Caltex Oil (Australia) Pty Ltd & Anor v The Dredge Willemstad & Anor

136 CLR 529
11 ALR 227

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(Judgment by: STEPHEN J)

Caltex Oil (Australia) Pty Ltd
Australian Oil Refining Pty Ltd
v. The Dredge Willemstad
Decca Survey Australia Ltd

Court:

Judges: Gibbs J
Stephen J
Mason J
Jacobs J
Murphy J

Subject References:
Negligence
Shipping and Navigation

Judgment date: 9 December 1976

SYDNEY

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Judgment by:
STEPHEN J

Damage done by the dredge "Willemstad" to oil pipelines lying along the bed of Botany Bay has given rise to four actions, in three of which appeals have been brought to this Court and have been heard together. All four actions arose out of the one set of circumstances and were heard and disposed of together. Two were actions in rem in the Admiralty jurisdiction of the Supreme Court of New South Wales in which the dredge "Willemstad" was sued, in one by Australian Oil Refinery Pty. Ltd. ("A.O.R."), in the other by Caltex Oil (Australia) Pty. Ltd. ("Caltex"). In the two remaining actions Decca Survey Australia Ltd. ("Decca") was sued, in one action by A.O.R. and in the other by Caltex. In several of the actions third and fourth parties were joined but with them these appeals are not concerned.

The learned primary judge gave judgment for A.O.R. in its two actions, one against the dredge and the other against Decca. In the latter action no appeal has been brought but in its action against the dredge A.O.R. had also sought judgment, unsuccessfully, against the master of that vessel, who had entered an appearance. A.O.R. now appeals against this refusal of judgment against the master; his Honour had concluded that in the circumstances "no judgment entered in the actions brought by the plaintiffs should reach the master".

In the two actions brought by Caltex the learned primary judge, so far as presently relevant, gave judgment for the respective defendants but only because he concluded in each case that the nature of the damages suffered by Caltex, being confined to economic loss, were such as not to be recoverable by it; on this aspect Caltex appeals in each of these two actions. In its action against the dredge Caltex, like A.O.R., had sought judgment against the captain of the dredge and it too appeals against the refusal of judgment against the captain in that action. In argument on the appeal in the action against Decca the respondent Decca, although not a cross-appellant, sought also to uphold the judgment in its favour upon the ground that the learned primary judge was wrong in finding negligence on its part.

In the determination of these appeals three matters thus arise for decision. The first concerns the right of Caltex, in each of its actions, to recover damages for purely economic loss caused by the respective defendants' negligence. The second relates to the position of the captain of the dredge, who entered an appearance in the two Admiralty actions and whose liability to judgment in those two actions is in issue. The third concerns the correctness of the finding that Decca was negligent and that its negligence was a cause of the damage for which recovery is sought in the action in which it is defendant.

It was while deepening a shipping channel in Botany Bay that the dredge, using suction dredging methods and equipped with navigational aids installed by Decca, caused extensive damage to pipelines. These pipelines linked A.O.R.'s oil refinery on one side of the bay with Caltex's Banksmeadow oil terminal on the other side. It is from the refinery that the Caltex terminal obtains, through the pipelines, its supplies of refined petroleum products. The pipelines are owned by A.O.R.; the products passing through the pipelines to the Caltex terminal were, by agreement between Caltex and A.O.R., at A.O.R.'s risk until delivery at the terminal. A.O.R. recovered very substantial damages in its two actions, including damages for the injury to the pipelines and for the loss of the products which escaped from the severed pipelines, and there is no appeal to this Court on that score; A.O.R. is an appellant only in its Admiralty action and then only in so far as it has been denied judgment as against the captain of the dredge.

Until the pipelines were repaired in order to make good its customary flow of petroleum products through its Banksmeadow terminal, Caltex was obliged to use expensive alternative means of securing supplies of products, in part by using ships and road transport to carry products from the refinery to Banksmeadow and in part by taking delivery of products at another of its terminals and distributing them to its customers from there rather than from Banksmeadow. In addition to extra costs of transportation and handling, Caltex also incurred other expenses in necessary modifications to the two terminals. In its actions against the dredge and against Decca, actions in tort founded upon negligence, Caltex sought to recover the cost of all this, whence arose the first matter argued in these appeals.

The learned primary judge, while finding negligence to have been established as against each defendant, denied to Caltex any right to damages because its claim was restricted to economic loss alone, unrelated to any injury to its property. His Honour concluded that on the authorities binding upon him this fact precluded any recovery of damages, either because the damages were too remote or because no relevant duty of care was owed to Caltex. The physical injury to property was to A.O.R.'s pipelines; the relatively minor loss of petroleum products when the pipelines were severed was loss of property which was at the risk of A.O.R., and for which Caltex made no claim and the loss of which would not in any event, in the view of the learned primary judge, have entitled Caltex to recover in respect of the economic loss for which it sued. That economic loss resulted, rather, from the aborting of the means of transportation, by pipeline, from refinery to terminal.

There has long existed a line of authority in English law said to establish the proposition that damages may not be recovered in negligence for purely economic loss. The decision of their Lordships in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 , itself changing existing law as to negligent misstatements and allowing recovery for purely economic loss in that field, has at the same time given rise to speculation whether this is now, or indeed ever was, the law. Lord Devlin, at least, considered that the fundamental question settled by their Lordships' decision was that purely economic loss will be recoverable if there is sufficient proximity between the parties to give rise to a special duty relationship. In numerous recent cases the English and, to a lesser extent, the Canadian and Australian courts have considered the recoverability of purely economic loss in areas beyond the field of negligent misstatement, as have the courts of the United States. In the English cases the attempt to extend liability for negligence in these areas so as to include economic loss where the plaintiff has suffered no physical injury or damage to property to which the economic loss is consequential has usually failed. In Canada it has occasionally succeeded, notably in Seaway Hotels Ltd. v. Consumer Gas Co. (1959) 21 DLR (2d) 264 , a decision antedating Hedley Byrne [1964] AC 465 , and, in rather special circumstances involving products liability, in Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 DLR (3d) 530 . The point has not before arisen directly for decision in this Court nor are there any authorities which are binding on this Court; in the New South Wales Supreme Court, in French Knit Sales Pty. Ltd. v. N. Gold & Sons Pty. Ltd. (1972) 2 NSWLR 132 Asprey J.A., with whose reasons Hardie A.J.A. agreed in substance, adopted the same view as have English authorities. However, Mason J.A. (as he then was) concluded that it was inappropriate to determine upon demurrer the "interesting and difficult questions of law" which were raised.

Since it is the absence of injury to property which is said to deny Caltex damages for its economic loss it will be as well, initially, to examine the position of the two items of property which were physically affected, the injured pipelines and the lost petroleum products which escaped into the bay when the pipelines were fractured.

The pipelines were apparently laid across Botany Bay by A.O.R. pursuant to a licence granted by the public authority having control of the bay. By its terms A.O.R. might lay down pipelines from its refinery on the southern shore of Botany Bay to a point on the northern shore in the vicinity of the Banksmeadow terminal and run petroleum products through them. These pipelines are again referred to in the processing agreement entered into between A.O.R. and Caltex and which was in force at the time when they were damaged; cl. 14 of that agreement provides that refined products shall be delivered by A.O.R. either to a vessel at the A.O.R. wharf or, at the option of Caltex, an option which it had apparently exercised, at Banksmeadow terminal, in which latter event products are to be delivered "at the boundary fence of the terminal, by pipeline, and shall be pumped into such ... terminal at A.O.R.'s expense".

Although the pipelines were apparently used exclusively for the delivery of products to the Caltex terminal, Caltex had no proprietary or possessory right in respect of them, any more than it would have had in road tankers which A.O.R. might have used had it agreed to deliver by road transport rather than by pipeline. Despite their apparently exclusive use for the supply of products to Caltex, there would seem to have been nothing to prevent A.O.R. from using the pipelines to carry across the bay products destined for third parties, diverting those products from the pipes before their actual entry into Caltex's terminal. Damage to the pipelines cannot be relied upon by Caltex as being damage to property which it owned or over which it enjoyed possessory rights.

The petroleum products which were lost were the subject of the processing agreement between A.O.R. and Caltex; that agreement governed their relationship concerning the supply of crude oil to A.O.R. by Caltex, its refining by A.O.R. and the supply by it of resultant products to Caltex. The agreement, after reciting the desire of Caltex to have its crude oil processed, provides that A.O.R. will "process crude oil offered by Caltex and accepted by A.O.R., at its Kurnell, NSW, refinery, for Caltex to produce petroleum products required by Caltex for marketing in Australia"; however deficient the punctuation may be, the relationship of the parties is clear enough, A.O.R. provides a service for Caltex, it refines Caltex crude oil and from it produces for Caltex petroleum products for the Australian market. Caltex is to supply crude oil which A.O.R. will process, in return for a "process fee", so as to yield substantially all refined petroleum fuels required by Caltex, Caltex supplying monthly estimates of its future requirements.

Clause 18 of the agreement reads:

"18. Title and Risk

The crude oil, the subject of this agreement, stocks in process and product will normally be intermingled with crude oil being processed by A.O.R. on behalf of others and with the products derived therefrom. Any consequent question as to identity or ownership of a given volume shall be determined on a notional basis computed by reference to current operating data for A.O.R.'s storage facilities and refinery. From the time the crude oil is received at the vessel's permanent hose connection in accordance with Section 9, until the time the products are delivered in accordance with Section 14, the risk of damage or loss shall rest with A.O.R."

Delivery of product, when effected by pipeline, takes place on its arrival at the Banksmeadow terminal. The effect of this clause, when read in conjunction with cll. 9, 10, 11 and 13, is to overcome what might otherwise be the effect, upon Caltex's title to its crude, stocks in process and product, of their being intermingled with like materials owned by others. Identity and ownership is made to depend upon the quantities of Caltex crude from time to time received by and passing through the refinery, Caltex having attributed to it title to so much as is called for by the proportion which its crude input has borne to that of other crude taken into the refinery. Thus particular products destined for Caltex will be its property regardless of the original ownership of the crude from which they are refined.

It was no doubt in the light of these circumstances that counsel for Caltex was able to announce in the course of the trial that the parties agreed that the practice was to allocate oil at the refinery, the oil in the pipelines at the time of their fracture having been allocated to Caltex; thus while risk remained with A.O.R. until delivery to the Caltex terminal ownership was in Caltex. In the course of that announcement reference was made to property having passed to Caltex; however from the agreement, the terms of which will be decisive as to title (Williston on Contracts 3rd ed. (1960), vol. 9, par. 1030) it would appear that in fact property never left Caltex; the transaction was one of bailment, rather than of a sale and a subsequent buying back, that type of bailment commonly described as the hire of work and labour, locatio operis faciendi (Halsbury's Laws of England 4th ed., vol. 2, par. 1562).

The situation as to title which the agreement created is different both from that of the wheat considered in South Australian Insurance Co. v. Randell (1869) LR 3 PC 101 and in Chapman Bros. v. Verco Bros. & Co. Ltd. (1933) 49 CLR 306 and from that of the fruit in Farnsworth v. Federal Commissioner of Taxation (1949) 78 CLR 504 . It approaches most closely to the position referred to in Corpus Juris 2d, vol. 8, pp. 345-346, where a reading of the cases there cited shows that in the case of fungible goods their commingling and manufacture into other products which are to be returned to the original owner may, if the parties so intend, be consistent with a bailment, property never leaving the bailor (see generally the annotation to Kansas Flour Mills Co. v. Board of Commissioners of Harper County (1927) 54 ALR 1164 and Commissioner of Internal Revenue v. San Carlos Milling Co. (1933) 63 F (2d) 153 ).

Since the petroleum products which were to be delivered to Caltex by pipeline were its property it follows that the loss of product which occurred when the pipelines were fractured was a loss suffered by Caltex of its property. The extent of that loss was kept within modest limits, no doubt because the flow was shut off at the refinery end.

That loss of product was clearly a physical loss of Caltex's property directly caused by the careless act of the dredge (I do not, at this stage, distinguish between the dredge and the supplier of its navigational aids, Decca). It is well established that Caltex may recover damages for any economic loss negligently inflicted which is directly consequential upon physical loss. However the loss of the product which escaped through the damaged pipeline did not cause any measurable part of the economic loss which Caltex seeks to recover. Some small and unascertained fraction of that loss was no doubt attributable to the failure of that product to continue its journey across the bay into the Caltex terminal; but Caltex neither sought to quantify that loss nor to recover on that footing. It was the interruption to the general flow of product through the pipeline, coupled with the fact that, by the terms of cl. 23 of the processing agreement, A.O.R. was not, in the circumstances, liable to Caltex for the failure to supply by pipeline, that cast upon Caltex the substantial financial burdens which represented its economic loss.

Accordingly, any doctrine of the law of negligence which would confine recoverable economic loss to that which is strictly consequential upon physical injury to the plaintiff's person or property must lead to a refusal of relief to Caltex. Although no decision binding upon this Court so confines the limits of recoverable economic loss there is much persuasive authority supporting such a conclusion. Its origin is to be found in the judgment of the Court of Queen's Bench, delivered by Blackburn J., in Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453 and from there it may be traced through the speech of Lord Penzance in Simpson v. Thomson (1877) 3 App Cas 279, at pp 289-290 , into a series of shipping cases in the first quarter of this century. These cases were concerned either with the case of charterers, otherwise than by demise, who suffered economic loss, typically due to injury to or compulsory acquisition of the chartered vessel, or, in one case, with a tug's economic loss flowing from the sinking, by another's negligence, of its tow. Up to this stage no judicial disquiet as to the exclusion of any rights to recover for purely economic loss is evident in the cases, its exclusion being justified principally by reference to uncontrolled extent to which liability would be extended were recovery of purely economic loss permitted and to the fear of a great influx of cases and of resultant detriment to judicial administration. The expression of this fear is no novelty and may be compared with that expressed much earlier by Lord Abinger in the somewhat different context provided by the issues in Winterbottom v. Wright (1842) 10 M & W 109 (152 ER 402) . As to the concern lest there be an undue extension of liability it is well to recall that these cases were decided before reasonable foreseeability had become accepted as a means of limiting the area of liability in negligence generally. It was also a time before Donoghue v. Stevenson [1932] AC 562 and long before, at least in England, a right of recovery for the economic loss caused by negligent misstatement had been recognized.

As I have earlier remarked, it was after Hedley Byrne [1964] AC 465 that a succession of English cases, a number of which were concerned with the consequences of the interruption of electric power supply, again confronted the courts with the problem of recovery for purely economic loss, although by no means always as an issue demanding a conclusion as part of the ratio of the decision. It is at this time that considerable disquiet manifests itself, both judicially and in writings, concerning the exclusion of recovery for purely economic loss. Much of what is said in the most recent of these cases, Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] 1 QB 27 is illustrative of that disquiet and since the case also contains closely-reasoned expositions of a variety of views as to recovery for purely economic loss in negligence, together with a review of past authority, it calls for careful analysis.

A contractor's negligent road excavation work had caused a failure of electric power supply to the plaintiff's factory, causing three distinct types of loss for each of which the plaintiff recovered at first instance - damage to molten metal the property of the plaintiff, loss of profits which would have been earned on that metal and further loss of profits attributable solely to the cessation of activity pending restoration of the power supply. On appeal the majority, Lord Denning M.R. and Lawton L.J., allowed the defendant's appeal so far as concerned the third of these losses, the loss of profits pending restoration of power supply; the plaintiff, they said, could not recover for such loss of profits which Lord Denning described (1973) 1 QB, at p 39 as "independent of any physical damage" which the plaintiff had suffered and which Lawton L.J. said was not "consequential upon foreseeable physical injury or damage to property" (1973) 1 QB, at p 47 . Edmund Davies L.J. would have dismissed the appeal; relying upon speeches in the House of Lords and upon dicta in the Court of Appeal he concluded that there is no "general rule showing that such loss" (financial loss in the absence of physical damage) "is of its nature irrecoverable"; damages were recoverable in a negligence action in respect of purely economic loss if that loss was "a reasonably foreseeable and direct consequence of failure in a duty of care" (1973) 1 QB, at pp 44-45 .

In the course of their judgments each member of the Court of Appeal reviewed the precedent authorities. Lord Denning concluded that neither the absence of any duty of care nor the remoteness of damage claimed was a satisfactory explanation of the principle which he found to emerge from the cases. Instead it seemed to him "better to consider the particular relationship in hand, and see whether or not, as a matter of policy, economic loss should be recoverable, or not" (1973) 1 QB, at p 37 . His Lordship then took into consideration five matters in arriving at his policy decision in the instant case; first, the position of the statutory undertakers whose supply of electric power to the plaintiff was interrupted by the defendant's negligence, since they could not themselves have been held liable for any economic loss suffered by the plaintiff due to interruption of supply from any cause, neither should the defendant; secondly, the altogether common nature of the hazard, the interruption of the power supply, something against the consequences of which the plaintiff might have guarded by the installation of a stand-by plant or by insuring against consequential loss; thirdly, the possibility, in the case of such a hazard, of a multitude of suits by injured parties; fourthly, the advantage to the community, in the case of such a hazard, of spreading the loss amongst those who suffer rather than imposing it upon the lone tortfeasor; lastly the fact that the law did provide for "deserving cases", which description his Lordship gave to cases of recovery of damages for physical injury and for economic loss truly consequential upon it. It was these considerations which led his Lordship to conclude that the plaintiff might recover for lost profits directly consequent upon the damage to that metal but not for loss of profits due to inability to carry on processes of manufacture pending restoration of the source of power.

His Lordship's examination of policy considerations makes it clear that the Master of the Rolls was laying down no hard and fast rule, applicable to all cases, against the recovery of economic loss by a plaintiff who suffers no injury to his property or person.

On the other hand Lawton L.J. would, at least in cases not involving negligent misstatement, deny to a plaintiff recovery in respect of foreseeable financial loss if not consequential upon foreseeable injury to person or property (1973) 1 QB, at pp 46-47 . He was content to found upon what he regarded as the conclusive statement of Blackburn J. in Cattle's Case (1875) LR 10 QB, at p 457 that damages could not be recovered if only pecuniary loss flowed from a negligent act.

In terms of principle Spartan Steel [1973] 1 QB 27 is thus inconclusive; a note in the Modern Law Review, vol. 36 (1973), p. 314 puts it succinctly:

"Lord Denning M.R. regarded the problem as one to be solved by judicial policy, whereas his brethren attempted to discover binding principles of law, but differed as to what those principles were."

The final solution sought for by Edmund Davies L.J., when he said that the problem of recovery for purely economic loss was one "which it is high time should be finally solved" (1973) 1 QB, at p 39 , was not attained.

Spartan Steel suggests three possible solutions; that of Lord Denning (1973) 1 QB, at p 37 involving a consideration of all the facts of each particular case or, perhaps, class of case, with a view to determining, as a matter of judicial policy, whether in those particular circumstances purely economic loss should be recoverable; that of Lawton L.J. (1973) 1 QB, at p 47 adopting a rule that economic loss will be recoverable only if immediately consequential upon injury to property or person, and that of Edmund Davies L.J. (1973) 1 QB, at p 45 adopting the quite different rule that it will be recoverable if it be "a reasonably foreseeable and direct consequence of failure in a duty of care". A variant emerges from the judgment of Widgery J. in Weller & Co. v. Foot and Mouth Disease Research Institute [1966] 1 QB 569 ; his Lordship there said that consequential economic loss might only be recovered if the defendant's act or omission did either directly injure "or at least threaten directly to injure" (1966) 1 QB, at p 577 the plaintiff's person or property.

The importance of some of the policy considerations to which Lord Denning refers and of the part they must play in any formulation of the law in this area, especially in ensuring that the field for recovery of economic loss is not unduly enlarged, is undoubted. Nevertheless the wide range of matters thus thrown open to judicial consideration by his Lordship's approach, some varying from case to case, must lead to great uncertainty in the law if the sole criterion for recovery of economic loss is to be "a matter of policy" determined by the individual judge. As I would understand it the consequence of treating it as a matter of policy is that in every case "the particular relationship in hand" is to be identified, including "the nature of the hazard" brought about by the defendant's negligence; then such considerations as may seem to bear upon that relationship and that hazard are to be evaluated, together perhaps with more general considerations such as the fact that "the law provides for deserving cases". Out of this process of evaluation is to emerge the particular policy decision whether or not to allow recovery for purely economic loss.

Although Lord Denning referred to five relevant considerations the nature of some of them is such as to suggest that the class of considerations to which a court might have regard is wide indeed; this alone must tend to permit of the formation, from case to case, of quite various conceptions of what is proper policy in the course of following what was described, in the majority judgment in Rivtow Marine, as the "sometimes winding paths leading to the formulation of a 'policy decision'" (1973) 40 DLR (3d), at p 547 . In Union Oil Co. v. Oppen (1974) 501 F (2d) 558 , the United States Court of Appeals, Ninth Circuit, allowed recovery for purely economic loss caused to commercial fishermen by a very extensive negligent spillage of oil off the Californian coast and in doing so appears to have somewhat enlarged the hitherto quite restricted instances in which U.S. Courts have allowed recovery for solely economic loss. But whereas, in the course of its detailed consideration of American, Canadian and British decisions and writings, the Court identified three policy factors to which it had regard in arriving at its conclusion, recent academic comment upon this decision (Iowa Law Review, vol. 60 (1974), p. 315) has suggested no less than six additional policy factors said to have been overlooked by the Court and which it is suggested would have been proper for consideration in arriving at its conclusion. This is illustrative of the diversity of possible policy factors which may be thought to be relevant for consideration if recovery is to depend upon a court's assessment of what is desirable policy in the particular facts of any case.

In the Union Oil Co. Case the Court thought it necessary to say that whereas it was the particular use by commercial fishermen of resources of the sea that entitled them to protection from the defendant's negligent oil spillage and hence to recovery of their economic loss, other differently placed plaintiffs would not necessarily be likewise entitled to recovery for their economic losses, although caused by the identical oil spillage; not "every decline in the general commercial activity of every business in the Santa Barbara area following the occurrences of 1969 constitutes a legally cognizable injury for which the defendants may be responsible" (1974) 501 F (2d), at p 570 . The terms of such a caveat, no doubt useful as a reminder that remote consequential losses are not recoverable, may nevertheless reflect that uncertainty that appears necessarily to affect this area of the law if entitlement to damages is to depend upon case-by-case application of a general policy, itself flexible and ill-defined and dependent upon a survey of a quite variable group of considerations, many of which will be susceptible of the production of differing, subjective judicial reactions.

Policy considerations must no doubt play a very significant part in any judicial definition of liability and entitlement in new areas of the law; the policy considerations to which their Lordships paid regard in Hedley Byrne [1964] AC 465 are an instance of just such a process and to seek to conceal those considerations may be undesirable. That process should however result in some definition of rights and duties, which can then be applied to the case in hand, and to subsequent cases, with relative certainty. To apply generalized policy considerations directly, in each case, instead of formulating principles from policy and applying those principles, derived from policy, to the case in hand, is, in my view, to invite uncertainty and judicial diversity. This suggests a need to search for some more positive guidance as to the entitlement, if any, to recover in negligence for solely economic loss than is provided by judicial policy making based upon a case-by-case consideration of whatever factors the particular court may deem relevant.

I do not however, with respect, find suitable guidance in the rule, to which I have earlier referred, applied by Lawton L.J. in Spartan Steel [1973] 1 QB 27 and, before him, by Winn L.J. in S.C.M. (United Kingdom) Ltd. v. W. J. Whittall & Son Ltd. [1971] 1 QB 337 , at p 352 and which is said to be founded upon the words of Blackburn J. in Cattle's Case (1875) LR 10 QB, at p 457 . Such a rule would exclude all recovery for purely economic loss not directly consequential upon injury to the plaintiff's person or property, treating cases of negligent misstatement falling within the principle of Hedley Byrne [1964] AC 465 as exceptions. Edmund Davies L.J. in his judgment in Spartan Steel [1973] 1 QB 27 and in the passages which he there cites from precedent authority, including those of Lord Denning in the S.C.M. Case (1971) 1 QB, at pp 342, 344, 345 , does, with respect, summarize what I would regard as sufficient reason for rejecting such a solution to the problem presented by purely economic loss in negligence cases.

No doubt to discard the element of physical injury to person or property as a prerequisite to the recovery of damages in negligence means that its effect of tending to ensure that compensable damage is restricted to that which is immediately consequential upon the tortious act also disappears; there then looms the spectre, described by Cardozo C.J. in Ultramares Corporation v. Touche (1931) 174 NE 441, at p 444; 74 ALR 1139 , at p 1145 as that of "liability in an indeterminate amount for an indeterminate time to an indeterminate class". However to counter this spectre by rejecting all recovery for economic loss unless accompanied by and directly consequential upon such physical injury is Draconic; it operates to confer upon such physical injury a special status unexplained either by logic or by common experience. No reason exists for according to it such special status other than its character of tending to ensure a reassuringly proximate nexus between tortious act and recoverable damage; to this alone does it owe such merit as it may have as a necessary element in the recovery of damages in negligence.

In addition to the arbitrary nature of such a rule it also possesses the unattractive quality of being quite unresponsive to the grossness of the wrongdoer's want of care in its exclusion of non-consequential economic loss. Again, the outcome of applying such a rule may well depend upon the precise terms of a contract between the injured person and a third party; those terms, otherwise wholly irrelevant to the tortfeasor's wrongful act, will, if they determine whether the injured person possesses a sufficient interest of the requisite kind in property which has been damaged, either confer upon him or deny to him an entitlement to damages. The injured party will suffer the same loss in either event but his right to compensation will depend upon the particular contractual situation into which the effect of the tortious act has wrongfully intruded itself. One simple example will suffice; more elaborate instances are furnished in Professor Atiyah's article in Law Quarterly Review, vol. 83 (1967) at pp. 266-267. A defendant's vessel by negligent navigation damages another ship whose charterer in consequence suffers economic loss; if by the terms of the charter the charterer has possession of the damaged vessel under a charter by demise he can recover damages for his economic loss but not so if he is but a charterer under a time charter in common form; cf. Courtenay v. Knutson (1961) 26 DLR (2d) 768 and Chargeurs Reunis Compagnie Francaise de Navigation a Vapeur v. English & American Shipping Co. (1921) 9 LI LR 464 . It is not unimportant to note that in the circumstances of the present case even the exclusory rule would operate to confer a complete right of recovery upon Caltex for its claimed economic loss had the processing agreement contained a clause granting it some possessory right in the pipelines during the currency of the agreement. These considerations make the suggested rule seem a high price to pay for protection against the fear of possibly excessive extension of the right to recover compensation for proved loss.

A feature of the suggested exclusory rule is the importance placed upon the existence in the plaintiff of some proprietary or possessory interest in property which suffers physical injury; such an interest will suffice to make recoverable any consequential economic loss, but without it economic loss which is in all other respects identical will not be recoverable. In the light of the origin, in the action on the case, of the tort of negligence, an origin in the context of which notions of the infringement of proprietary or possessory interests in property were by no means always essential to the cause of action, damage suffered being the gist of liability, it is curious that in this field of the tort of negligence an interest in property should be thought always to be a condition precedent to the right to recover for economic loss. No doubt risk and property are usually coincidental but, where they are not, a denial of recovery of the risk bearer's economic loss consequential upon injury to a chattel the property in which is in another, and the consequence that such economic loss must go uncompensated for simply because of this division of risk and property, seems neither just nor expedient.

In The Wagon Mound (No. 1) [1961] AC 388 , at p 425 Viscount Simonds observed that to hold a defendant liable for unforeseeable detriment caused by his careless act if, but only if, he were also liable for some foreseeable detriment, no matter how trivial, was neither logical nor just. He instanced the case of similar unforseeable damage suffered by A and C as a result of B's conduct but other foreseeable damage, for which B is liable, suffered by A only; he described a system of law which would hold B liable to A but not to C for the similar damage suffered by each of them as one that "could not easily be defended". Substitute for "unforeseeable detriment" the words "economic loss" and for "foreseeable detriment" the words "personal or property injury" and you have the effect of the present suggested rule, a rule to my mind no more defensible than that with which his Lordship was concerned; (for the purposes of this analogy the economic loss suffered respectively by A and C is assumed to bear the same degree of proximity to B's wrongful act). His Lordship had earlier invoked "current ideas of justice or morality" in rejecting "direct cause" as the essential factor in determining liability in negligence (1961) AC, at p 422 and, in relation to his hypothetical defendant B, said that it was simply irrelevant to the question of B's liability for unforeseeable damage that he was liable for foreseeable damage (1961) AC, at p 425 . As a matter of justice and morality it should surely be equally irrelevant to a defendant's liability in negligence for economic loss that he has not at the same time negligently inflicted some injury to the person or property of the plaintiff of which the economic loss may be said to be a consequence.

Were the suggested rule that, whether or not associated with injury to person or property, economic loss was never recoverable it would at least have the virtue of consistency. However recovery for economic loss, so long as it is consequential upon physical injury, is well established; the law thus recognizes it as a kind of detriment which, if negligently caused, is not in itself unsuitable for compensation. There is, indeed, nothing about economic loss which makes it inherently unsuited to compensation by an award of damages; on the contrary a detriment which manifests itself in monetary terms is especially suited to compensation by the award of a sum of money; in this respect it compares favourably with the case of personal injuries, so notoriously difficult of assessment in monetary terms.

In these circumstances it is not surprising that, as Edmund Davies L. J. has pointed out, there has, over the years, been some judicial disavowal of this suggested exclusory rule. His Lordship refers, among other authorities, to what was said on this topic by Lord Roche in Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) [1947] AC 265 . That case is important not only for the doubts cast by Lord Roche upon the correctness of the earlier case of La Societe Anonyme de Remorquage a Helice v. Bennetts [1911] 1 KB 243 , a case which has been much relied upon as supporting the suggested rule, and for the instance he gives of a goods owner entitled to recover for certain economic loss when the carrier's truck on which his goods are carried is damaged by negligence without any damage to those goods. Lord Roche's speech (1947) AC, at pp 279-280 may, I think, also be regarded as authority for the proposition that, in the circumstances to which he refers, economic loss, being expense incurred by the owner of undamaged cargo as a result of a collision whether by land or by sea, is recoverable in an action in negligence against the colliding vessel or vehicle; he described the cargo-owner and the shipowner as being engaged in a common adventure with and by means of the ship or lorry. Lord Porter supports the like proposition, at least where cargo is being carried by sea; the ship and cargo-owner are then, he said, engaged in a joint venture (1947) AC, at pp 296-297 . The significance of this proposition for present purposes is not, I think, diminished by their Lordships' references to the concept of common adventure or joint venture. Lord Roche certainly did not, nor, I think, did Lord Porter, intend by the use of these phrases a reference to the technical doctrine of general average contribution. These references were, as I would read the speeches, intended to be no more than descriptive of the situation which arose from goods being carried by sea or land, thereby giving rise to a relationship between the cargo-owner and the tortfeasor sufficiently proximate to have permitted of the recovery by the former of his economic loss. The goods owner and the ship or vehicle owner are, in such a case, engaged in a common adventure in the sense that their respective property is open to the same risks of injury and one who encounters the ship or vehicle on the sea or on the highway owes to each party a like duty of care to avoid the infliction of injury or economic loss. In Hedley Byrne [1964] AC 465 the three members of the court who referred to Greystoke Castle [1947] AC 265 regarded it as authoritative on the question of recovery for purely economic loss. Lord Hodson (1964) AC, at p 509 cited Lord Roche's example of the lorry and the goods owner as supporting his own view that "It is difficult to see why liability as such should depend on the nature of the damage". Lord Pearce cited Greystoke Castle [1947] AC 265 as authority for the proposition that "economic loss alone, without some physical or material damage to support it, can afford a cause of action" (1964) AC, at p 536 . Lord Devlin said, that that case "makes it impossible to argue that there is any general rule showing that such loss" (financial loss without physical injury to the plaintiff's property) "is of its nature irrecoverable" (1964) AC, at p 518 . His Lordship had earlier described the supposed distinction between injury to person or property and economic loss as that kind of nonsense which arises out of a refusal to make sense (1964) AC, at p 517 .

Lord Denning in one passage from his judgment in the S.C.M. Case (1971) 1 QB, at p 342 deplored the notion that the right to recover for loss of profits should depend on the chance whether material damage was also suffered; Salmon L.J., in Ministry of Housing v. Sharp [1970] 2 QB 223 , at p 278 , denied that the existence of a duty to take reasonable care should any longer be dependent upon the foreseeability of physical injury rather than financial loss; Sachs L.J., in Dutton v. Bognor Regis Urban District Council [1972] 1 QB 373 , at p 403 , rejected the submission that for economic loss no action should lie in negligence.

These expressions of judicial disavowal of any special status possessed by physical injury, together with the disregard for both logic or fairness which characterizes the operation of the suggested exclusory rule, encourage the search for some principle of law which will operate as a sufficient restraint upon excessively wide liability without calling in aid as a control mechanism the quite random incidence of damage resulting from a particular act of carelessness.

I have already referred to the rule's one inherent merit, its provision of a reassuringly proximate nexus between tortious act and recoverable damage. From the time of Cattle's Case, per Blackburn J. (1875) LR 10 QB, at p 457 , to as recently as Rivtow Marine, per Laskin J. (1973) 40 DLR (2d), at p 550 , judges have expressed fears lest the absence of some such control mechanism might lead to the casting of impossibly onerous liability upon those guilty of quite trifling acts of carelessness.

Reasonable foreseeability on its own, while no doubt providing adequate limitation of liability in the general run of duty situations in negligence, has been recognized as inadequate in certain specific duty situations; for instance in nervous shock the recognized test, that of reasonable foreseeability of injury by nervous shock, introduces a further control in that the precise kind of damage suffered must have been foreseeable. It is in response to a similar need that, in the case of negligent misstatement, special controls have been evolved. In Hedley Byrne [1964] AC 465 , where culpability rather than compensation was in question, the possession of special skill by the defendant, known to the plaintiff and relied upon by him, and the existence of a special relationship between the parties, was recognized as a prerequisite to the defendant's duty of care; in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1970) 122 CLR 628 ; [1971] AC 793 where again the issue was culpability, the need for the negligent misstatement to have been made in the ordinary course of the defendant's business or profession was insisted upon, this requirement being said to have been implicit in the speeches in Hedley Byrne [1964] AC 465 . In Rivtow Marine, in a products liability situation, Ritchie J. (1973) 40 DLR (3d), at p 547 delivering the majority judgment, based culpability upon proximity of relationship and compensation upon directness coupled with demonstrable foreseeability. Laskin J., concerned with compensation, not culpability, invoked the concept of the directness of loss coupled with the fact that the loss was suffered by a contemplated user of the product (1973) 40 DLR (3d), at p 550 .

When, in Spartan Steel, Edmund Davies L.J. was called on to deal with the recovery of economic loss and, by his abandonment of the suggested exclusory rule, thereby lost the proximate nexus which it automatically supplied, he concluded that an entitlement to recovery required that the loss should be both reasonably foreseeable and also should be a direct consequence of failure in a duty of care (1973) 1 QB, at p 45 . His Lordship was thus not content, in cases of purely economic loss, to rely upon reasonable foreseeability as the sole control mechanism or limitation.

The need, in cases of purely economic loss, for some further control of liability apart from that offered by the concept of reasonable foreseeability arises in part because, in cases of physical injury to person or property, the concept has been given a very far-reaching operation, far more extensive than may be thought to have been conveyed by Lord Atkin's reference to that which one "can reasonably foresee would be likely to injure" a person in the relationship of neighbour (Donoghue v. Stevenson [1932] AC 562 , at p 580 ). This is perhaps well enough so long as what is in question is only liability for injury to person or property, the duty of care being fixed by reference to the plaintiff whose person or property is injured, those indirectly affected by the repercussions of the negligent act having suffered no such injury. But if economic loss is to be compensated its inherent capacity to manifest itself at several removes from the direct detriment inflicted by the defendant's carelessness makes reasonable foreseeability an inadequate control mechanism. The very wide reach of the concept of reasonable foreseeability is illustrated by The Wagon Mound (No. 2) [1967] AC 617 . What was there described as "a possibility, but one which could become an actuality only in very exceptional circumstances" and also as a risk which, while "real" and not one to "brush aside as far fetched", was yet "remote", was nevertheless held to be reasonably foreseeable. A further illustration is provided by the sequence of events which, in the facts of Chapman v. Hearse (1961) 106 CLR 112 , culminated in the death of Dr. Cherry and were held to be reasonably foreseeable. In Caterson v. Commissioner for Railways (NSW) (1973) 128 CLR 99 , at p 102 Barwick C.J. restated, as a concise delineation of liability in tort, a formulation involving reasonable foreseeability which had earlier been propounded by Lord Reid, making in the process one slight modification to it; damage which is reasonably foreseeable as "not unlikely to happen even in the most unusual case" was, he said, damage for which a defendant is liable unless the risk be so slight that a reasonable man would be justified in neglecting it. This formulation itself demonstrates, as do The Wagon Mound (No. 2) [1967] AC 617 and Chapman v. Hearse (1961) 106 CLR 112 , the inadequacy of reasonable foreseeability as the sole measure of liability for economic loss. To take an instance used in argument, if by negligent navigation a bridge is destroyed can it be the policy of the law that every member of the public who is a regular user of the bridge and who in consequence incurs increased transport costs because now obliged to travel by a more circuitous route, is to be entitled to recover his resultant economic loss, a loss which will perhaps continue until, at some distant future date, the bridge is restored? I would think not; yet it is by no means clear to me that an application of the criterion of reasonable foreseeability might not produce that very result.

The need is for some control mechanism based upon notions of proximity between tortious act and resultant detriment to take the place of the nexus provided by the suggested exclusory rule which I have rejected. Its precise nature and the extent to which it should restrict recovery for purely economic loss must depend upon policy considerations just as does the conclusion that for cases of economic loss such an additional control mechanism is necessary. Both in actions for negligent misstatement and in products liability actions based upon negligence, the particular fact situations encountered are likely themselves to provide material out of which formulations limiting the extent of liability may be fashioned; Hedley Byrne [1964] AC 465 and Rivtow Marine (1973) 40 DLR (3d) 530 respectively provide examples of this process in these two areas. But in the general realm of negligent conduct it may be that no more specific proposition can be formulated than a need for insistence upon sufficient proximity between tortious act and compensable detriment. The articulation, through the cases, of circumstances which denote sufficient proximity will provide a body of precedent productive of the necessary certainty; the gradual accumulation of decided cases and the impact of evolving policy considerations will reflect "the courts' assessment of the demands of society for protection from the carelessness of others" - per Lord Pearce in Hedley Byrne (1964) AC, at p 536 reiterated by Lord Diplock in Dorset Yacht Co. v. Home Office [1970] AC 1004 , at p 1058 . It was Lord Pearce in Hedley Byrne who explained the divergence between the law of negligence in word and that of negligence in act in terms of the quite special characteristics of words as the instrument of negligence (1964) AC, at p 534 . Economic loss possesses many of the characteristics which Lord Pearce attributed to negligence by word and the need which his Lordship recognized for proximity as a precondition of liability for negligence by word applies equally to all cases of recovery for purely economic loss.

Some guidance in the determination of the requisite degree of proximity will be derived from the broad principle which underlies liability in negligence. As Lord Atkin put it in a much cited passage from his speech in Donoghue v. Stevenson the liability for negligence "is no doubt based upon a general public sentiment of moral wrongdoing for which the offender must pay" (1932) AC, at p 580 . Such a sentiment will only be present when there exists a degree of proximity between the tortious act and the injury such that the community will recognize the tortfeasor as being in justice obliged to make good his moral wrongdoing by compensating the victims of his negligence. Again, as Lord Morris said in the Dorset Yacht Case courts may have recourse to a consideration of what is "fair and reasonable" in determining whether in particular circumstances a duty of care arises (1970) AC, at p 1039 ; so too, I would suggest, in determining the requisite degree of proximity before there may be recovery for purely economic loss.

As the body of precedent accumulates some general area of demarcation between what is and is not a sufficient degree of proximity in any particular class of case of economic loss will no doubt emerge; but its emergence neither can be, nor should it be, other than as a reflection of the piecemeal conclusions arrived at in precedent cases. The present case contains a number of salient features which will no doubt ultimately be recognized as characteristic of one particular class of case among the generality of cases involving economic loss. This will be typical of the development of the common law in which, in the words of Barwick C.J. in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1968) 122 CLR, at p 569 , the elements of the relationships out of which a duty of care is imposed by law "will be elucidated in the course of time as particular facts are submitted for consideration in cases coming forward for decision". The existence of these features leaves no doubt in my mind that there exists in this case sufficient proximity to entitle the plaintiff to recover its reasonably foreseeable economic loss.

These features comprise the following:

(1)

the defendant's knowledge that the property damaged, a set of pipelines, was of a kind inherently likely, when damaged, to be productive of consequential economic loss to those who rely directly upon its use. To damage an item of productive equipment or an item used in conveying goods or services, such as power or water, is inherently likely to cause to its users economic loss quite apart from the physical injury to the article itself. Moreover the nature of a pipeline, used in conveying refined products from a refinery to another's terminal, is such as to indicate very clearly the existence of something akin to Lord Roche's common adventure, the person to whom the petroleum products are being delivered through it having a very real interest in its continued operation as a means of conveyance, whether or not possessing a proprietary or possessory interest in the pipes themselves;

(2)

the defendant's knowledge or means of knowledge, from certain charts then in use on the dredge, that the pipelines extended across Botany Bay from the A.O.R. refinery to the plaintiffs Banksmeadow terminal, leading to the quite obvious inference that their use was to convey refined products from refinery to terminal, the plaintiff being in this sense a user of the pipeline.

These two factors lead to the conclusion that Caltex was within the reasonable contemplation of the defendants as a person likely to suffer economic loss if the pipelines were cut. Now, because the facts referred to in (1) and (2) above were within the reasonable contemplation of the defendants, it should have been apparent to them that more than one party was likely to be exposed to loss should the pipelines be severed by the defendants' negligence; accordingly the tortious infliction of property damage on any one of these parties becomes relevant; hence the significance of the following factor:

(3)

the infliction of damage by the defendant to the property of a third party, A.O.R., as a result of conduct in breach of a duty of care owed to that third party.

There are two other relevant factors:

(4)

the nature of the detriment suffered by the plaintiff; that is to say its loss of use, in the above sense, of the pipeline;

(5)

the nature of the damages claimed, which reflect that loss of use, representing not some loss of profits arising because collateral commercial arrangements are adversely affected but the quite direct consequence of the detriment suffered, namely the expense directly incurred in employing alternative modes of transport.

These factors demonstrate a close degree of proximity between the defendant's conduct in severing the pipelines and the economic loss which Caltex suffered when its chosen means of supplying its terminal with products was interrupted by the injury to the pipelines. The acknowledgement that a duty of care was owed to A.O.R.; the fact that Caltex was not less proximately concerned than was A.O.R. in the continued integrity of the pipeline; the very nature of the pipeline, a major mode of conveyance of products to an identifiable recipient, whose use of its terminal was for the receipt of such products; the nature of the economic loss, direct and inevitably flowing from the severing of the pipeline and not in any sense a matter for speculation only; all these characteristics of the present case combine to constitute a relationship of sufficient proximity to give rise to a duty of care owed to Caltex for breach of which it may recover its purely economic loss.

Only one aspect of the factors which I have set out calls for particular comment, that is the element of knowledge, actual or constructive, possessed by the defendant about the use of the pipeline to convey products to the plaintiff's terminal. In Glanzer v. Shepard (1922) 23 ALR 1425, at p 1428 , a case of economic loss without physical damage, Cardozo J. observed that "constantly the bounds of duty are enlarged by knowledge of a prospective use"; this same concept, the defendant's knowledge of a prospective use, was employed by Denning L.J. in Candler v. Crane Christmas & Co. [1951] 2 KB 164 and also finds expression in Hedley Byrne [1964] AC 465 , in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1968) 122 CLR 556 , in this Court and before the Judicial Committee (1970) 122 CLR 628 ; [1971] AC 793 , and in Dimond Manufacturing Co. v. Hamilton (1968) NZLR 705 . Not only does it form part of the concept of special relationship necessary to establish liability for negligent misstatement but it is also relevant in establishing the appropriate degree of proximity in cases of negligence by act, as is shown in the extensive reliance placed upon it in Rivtow Marine (1973) 40 DLR (3d) 530 . In the present case it assumes significance because the defendants, when the dredging operations were in progress, must be taken to have known that carelessness in those operations, causing injury to the pipelines, would affect Caltex in precisely the way it did, by aborting the continued use of the pipelines for the delivery to it of petroleum products. The learned trial judge said in this regard, in a passage from his reasons for judgment:

"In this case it is my opinion that damages of the kind claimed by Caltex were foreseeable both by the dredge and by Decca. They both knew, or had the means of knowing, that the pipeline led from the refinery to the terminal. Its fracture would obviously involve the very kind of disruption and consequent expense for which Caltex sues."

On this view of the requirement of reasonable proximity Caltex should be held to have suffered economic loss of a kind recoverable against those whose lack of care led to the injury to the pipelines.

The damages sought by Caltex, which were not in dispute as to quantum, principally represent the additional costs incurred in transporting, by means other than the pipelines, products from the refinery to the terminal, together with the cost of incidental capital works necessary to make that possible by Caltex; they do also include some costs involved in the use of a different terminal altogether, a use forced upon Caltex in the particular circumstances, but these are, I think, essentially of no different character. Indeed the whole of these costs might be regarded as no more than the reasonable costs incurred in mitigating the loss Caltex would otherwise have sustained had it simply abandoned use of the terminal once the inflow of petroleum products to it was prevented by the severing of the pipelines.

The circumstances of the present case may usefully be compared with those instanced by Lord Roche in Greystoke Castle as properly giving rise to a right of recovery for purely economic loss. In a passage (1947) AC, at p 280 which has won the approval, although in some instances subject to a qualifying explanation, both of those who would confine economic loss within narrow bounds and of those who would extend the limits of recovery, Lord Roche spoke of a carrier's lorry engaged on a journey to deliver the plaintiff's goods and which was disabled by the careless conduct of the defendant, another user of the highway. If for Lord Roche's lorry there be substituted A.O.R.'s pipelines across Botany Bay, the consequence of the defendant's conduct is in each case to abort the transport of the goods and as a direct consequence to involve the plaintiff in economic loss. The precise nature of that loss differs only because the lorry has but a finite capacity per trip whereas the pipelines possess an infinite capacity so long as the flow through them continues; accordingly different practical consequences follow the disablement of these respective modes of transport but the problem for the goods owner is the same, how now to move his goods. In the case of the lorry it must be unloaded and the goods loaded onto another lorry and carried to their destination; according to Lord Roche the goods owner may recover from the defendant the cost of unloading and reloading and, if the risk of interruption of the carriage rested with the goods owner, also the cost of on-carriage on the new lorry. Assume that in Lord Roche's example the lorry which the defendant disabled was, to his knowledge, the only available one suitable for carriage of the plaintiff's goods; the factual analogy then becomes close and is unaffected by the fact that the product in the pipelines was lost. In the present case it was necessary to stop the continuity of flow through the pipelines, leaving undelivered Caltex's product still at the refinery, as would have been the goods had they been unloaded from the lorry and left on the roadside for want of any other suitable lorry. Lord Roche's example did not take the case thus far but, had the defendant known that the lorry was one uniquely suitable for the carriage of the goods by motor transport, the cost of having to resort to some other mode of transport would surely have been recoverable despite the absence of any injury to the plaintiff's property. So too should be Caltex's economic loss in the present case. In each case the economic loss is reasonably foreseeable and the incurring of cost in moving by other means the stranded goods is directly attributable to the tortious act of disabling the existing mode of transport. A close degree of proximity exists which is no doubt enhanced if the defendant knows that the lorry, like the pipelines in the present case is and can be employed for no purpose other than the carriage of goods to the plaintiff's premises. That the goods in Lord Roche's example were already en route and were not, as in the case of Caltex's undelivered oil, vainly awaiting carriage on second and subsequent trips by the now disabled lorry does not, I think, serve as a distinguishing factor; it is but a consequence of the infinite and continuous carrying capacity of a pipeline as compared with the finite and periodic capacity of a lorry.

It is for these reasons that I would allow the appeals by Caltex. Before turning to the remaining questions I wish to make some concluding remarks on the topic of economic loss. In any reference to the writings on this topic, and articles abound in the law journals of the last fifteen years in the common law countries, frequent mention will be found of the important role to be played by insurance and of the significance which judicial policy considerations should accord to it and to what has come to be known as "loss spreading". If due weight be given to these two factors they will, it is sometimes said, point to the conclusion that liability in negligence should not be further extended and that, however logically unsatisfying may be the suggested exclusory rule, the correct pragmatic solution is to deny recovery for purely economic loss.

I have myself avoided reference to either of these two factors and I should explain my reasons for doing so. If loss-inflicting consequences of an act are reasonably foreseeable and the necessary proximity is shown to exist, the present state of the law of torts, unreformed by any fundamental departure from fault liability, suggests no reasons why the tortfeasor should not bear the consequences of his conduct. The task of the courts remains that of loss fixing rather than loss spreading and if this is to be altered it is, in my view, a matter for direct legislative action rather than for the courts. It should be undertaken, if at all, openly and after adequate public inquiry and parliamentary debate and not worked towards covertly, in the course of judicial decision, by the adoption of policy factors which assume its desirability as a goal and operate to further its attainment.

Accordingly I have adopted the perhaps unsophisticated concept that it is just and fair that a negligent tortfeasor, able reasonably to foresee that his conduct will occasion loss to another in a situation of proximity to that conduct, should be found liable to compensate the sufferer of the loss rather than that the victim should bear it himself. An opposing view, that loss should, in the case of involuntary torts, lie where it falls, there to be spread by recourse to the relatively efficient device of loss insurance (more efficient, for various reasons, than liability insurance) may have much to be said for it. Particularly is this so in areas in which insurance of one sort or another in fact becomes universal, whether or not as a result of governmental intervention. But there is, I think, no justification for the courts, when deciding actions in tort between private litigants, to make use of such views as policy determinants in the absence of any independent opportunity to test their soundness and without parliamentary sanction for the departure from pre-existing goals of the law of torts which their espousal involves.

I would, for the foregoing reasons, conclude that the economic loss suffered by Caltex is such as to be recoverable by it in its actions against the dredge and against Decca.

Decca, although not a cross-appellant, contended that even if Caltex were to sustain its contention that its economic loss was recoverable as damages as against Decca nevertheless its appeal must fail because the learned primary judge had been in error on the issue of negligence, which he had found against Decca.

Essentially two alternative submissions were made. The learned primary judge found that an electronic navigational aid system had been installed by Decca on the dredge and that one of Decca's employees had, in the course of his duties, incorrectly marked, upon a track plotter chart used as a part of their system, the position of the relevant pipelines and of the permitted area of dredging which ended one hundred feet clear of the pipelines. Had the dredge been using the Decca system, incorporating the incorrectly marked chart, at the time of injury to the pipelines and had it relied exclusively upon it for navigation purposes this would have led the dredge to operate right across the line of the pipes with consequent high probability of damage to them. The learned primary judge found that this is what in fact had occurred. He accordingly concluded that the negligence involved in the incorrect marking of the chart, for which Decca was vicariously liable, was a cause of the injury to the pipelines.

On this appeal Decca contended that there was no evidence upon which the learned primary judge could properly have concluded that at the critical times the dredge was in fact using the Decca navigational system. Indeed it was submitted that there was substantial evidence to the contrary; a diver gave evidence describing the location of the several injuries to the pipelines and also certain marks he found in the sandy bottom of the bay which revealed the passage of the dredge's suction heads crossing at right angles to the pipelines. Furrows left by the suction heads extended for a considerable distance on each side of the pipelines. It was submitted on behalf of Decca that, properly understood, the evidence disclosed damage to the pipelines extending well outside the area within which the dredge should have been dredging had it in fact been using the system incorporating the incorrectly marked chart. This, it was said, revealed that that chart was not in fact being relied on. Further supporting inferences were drawn from the presence of the furrows.

Decca's alternative contention was that even if the dredge was, at the relevant times, employing the Decca navigational system, nevertheless the conduct of those engaged in the navigation of the dredge was such as to break the chain of causation and thus free Decca from liability for the consequences of the improperly drawn markings on the chart.

The first of the submissions is essentially concerned with matters of evidence and of such inferences as may be drawn from that evidence. The learned primary judge, after a very careful analysis of the evidence, expressed himself as satisfied that the Decca system, incorporating reliance upon the incorrectly marked chart, was in operation at the relevant time and was being relied upon by those in charge of the dredge. Despite the very searching examination to which his Honour's reasons for these conclusions were subjected by Mr. Handley, and despite the use sought to be made of evidence as to the diver's observations, I find no reason for departing from his Honour's conclusion. Because of the strategy adopted by the principal parties in conducting the whole litigation, much influenced by what might occur in other litigation, foreshadowed and in which they might be involved, his Honour was deprived of the advantage of much available evidence and had necessarily to rely extensively upon inferences from such meagre evidence as did present itself. The inferences drawn by his Honour were clearly open to him on the evidence and what is relied upon as evidence leading to inferences to the contrary appears to me, on examination, to be in part so uncertain and in part so equivocal as to cast no real doubt upon his Honour's conclusion as to the dredge's use of and reliance upon the Decca system at the time of injury to the pipelines. I accordingly reject the attack made upon the finding of negligence on the part of Decca.

As to the contention that the conduct of those in charge of the dredge was such as to relieve Decca of the consequences of its negligence it was said that their conduct broke the chain of causation otherwise linking the incorrect marking of the chart with the damage to the pipelines. That conduct was, it was said, both temporally subsequent to and quite severable from the negligent marking. That there was negligence in the conventional navigation of the dredge is clear and it was no doubt one cause of the damage to the pipelines; however so too was the defect in the Decca system, introduced by the incorrectly marked chart, once it be accepted, as it must be, that the dredge was employing the system at the relevant time.

The position is not, in truth, one of a break in the casual sequence of events but rather of two different acts of negligence, each of which played its part in causing the damage sued for. Decca's negligence was not disarmed of its harmful potentiality, and superseded, by the other negligent conduct; on the contrary it remained fully operative, although had conventional navigation been properly adhered to this might well have resulted in the damage being wholly averted. In these circumstances there was, in my view, no novus actus interveniens and Decca remains liable for what was a consequence of its negligence.

There remains the position of the master of the dredge, against whom the plaintiffs seek to have judgment. The master, Captain Henneman, had no proprietary interest whatever in the dredge, his only connexion with it arose out of his engagement as its master. In those circumstances he was not a person "interested" in the vessel in the sense in which that word is used in Admiralty jurisdiction actions in rem; the plaintiffs could point to no authority establishing that he was so "interested" and the history and practice of the Admiralty action in rem is inconsistent with his possession of any relevant interest. He had neither any interest in the nature of a mortgage or lien over the vessel, conferring a right to be heard in protection of his security as against the claims of the plaintiff in rem, nor had he any proprietary or possessory rights as owner or part owner, charterer or the like. Accordingly his intrusion into the actions in rem by his entry of appearance, apparently insisted upon by the plaintiffs A.O.R. and Caltex as a condition of the release of the dredge from arrest following upon the institution of the actions in rem against it, was improper. Because he was not an owner of the vessel he was not liable as such for damage done by the vessel, and because he had no other relevant interest in the vessel he was not entitled to appear so as to defend such an interest as against the plaintiffs.

In fact Captain Henneman took no part in the proceedings despite his entry of appearance; instead application was made for leave to withdraw the appearance entered on his behalf. The learned primary judge dealt with this application in the course of his reasons for judgment; he refused leave to withdraw because, as I understand it, he concluded that entry by the master of an appearance was a term agreed upon as between the parties' respective solicitors with which, accordingly, he should not interfere. However he disposed of the matter satisfactorily to Captain Henneman by treating the plaintiffs as not having succeeded against him and by refusing to permit of judgment being entered against him.

In my view it would have been appropriate to have acceded to the application to withdraw Captain Henneman's appearance upon the ground that he was not a proper party to the proceedings. However the course adopted by the learned primary judge led to a result little different in outcome and no complaint is now made on behalf of the master. It is the plaintiffs who quarrel with the result and appeal accordingly. I would dismiss their appeals in so far as they seek to vary the orders made so as to bring in the master as a defendant liable to them in damages.

My conclusions in these appeals are therefore that Caltex should succeed in its appeals to the extent of its entitlement to judgment in each of its two actions, against the dredge and against Decca, in the agreed sum of damages representing its economic loss. Its appeal and that of A.O.R. so far as concerned with the entry of judgment against Captain Henneman should be dismissed.