Relevant facts
Pursuant to an agreement between the Australian Oil Refining Pty Ltd (‘AOR’) and Caltex Oil
(Australia) Pty Ltd (‘Caltex’) for the purpose of oil refining, it was decided that the unrefined oil
would be transported by Caltex to AOR and post refining, it shall be transported back to the oil
terminal of the plaintiff via a pipeline owned by AOR.
On 26 October 1971, the operators of the dredge, whilst in complete knowledge of the pipeline
of AOR so functioning, the Dredge Willemstad was used to dredge a water channel in the bay
causing physical damage to the pipeline. Such damage was on account of:
(i) Poor track plotter chart provided Decca Survey Australia Ltd (‘Decca’) that displayed the
incorrect area in which dredging could take place.
(ii) Failure on part of the operators of the dredge as to the identification of such imprecision
in the track plotter chart so presented to them.
Consequently, the plaintiff had filed a suit impleading both the parties as defendants and praying
them to be guilty of gross negligence. As a result, the the Supreme Court of New South Wales
delivered a judgement in favor of the plaintiff and directed payment of $125,000 to AOR as
damages.
Pleadings of Caltex in the present suit:
In addition to the aforementioned suit, Caltex also filed a suit against both the parties alleging
that the operators of the operators of the dredge and Decca owed and duty of care to the plaintiff
and the same has been breached. It was contended that on account of such gross negligence on
part of the defendants, Caltex was suffering heavy losses due to its inability to transport the
necessary material and suggested that the cost of alternative means of having the oil delivered
must also be borne by the defendant. This claim of the plaintiff was however, rejected on the
ground that the property so damaged was not owned by the plaintiff and therefore, the harm
suffered in consequence of the event was purely economic in nature. Hence, this appeal.
Legal issue
The primary issue for consideration was whether loss that is purely of economic nature is
recoverable in a suit for negligence?
Ratio:
The general rule that recovery of purely economic loss was not permitted was subject to an
exception and the defendant will be directed to pay the economic losses if he had the knowledge
of the likelihood of loss to the plaintiff.
Judgement:
The court unanimously delivered a judgement in favor of the plaintiff and held the damages on
account of purely economic losses suffered by the plaintiff on account of negligence on part of
the defendant to be recoverable in the same suit.
Gibbs J. opined that something more than just ‘reasonable foresee-ability’ must exist for the
award to be delivered in favor of the plaintiff. The exception to this rule, however, is that where
the defendant has knowledge of the likelihood of the plaintiff suffering any economic losses, he
shall be made liable. Such apprehension of loss must be attributed only to the plaintiff as an
individual and not as a part of any group.
On the basis of the above, the court held that a duty of care was owed to Caltex and the
defendants may have reasonably apprehended the possibility of loss to the plaintiff in the event
of the pipes breaking down. Further, on account of breach of this duty of care keeping in mind
the knowledge of the defendant, the decision was given in favor of the plaintiff.
Stephen J. on the other hand reasoned that the control mechanism of proximity was applicable in
the instant case. This rule was previously applied in the case of Hedley Byrne & Co. Ltd. v Heller
& Partners and states that there must be sufficient proximity between the parties for the duty of
care to even exist towards one another. If it exists, the question of economic loss arises and
whether the same will be recoverable depends on various factors. In the instant case, factors such
as the knowledge/ apprehension of likelihood of loss to the plaintiff, knowledge of the location
of the pipeline and dredging, the inability of the plaintiff to use the pipeline indicated negligence
on part of the defendants.
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