex, the amount for which judgment was given was in respect of matters not involved in this appeal, and no damages were allowed to Caltex for economic loss which it suffered as a result of the damage to the pipeline. In the action by A.O.R. against Decca, judgment was given for the plaintiff for $125,000 but no appeal has been brought to this Court from that judgment. In the action by Caltex against Decca, judgment was given for the defendant, for the reason that the only loss suffered by Caltex as a result of Decca's negligence was economic loss which the learned trial judge held was not recoverable.
On these appeals three distinct questions fall for decision: (1) whether the learned trial judge should have given judgment in the actions in rem against Captain Henneman; (2) whether the learned trial judge was right in holding that the damage was caused, inter alia, by negligence for which Decca was responsible; (3) whether Caltex was entitled to recover damages for economic loss.
(1) The master of the dredge
The writ in each action in rem was in the usual form. It was addressed "To the owners and all others interested in the Dredge 'Willemstad'". On the particulars of claim indorsed on the writ it was alleged that the dredge was negligently and unskilfully navigated, but it was not alleged that Captain Henneman was responsible for the navigation of the dredge at the relevant time. After the writ was issued the dredge was arrested. The form of the bail bonds necessary to secure the release of the dredge, and of the appearances to be entered, was discussed between the solicitors. The solicitors for A.O.R. and Caltex insisted that Captain Henneman be named in the bail bonds and the solicitor for the Netherlands companies believed that it was necessary that appearances had to be entered by all those persons who were referred to in the bail bonds. For this reason an appearance was entered for Captain Henneman and Captain de Weerd (who was the master of the dredge at times not relevant to these appeals) as well as for the Netherlands companies.
The amended statements of claim delivered in the actions alleged that the dredge was "negligently, carelessly and unskilfully navigated and controlled and directed", and that "those in charge of the Dredge 'Willemstad'" were guilty of "negligent, careless and unskilful acts and unseamanlike conduct". However, the faults of navigation and the negligence alleged were not imputed to Captain Henneman, who was not named in the statement of claim. Answers were delivered by the Netherlands companies but none was delivered by Captain Henneman.
Before the hearing commenced, application were made for leave to amend the appearances by deleting the name of Captain Henneman and for an order striking his name from the proceedings. In support of these applications Captain Henneman swore an affidavit that he did not on 25th and 26th October 1971 or at any other time have any financial interest of any nature in the dredge, and that his only connexion with it was as its master. The correctness of these statements has never been challenged. The applications were refused by the learned trial judge although, as has been said, he held that it would not be right to enter judgment against Captain Henneman.
At the hearing some evidence was given that Captain Henneman was on board the dredge on the night of 25th-26th October 1971, but there was no evidence that he was on the bridge at any relevant time or that he played any part in the navigation of the dredge. It is unnecessary to consider whether, on this state of the evidence, Captain Henneman could have been held responsible for the damage, because, as will appear, the question of his personal liability did not fall for decision in these proceedings.
An action in rem is an action against the ship itself: see Aichhorn & Co. K.G. v. The Ship M.V. "Talabot" (1974) 132 CLR 449 , at pp 455-456 . However, when the defendants to such an action have entered an appearance, judgment may be enforced against them personally, and to the full extent of the damages proved, even though those damages exceed the value of the ship: The Dictator (1892) P 304 ; The Gemma (1899) P 285 ; The Dupleix (1912) P 8 ; The Banco (1971) P 137, at p 151 . After appearances have been entered the action proceeds as if it were an action in personam although it does not cease to be an action in rem: The Broadmayne (1916) P 64, at p 77 ; The Banco (1971) P 137, at p 151 ; The Conoco Britannia [1972] 2 QB 543 , at p 555 . Moreover, it appears that where an action has been commenced in rem a defendant may be added against whom the plaintiff has only a right in personam, and that an action may be commenced by means of a single writ against a number of defendants, against some of whom the plaintiff has an action in rem and against others an action in personam only: Roscoe, Admiralty Practice, 5th ed. (1931), pp. 263-264. Further, there is recent authority that the court has inherent jurisdiction to allow the intervention in an action in rem of a party who has no interest in the property arrested, when the effect of the arrest is to cause that party serious hardship, difficulty or danger: The Mardina Merchant (1975) 1 WLR 147 ; [1974] 3 All ER 749 . I can see no reason why these principles should not be applicable under the Admiralty Rules of New South Wales. I can therefore assume that it would have been possible for the learned trial judge to have ordered the joinder of Captain Henneman as a defendant if the plaintiffs in the action had sought to pursue a claim against him personally, although it would have been more doubtful whether it would have been proper to allow Captain Henneman to intervene if, not having been made a defendant, he had sought to do so. In fact, of course, the judge neither joined Captain Henneman as a defendant nor gave him leave to intervene.
As a general rule an unconditional appearance amounts to a submission to the jurisdiction of the court and to a waiver of irregularity, e.g. in the manner of service. However, only a defendant can enter an appearance. That is the general rule in all proceedings and it applies also to proceedings under the Admiralty Rules of New South Wales: see rr. 18 and 19 and Form No. 4. In an action in rem the persons who may become defendants, if they choose to appear, are the owners and others interested in the ship. The interest must be in the property proceeded against. Examples of persons having the necessary interest are mortgagees, trustees in bankruptcy, underwriters who have accepted abandonment, charterers, persons who have possessory liens, or competing maritime liens, and generally persons who are plaintiffs in other actions in rem against the same property: Halsbury's Laws of England, 4th ed., vol. 1, par. 375. As to the last class of persons mentioned in Halsbury a narrower view appears to have been taken in Owners of Ship Norma v. The Ship Ardencraig (1907) SALR 48 , but we are not concerned with that question; the examples given suffice to indicate in a general way the nature of the interest required. In The Dowthorpe (1843) 2 W Rob 73, at p 77 (166 ER 682, at p 684) Dr. Lushington said that "an interest to establish a persona standi in judicio is not an absolute right to a given sum of money; but if a person may be injured by a decree in suit, he has a right to be heard as against the decree; although it may eventually turn out that he can derive no pecuniary benefit from the result of the suit itself". He was there dealing with the position of assignees of a bankrupt shipowner and the injury to which he referred was injury of a proprietary kind; clearly injury to feelings or reputation would not be enough. The possibility that a finding that the ship had been unskilfully navigated might affect the reputation of Captain Henneman does not mean that he might be injured by a decree in the action in the sense used by Dr. Lushington. A judgment against the dredge would not directly affect Captain Henneman in any proprietary or pecuniary sense. Since in fact he had no interest in the dredge he was not one of the persons to whom the writ was addressed and he had no right to appear in the action. His unauthorized appearance did not convert him into a defendant and in truth he never became a party to the proceedings. It may be added that in the circumstances that have been mentioned the other parties to the action could not have been misled into the belief that Captain Henneman had an interest in the ship and for that reason became a defendant. The proper course was to have dismissed Captain Henneman from the proceedings. In my opinion the appeals brought against Captain Henneman must fail and his cross-appeals, by which he seeks an order that he be dismissed as a party, ought to be allowed.
(2) The effect of the negligence of Decca
Decca sought to support the judgment given in its favour in the action brought against it by Caltex by submitting that the negligence of its servant or agent did not cause the damage to the pipeline. It was not disputed that the lines had been negligently marked on the chart by a person for whose negligence Decca was responsible. It was, however, submitted that it was not established that on the night in question those in charge of the dredge had been relying on the equipment supplied by Decca, or on the chart with its erroneous markings, so that it was not proved that the negligence of Decca was a cause of the damage to the pipeline. Alternatively, it was submitted that the negligence of those in charge of the dredge supervened upon the negligence of Decca and broke the chain of causation between the latter negligence and the damage.
No evidence was given by anyone who was on the bridge of the dredge on the night in question as to what happened on that occasion. There was thus no direct evidence that Decca's system was in use on that night. However, a number of facts proved in evidence did in my opinion give rise to the inference that the system was being used. There was evidence that the two misleading lines were not marked on the track plotter chart when it was handed over by Decca's staff to the surveyor employed by the charterers of the dredge, and that they were subsequently marked on the chart by Mr. Austin, an employee of Decca. That chart as originally received by the dredge was deficient, so far as those intending to use it were concerned, because it did not show the western boundary of the area to be dredged (although it must be added that Decca cannot be blamed for this, since Decca had not been asked to plot that boundary). The learned trial judge accordingly inferred that the deck officers of the dredge would have wanted that boundary fixed with precision before they would dredge near the pipeline. It seems to me a reasonable inference that the lines were marked on the chart by Mr. Austin, at the request of those concerned with the navigation of the dredge. In other words, it is a reasonable inference that it was intended by someone concerned with the navigation of the dredge to use the track plotter chart, and the Decca system, in the navigation of the dredge. On the morning of 26th October three independant witnesses saw the track plotter chart on the track plotter on the bridge of the dredge. That was the position in which it would have been placed if it had been in use. There were no markings on the chart showing the course taken by the dredge, but, as the learned judge rightly pointed out, that was in no way conclusive. The fact that the dredge was operating at night made it more probable that Decca's system would have been used, for in conditions of darkness it would have been more likely to be effective than conventional methods of navigation. The general manager of Decca said in evidence that the Decca system is almost invariably used in a dredging project when a trailer hopper suction dredge (as the "Willemstad" was) is being used. In my opinion when a chart is obtained for use in the navigation of a dredge, and the circumstances are propitious for its use, and the dredge is found to be off its proper course but in the very area where one would expect to find it if the chart had been used, and soon afterwards the chart is found on the bridge in the position where it would have been if it had been in use, it may be inferred, in the absence of any evidence to the contrary, that it was being used on the occasion in question. The learned trial judge also relied in support of his conclusion on certain documents produced from Decca's custody, but in my opinion it is unnecessary to consider their evidential value and weight.
Counsel for Decca submitted that there was other evidence from which it could be inferred that those in charge of the dredge were not relying on the chart at the time when the damage occurred. The centre point of the damage was 125 feet outside and to the south of the two dredging areas mentioned - in fact it was to the south of dredging area D. It would follow from the judge's finding that the damage commenced just inside dredging area D and extended to the south of that area for about 300 feet. If the damage did not extend so far, the damaged pipes would have been entirely outside the dredging area. An attempt was made to disturb the judge's finding as to the position and extent of the damage, but I consider that it would not materially assist Decca's argument if the damage had been entirely outside the dredging area. The submission for Decca was that the dredge had no occasion to be to the south of the dredging area at the place where the damage occurred and that the Decca system is so accurate - it is said to give a general positional accuracy of better than five feet - that the dredge would not have been in that position if those in charge of its navigation had been using that system. Although the erroneous markings on the track plotter chart would have misled the officers navigating the dredge into going too far to the west, in the direction of the pipeline, those markings would not have misled them as to the position of the dredge in relation to the southern boundary of the dredging areas. The learned trial judge considered that Decca's submission was answered by the fact that if the dredge was working outside the dredging area it was doing so for the purpose of dredging the slopes or batters of the sides of the channel. Counsel for Decca submitted that this inference could not properly be drawn. The batter areas were not marked on any of the charts. It was said that having regard to the situation and depth of the water where the damage occurred, and to the terms of the contract under which the dredge was being worked, it was unlikely that the slopes were being dredged. I am inclined to doubt whether it can be inferred that the dredge was working on the slopes of the channel. I also doubt whether the learned judge was right in finding, as he did, that there was no evidence that the dredge from time to time left the dredging area in order to dump spoil. However, on any view the navigation of the dredge was unskilful. That circumstance in itself seems to me to provide one possible explanation for the presence of the dredge outside the dredging area and even for its return to the wrong position after spoil was dumped. If that view were accepted it would not follow that those navigating the dredge were not using the Decca system. It is possible that their main concern was to avoid the pipeline and they may not have regarded it as particularly important to ensure that the dredge did not stray to the south of the boundary. Of course the position of the damage is one matter to be weighed in deciding what inference may be drawn from the evidence as a whole, but it does not in my opinion overcome the inference that the Decca system was being used.
The officer of the watch on the dredge had at his disposal a drawing (B7526) on which the pipeline was shown. A comparison of this drawing with the track plotter chart would have shown immediately that the lines on the latter chart were drawn at the wrong angle. Counsel for Decca submitted that if the officer of the watch had been relying on the track plotter chart he could not have failed to pick up this error. This, it was said, supported the view that reliance was not placed on the track plotter chart. On the contrary, it seems to me that the fact that this glaring discrepancy between the two charts was not observed supports the view that drawing B7526 was not being used at the time. And if that drawing was not in use it makes it more probable that the dredge was not being navigated by conventional means and that the Decca system was being used.
On the whole, I am not satisfied that the learned trial judge was in error in finding that those navigating the dredge relied on the Decca system. Indeed, it seems to me improbable that they would not have used that system which was installed for that very purpose.
It is true that those in charge of the dredge should have observed the error on the track plotter chart. They might also have checked their position by conventional means. But the fact that they were negligent does not in the circumstances mean that the chain of causation between the negligence of Decca and the damage was broken. It is unnecessary to discuss the principles governing questions of causation. Here the negligence of the officers of the dredge was not independent of the negligence of Decca. They continued to rely on Decca's chart, but failed to check its correctness or to notice its inaccuracies. The negligence of the navigators of the dredge, and of Decca, were concurrent causes leading to a common result. The effect of the errors on the chart persisted until the damage occurred. The negligence of Decca was a cause of that damage.
(3) Damage for economic loss
As a result of the damage to the pipeline some of the refined product then being carried through the pipes was lost. Although that product was owned by Caltex, it was at the risk of A.O.R., which has been compensated for its loss. The loss in respect of which Caltex seeks to recover damages was entirely economic in nature, and did not flow from the loss of the product. By reason of the damage to the pipeline Caltex lost its normal means of obtaining deliveries of petroleum products at the Banksmeadow terminal while the pipeline was being repaired and restored to service. In order to obtain deliveries for the refinery Caltex arranged for petroleum products to be taken from the refinery to the terminal either by ship or by road transport. Since low sulphur fuel oil could not be sent to that terminal, it was necessary to deliver supplies of low sulphur fuel oil by ship to another terminal at Balmain and to supply Caltex's customers with fuel oil by road transport from the Balmain terminal. It is unnecessary to go into the details of the expense to which Caltex was put by reason of the breakage of the pipeline. It was admitted by the parties that if Caltex was entitled to judgment in respect of the damage to the pipeline which occurred on the night of 25th-26th October 1971 the proper amount to be awarded is $95,000, which, it was admitted, does not include any amount for the loss of the product of the refinery.
In these circumstances it becomes necessary to consider whether a person is entitled to be compensated in damages for economic loss sustained by that person as a result of damage negligently caused to the property of a third party. The further question arises whether a person whose property has been physically damaged as the result of a negligent act may recover compensation for economic loss which was not a consequence of that physical damage but which happened to be caused by the negligent act that caused the physical damage.
Of course it is clearly settled that where personal injury or physical damage to property has been caused by a negligent act, the damages which may be recovered include compensation for all pecuniary loss suffered as a result of the injury or damage. The assessment of the pecuniary loss suffered by an injured plaintiff is an everyday task performed by judges and juries hearing negligence cases. However, before the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 it appeared to have been established that a plaintiff who sustained economic loss which resulted from loss or damage negligently caused to the property of a third person was not entitled to recover damages. The simplest explanation of these decisions appears to be that it was thought that the wrongdoer owed the plaintiff no duty to take care to avoid causing him loss which was purely economic, although in some cases the reason given was that the damage was too remote, for in this as well as in other branches of the law of negligence questions of duty of care and remoteness of damage are difficult to disentangle.
The rule was first laid down in Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453 , where it was held that a contractor doing work on the land of a third person had no right of action when that land was flooded by water which leaked from a defective water-pipe laid by the defendant, with the result that the plaintiff's contract with the landowner was rendered less profitable. Some remarks of Blackburn J. (1875) LR 10 QB, at p 457 suggest that he based his judgment on the ground that the damage suffered by the plaintiff was not the proximate and direct consequence of the act of the defendant. The question next arose in the House of Lords in Simpson and Co. v. Thomson (1877) 3 App Cas 279 . In that case a ship was damaged by a collision with another vessel owned by the same person. It was held that the underwriters, who had paid the owner in respect of the loss of the first-mentioned ship, could not claim damages from him because the loss had been caused by the negligence of his other vessel. The majority of the members of the House of Lords based their judgments on the rules relating to subrogation, but Lord Penzance took pains to negative the principle suggested by counsel in that case "that where damage is done by a wrongdoer to a chattel not only the owner of that chattel, but all those who by contract with the owner have bound themselves to obligations which are rendered more onerous, or have secured to themselves advantages which are rendered less beneficial by the damage done to the chattel, have a right of action against the wrongdoer although they have no immediate or reversionary property in the chattel, and no possessory right by reason of any contract attaching to the chattel itself, such as by lien or hypothecation" (1877) 3 App Cas, at p 289 . Lord Penzance considered that this suggested principle was not only unsupported by authority but was such as, if accepted, would be likely to give rise to rights of action which "might be both numerous and novel" (1877) 3 App Cas, at p 290 . The examples which his Lordship gave of the novel claims to which the suggested principle might give rise were by no means fanciful. He instanced a claim made by a third person in respect of the negligent destruction of goods which the owner had contracted to supply to him. That sort of situation in fact arose in Margarine Union G. m. b. H. v. Cambay Prince Steamship Co. Ltd. [1969] 1 QB 219 and French Knit Sales Pty. Ltd. v. N. Gold & Sons Pty. Ltd. (1972) 2 NSWLR 132 . He further raised the question whether a doctor, who had contracted to attend an individual for a fixed sum by the year, could have a right of action in respect of the additional cost of attendance and medicine cast upon him by the accident. A very similar question fell for decision in the Supreme Court of California in Fifield Manor v. Finston (1960) 354 P. 2d 1073 . In these three later cases a view consistent with that expressed by Lord Penzance was taken, and the claims for economic loss were rejected.
During the first half of the twentieth century there were a number of cases in which economic loss caused by damage to the property of another was held to be irrecoverable. Thus it was held that a shipowner could not recover damages which he suffered when his ship was detained for some days outside a dock the gates of which had been negligently damaged: Anglo-Algerian Steamship Co. Ltd. v. The Houlder Line Ltd. [1908] 1 KB 659 . The owners of a tug were held not entitled to recover the towage remuneration lost when the tow was sunk: Societe Anonyme de Remorquage a Helice v. Bennetts [1911] 1 KB 243 . The charterer of a ship was held not entitled to recover the loss which he suffered by reason of the negligent damage to the ship, if his only right to use the ship was a contractual one, but he could recover if he had a proprietary (or possibly even a possessory) interest in the ship: Chargeurs Reunis Compagnie Francaise de Navigation a Vapeur v. English & American Shipping Co. (1921) 9 L1 LR 464 ; The Okehampton (1913) P 173 ; Elliott Steam Tug Co. Ltd. v. The Shipping Controller [1922] 1 KB 127 , at pp 139-140 . The last-mentioned case was accepted as authoritative by the Supreme Court of the United States in Robins Dry Dock & Repair Co. v. Flint (1927) 275 US 303, at p 309 (72 Law ED 290 at p 292) . Holmes J. there said:
"... a tort to the person or property of one man does not make the tortfeasor liable to another merely because the injured person was under a contract with that other, unknown to the doer of the wrong".
Similarly it has become well established that a person cannot recover damages for economic loss caused to him by the death of, or injury to, a third person, unless the case is one in which the actio per quod servitium amisit can be brought or unless recovery of that kind is permitted by a statute such as Lord Campbell's Act: see Best v. Samuel Fox & Co. Ltd. [1952] AC 716 , at p 731 and Attorney-General (NSW) v. Perpetual Trustee Co. Ltd. [1955] AC 457 , at p 484; (1955) 92 CLR 113 , at p 124 where Societe Anonyme de Remorquage a Helice v. Bennetts [1911] 1 KB 243 was cited with apparent approval.
However, the course of authority before Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 was not entirely uniform. In Main v. Leask 1910 SC 772 a fishing boat was sunk by the fault of another vessel. The fishing boat was worked under an agreement whereby the profits earned were divisible amongst the owners of the boat and the members of the crew. The Court of Session refused to dismiss a claim by the crew to be compensated for the profits which they lost when the vessel was sunk. The reasons for the decision are not entirely clear, but Lord Ardwall appears to have considered that it was relevant that there was a joint adventure between the owner and crew of the fishing boat 1910 SC, at p 779 . A much more important decision is Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) [1947] AC 265 . There a ship was damaged in a collision and the cargo owners became liable for general average contribution to the shipowners. The cargo was not in fact damaged. The cargo owners sued to recover a proportion of the general average contribution from the owners of the colliding ship. Their claim was upheld by a majority of the House of Lords. In the course of his judgment Lord Roche said (1947) AC, at p 280 :
"... if the expense is occasioned by the collision and if it is the expense in whole or in part of the cargo owners ... then no authority was cited to support the proposition that whether by land or by sea physical or material damage is necessary to support a cause of action in a case like this. I do not regard the case of Societe Anonyme de Remorquage a Helice v. Bennetts [1911] 1 KB 243 which was cited as any such authority. If it was correctly decided, on which I express no opinion, I think it must depend on a view that one vessel (A) does not owe to the tug which is towing vessel (B) any duty not negligently to collide with (B). On the other hand, if two lorries, A and B are meeting one another on the road, I cannot bring myself to doubt that the driver of lorry A owes a duty to both the owner of lorry B and to the owner of goods then carried in lorry B. Those owners are engaged in a common adventure with or by means of lorry B and if lorry A is negligently driven and damages lorry B so severely that whilst no damage is done to the goods in it the goods have to be unloaded for the repair of the lorry and then reloaded or carried forward in some other way and the consequent expense is by reason of his contract or otherwise the expense of the goods owner, then in my judgment the goods owner has a direct cause of action to recover such expense. No authority to the contrary was cited and I know of none relating to land transport."
Lord Porter referred to counsel's argument that "liability or damage arising from a contract with a third party gives no ground for a claim for damages in an action for negligence against a wrongdoer unless the liability or damage arose from physical injury to the plaintiff's person or to property owned by or in the possession of the plaintiff" (1947) AC, at p 296 , and said:
"For this contention there may be much to be said where the person or thing injured was not engaged, as is cargo when being carried in a ship, on a joint adventure."
Lord Simonds, who dissented (1947) AC, at pp 304-307 , held that the loss was of a kind which the law does not regard as recoverable, and accepted as correct the principle stated by Lord Penzance in Simpson and Co. v. Thomson (1877) 3 App Cas 279 and its application in Societe Anonyme de Remorquage a Helice v. Bennetts [1911] 1 KB 243 .
It is not at all clear whether the decision in this case depended on doctrines peculiar to maritime law, as Lawton L.J. suggested in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] 1 QB 27 , at pp 48-49 . But it is most unlikely that Lord Roche and Lord Porter intended to sweep away the authority of the earlier decisions, to most of which they did not refer. Their apparent reliance on the circumstance that the shipowner and the cargo owners were engaged in a common adventure indicates that they did not consider that the economic loss could have been recovered merely because it could reasonably have been foreseen. The example of the two lorries given by Lord Roche illustrates the limited scope of his remarks - the economic loss recoverable was a loss sustained by the owner of goods which were being carried in the lorry at the time when it suffered the damage. Lord Roche did not suggest that the consignee of the goods could recover damages caused by the delay in carrying them, or that the owner of other goods could recover damages because the lorry was unable to carry them on its return journey.
Another case decided before Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 was Seaway Hotels Ltd. v. Cragg (Canada) Ltd. (1959) 21 DLR (2d) 264 , a decision of the Ontario Court of Appeal. In that case a feeder line carrying electric power to an hotel was negligently broken, with the result that the power was cut off and refrigerators, lifts, air-conditioning and some lights would not work. Food was spoiled and the dining-room and cocktail bars had to be closed some hours before the usual time. The hotelkeepers recovered not only for the loss of the food but also for the economic loss caused by the closure of the dining-room and bars, which does not appear to have been consequential upon the loss of the food. The Court held that the defendants were liable because the damage was foreseeable, and appeared to treat economic loss in exactly the same way as material or physical loss or damage.
It was in this state of the law that Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 was decided. Their Lordships' judgments in that case are for the most part devoted to the question whether a negligent but honest misrepresentation may give rise to an action for damages for financial loss caused thereby, and comparatively little attention was devoted to the principles governing the recovery of loss which is purely financial. It is important to notice that their Lordships did not simply place liability for negligent words on the same footing as liability for negligent acts. It was not enough that the maker of the misleading statement could foresee that financial loss would result from it. The duty arose from the special relationship between the parties. Only three members of the House of Lords dealt with the significance of the fact that the damage sought to be recovered was purely pecuniary. Lord Hodson (1964) AC, at p 509 said that it was difficult to see why liability as such should depend on the nature of the damage, and referred to Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) [1947] AC 265 . Lord Devlin (1964) AC, at p 517 said that he could find "neither logic nor common sense" in distinguishing between financial loss caused through physical injury and financial loss caused directly. Lord Pearce (1964) AC, at p 536 referred to Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) [1947] AC 265 as a decision that economic loss alone, without physical or material damage to support it, can afford a cause of action in negligence by act. He went on to say (1964) AC, at pp 536-537 :
"How wide the sphere of the duty of care in negligence is to be laid depends ultimately upon the courts' assessment of the demands of society for protection from the carelessness of others. Economic protection has lagged behind protection in physical matters where there is injury to person and property. It may be that the size and the width of the range of possible claims has acted as a deterrent to extension of economic protection."
Notwithstanding the broad dicta of Lord Hodson and Lord Devlin, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 did not obliterate the distinction previously drawn between damages for pecuniary loss and damages for material or physical loss. The subsequent authorities have not regarded that decision as having had that effect. In The World Harmony (1967) P 341 Hewson J., following the earlier cases, held that a time charterer could not recover pecuniary loss resulting from damage caused by a third person to the chartered vessel. In Weller & Co. v. Foot and Mouth Disease Research Institute [1966] 1 QB 569 , Widgery J. held that auctioneers, who had suffered pecuniary loss caused when a cattle market was closed because of an outbreak of foot and mouth disease which had resulted from the escape of a virus from the defendant's premises, could not recover damages although the loss was foreseeable. Widgery J. in his judgment drew attention to the magnitude of the consequences that might ensue if the defendant's liability extended to all damage that should have been foreseen, since almost all business in the community might foreseeably have been affected by the escape of the virus (1966) 1 QB, at p 577 . He said (1966) 1 QB, at p 585 :
"The world of commerce would come to a halt and ordinary life would become intolerable if the law imposed a duty on all persons at all times to refrain from any conduct which might foreseeably cause detriment to another, but where an absence of reasonable care may foreseeably cause direct injury to the person or property of another, a duty to take such care exists."
He explained the earlier cases by saying that the plaintiffs there were regarded as being outside the scope of the defendants' duty to take care (1966) 1 QB, at p 587 . He went on:
"The duty of care arose only because a lack of care might cause direct injury to the person or property of someone, and the duty was owed only to those whose person or property were foreseeably at risk. The decision in Hedley Byrne [1964] AC 465 does not depart in any way from the fundamental that there can be no claim for negligence in the absence of a duty of care owed to the plaintiff .... What the case does not decide is that an ability to foresee indirect or economic loss to another as a result of one's conduct automatically imposes a duty to take care to avoid that loss."
Closer to the facts of the present appeal are cases in which damage, negligently caused, to a cable, main or hydrant interrupted the supply of electricity, gas or water to the plaintiff's factory and, foreseeably, caused the factory to lose production and the plaintiff to suffer economic loss. In these cases the cable, main or hydrant belonged to a public utility, and it was held that the plaintiff, who suffered no material loss, was not entitled to recover for the pecuniary loss sustained when the factory lost production: Electrochrome Ltd. v. Welsh Plastics Ltd. [1968] 2 All ER 205 (water); Dynamco Ltd. v. Holland and Hannen and Cubitts (Scotland) Ltd. (1971) SLT 150 (electricity); John C. Dalziel (Airdrie) Ltd. v. Burgh of Airdrie (1966) SLT (Sh Ct) 39 (gas). Where, on the other hand, the cutting off of the supply foreseeably caused material damage to the plaintiff, the defendant was held liable for that damage and for any financial loss consequential thereon: British Celanese Ltd. v. A. H. Hunt (Capacitors) Ltd. (1969) 1 WLR 959 ; [1969] 2 All ER 1252 ; S.C.M. (United Kingdom) Ltd. v. W. J. Whittall & Son Ltd. [1971] 1 QB 337 ; Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] 1 QB 27 . The last two cases were decisions of the Court of Appeal.
It may be right to say, as Lord Devlin said, that the distinction between recovery for economic loss and recovery for material loss is illogical, but that does not mean that the decisions that have drawn that distinction were erroneous, because the law aims at practical justice rather than logical consistency. However, I am in respectful agreement with Lord Denning M.R. in S.C.M. (United Kingdom) Ltd. v. W J Whittall & Son Ltd. (1971) 1 QB, at p 344 that the distinction is not lacking in common sense. If a person committing an act of negligence were liable for all economic loss foreseeably resulting therefrom, an act of careless inadvertence might expose the person guilty of it to claims unlimited in number and crippling in amount. For example, if, through the momentary inattention of an officer, a ship collided with a bridge, and as a result a large suburban area, which included shops and factories, was deprived of its main means of access to a city, great loss might be suffered by tens of thousands of persons, but to require the wrongdoer to compensate all those who had suffered pecuniary loss would impose upon him a burden out of all proportion to his wrong. Similarly, the driver of a vehicle which collided with a pylon carrying electric power lines in an industrial area might dislocate the work of dozens of factories. It is true that under modern conditions some claims arising from physical injury or material damage can be very large in amount - for example if a passenger train were derailed. Nevertheless, the extent of claims for loss that is purely economic is likely to be very much wider than that of claims arising out of physical injury and material damage. Further, a law which imposed a general duty to take care to avoid causing foreseeable pecuniary loss to others would, as Widgery J. suggested, interfere greatly with the ordinary affairs of life. There are sound reasons of policy why economic loss should not be treated in exactly the same way as material loss.
One possible view of the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 is that it allows the recovery of economic loss only if it was caused by negligent misrepresentations, and thus creates a limited exception to the general rule that there is no liability for unintentional negligent infliction of economic loss which is not itself consequential upon foreseeable physical injury or damage to property. That seems to have been the view of Winn L.J. in S.C.M. (United Kingdom) Ltd. v. W.J. Whittall & Son Ltd. (1971) 1 QB, at p 352 . If this were correct, negligent misstatements, which were thought to give rise to no liability at all, now entail a liability for damages of a kind which cannot be recovered if the negligence consists in acts rather than in words. That would be a surprising result. It is often not easy to decide whether a particular act of negligence can rightly be described as a negligent misstatement or as negligent conduct. In the present case, for example, it would be possible to argue that Decca's action in making available an erroneously marked chart amounted to a misrepresentation as to the situation of the pipeline. I would not accept that argument, but it illustrates the fine distinctions that would arise if it were held that the rule in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 applied only to negligent misrepresentations.
So narrow a view of the effect of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. was rejected by the Supreme Court of Canada in Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 DLR (3d) 530 . In that case the charterer by demise of a log barge fitted with cranes suffered economic loss when he discovered that a crane was so defective that to continue using it would be dangerous, and was forced to discontinue using it during a busy season. He was held entitled to recover his loss of earning from the manufacturer who had negligently failed to warn him of the defect. Ritchie J. said that the damages "were recoverable as compensation for the direct and demonstrably foreseeable result of the breach of that duty" (1973) 40 DLR (3d), at p 547 . Laskin J. said (1973) 40 DLR (3d), at p 550 :
"Liability here will not mean that it must also be imposed in the case of any negligent conduct where there is foreseeable economic loss ... (The present case) is concerned with economic loss resulting directly from avoidance of threatened physical harm to property of the appellant if not also personal injury to persons in its employ."
The United States Court of Appeals, Ninth Circuit, has also rejected the view that damages for loss which is purely economic cannot be recovered where the negligence consisted in acts rather than in words, and has allowed fishermen to recover damages for economic loss sustained when fishing grounds were affected by a spill of oil: Union Oil Co. v. Oppen (1974) 501 F 2d 558 .
Another theory that has been advanced, but cannot in my opinion be accepted, is that a plaintiff who suffers any material damage is entitled to claim for all economic loss that he has sustained, even though such loss was not consequential upon the material damage itself and would not have been recoverable had it stood alone. This suggested doctrine seems entirely irrational, and was decisively rejected by the Court of Appeal in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] 1 QB 27 and by the Court of Appeal of New South Wales in French Knit Sales Pty. Ltd. v. N. Gold & Sons Pty. Ltd. (1972) 2 NSWLR 132 . The award of economic loss due to the closure of the dining-room and bars in Seaway Hotels Ltd. v. Cragg (Canada) Ltd. (1959) 21 DLR (2d) 264 could not be supported on that basis, but may be explained because the damaged cable supplied only the hotel - cf. per Buckley L.J. in S.C.M. (United Kingdom) Ltd. v. W J Whittall & Son Ltd. (1971) 1 QB, at pp 356-357 .
The view suggested by Widgery J. in Weller & Co. v. Foot and Mouth Disease Research Institute (1966) 1 QB, at p 587 , that a duty of care is owed to anyone whose person or property is foreseeably at risk, and that a person to whom the duty is owed "can recover both direct and consequential loss which is reasonably foreseeable", is, in my respectful opinion, open to a similar objection if by "consequential loss" is meant economic loss not consequential upon actual material loss. It seems to me just as difficult to justify a rule allowing the recovery of economic loss simply because physical damage was foreseen although none has occurred, as one which allows economic loss sustained in addition to, but not in consequence of, physical damage.
The members of the Court of Appeal in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. reached no unanimity on this difficult question. Edmund Davies L.J., in his dissenting judgment, came to the conclusion that "an action lies in negligence for damages in respect of purely economic loss, provided that it was a reasonably foreseeable and direct consequence of failure in a duty of care" (1973) 1 QB, at p 45 . A similar view appears to have been expressed in Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 DLR (3d) 530 but, with the greatest respect, I cannot find this approach altogether satisfactory. It is true that The Wagon Mound [1961] AC 388 "merely decides that a plaintiff cannot recover for unforeseeable consequences even if they are direct; it does not decide that a plaintiff can always recover for foreseeable consequences even if they are indirect" (Professor Atiyah in Law Quarterly Review, vol. 83 (1967), p 263, quoted by Edmund Davies L.J. in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. (1973) 1 QB, at p 46 ). Nevertheless, as Lord Denning M.R. pointed out in S.C.M. (United Kingdom) Ltd. v. W.H. Whittall & Son Ltd. (1971) 1 QB, at p 343 , a person may owe a duty of care to those whom he knows may be indirectly injured. Examples of this are provided in Home Office v. Dorset Yacht Co. Ltd. [1970] AC 1004 and in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 itself. There would seem no reason in principle why this test, leading as it inevitably does to complexity, should be applied only to cases of economic loss, although not generally applicable. And such a test would considerably enlarge the field of liability, contrary to some of the authorities already mentioned.
The majority of the Court of Appeal in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] 1 QB 27 comprised Lord Denning M.R. and Lawton L.J. Lord Denning M.R. expressed his conclusion as follows (1973) 1 QB, at p 37 :
"The more I think about these cases, the more difficult I find it to put each into its proper pigeon-hole. Sometimes I say: 'There was no duty.' In others I say: 'The damage was too remote.' So much so that I think the time has come to discard those tests which have proved so elusive. It seems to me better to consider the particular relationship in hand, and see whether or not, as a matter or policy, economic loss should be recoverable, or not."
I would, with respect, completely agree that it is necessary to consider the particular relationship in hand, but cannot think that the law leaves it entirely to the court to decide as a matter of policy whether the economic loss should be recoverable. The other member of the majority, Lawton L.J., said (1973) 1 QB, at p 47 :
"In my judgment the answer to this question is that such financial damage cannot be recovered save when it is the immediate consequence of a breach of duty to safeguard the plaintiff from that kind of loss."
The difficulty with this suggested answer to the problem is that it does not give any guidance as to when such a duty arises, although Lawton L.J. made it quite clear that financial loss resulting from damage to electric cables, gas pipes and water mains is not recoverable.
In my opinion it is still right to say that as a general rule damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff's person or property. The fact that the loss was foreseeable is not enough to make it recoverable. However, there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence, and owes the plaintiff a duty to take care not to cause him such damage by his negligent act. It is not necessary, and would not be wise, to attempt to formulate a principle that would cover all cases in which such a duty is owed; to borrow the words of Lord Diplock in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1970) 122 CLR 628 , at p 642; [1971] AC 793 , at p 809 :
"Those will fall to be ascertained step by step as the facts of particular cases which come before the courts make it necessary to determine them."
All the facts of the particular case will have to be considered. It will be material, but not in my opinion sufficient, that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure.
In the present case the persons interested in the dredge and the employees of Decca (in particular Mr. Austin) knew that the pipeline led directly from the refinery to Caltex's terminal. They should have known that, whatever the contractual or other relationship between Caltex and A.O.R. might have been, the pipeline was the physical means by which the products flowed from the refinery to the terminal. Moreover, the pipeline appeared to be designed to serve the terminal particularly (although no doubt it would have been possible for it to serve other persons as well) and was not like a water main or electric cable serving the public generally. In these circumstances the persons interested in the dredge, and Decca, should have had Caltex in contemplation as a person who would probably suffer economic loss if the pipes were broken. Further, the officers navigating the dredge had a particular obligation to take care to avoid damage to the pipeline, which was shown on the drawing supplied to them for the very purpose of enabling them to avoid it. Decca had a similar obligation to draw the lines on the track plotter chart, in such a way that the navigators would not sail the dredge over the pipeline. In all these circumstances the particular relationship between the dredge and Decca on the one hand, and Caltex on the other, was such that both the dredge and Decca owed a duty to Caltex to take reasonable care to avoid causing damage to the pipeline and thereby causing economic loss to Caltex. It should therefore in my opinion be concluded that Caltex is entitled to recover the economic loss resulting from the breach of that duty of care. The quantum of damages is, as I have said, admitted.
For these reasons I would allow Caltex's appeals.