Wagon Mound (No 1)

Facts

The Wagon Mound, chartered by Overseas Tankship, was taking on fuel oil in Sydney Harbour when her crew carelessly allowed a large quantity of furnace oil to spill. The oil spread to a nearby wharf owned by Morts Dock, where a ship was being repaired using welding equipment. After inquiries, the wharf owner's managers allowed welding to continue. Molten metal fell onto debris floating on the oil, ignited a piece of cotton waste, and the fire set the oil alight and badly damaged the wharf and ships. The oil had also fouled the wharf's slipways, which was foreseeable damage, but the claim was for the fire damage. The trial judge found that the defendants did not know and could not reasonably have known that the oil would burn on water.

History

Walsh J in the Supreme Court of New South Wales found the fire damage unforeseeable but, applying Re Polemis, held the defendants liable because it was a direct consequence of their negligence. The Full Court dismissed the defendants' appeal, and they appealed to the Privy Council.

Issue

Whether liability in negligence extends to all the direct consequences of a breach of duty, whether or not foreseeable, as held in Re Polemis and Furness Withy & Co [1921] 3 KB 560, or only to damage of a kind that was reasonably foreseeable.

Held

Appeal allowed. The fire damage was not reasonably foreseeable, so the defendants were not liable in negligence for it.

Ratio

• In negligence the test of remoteness of damage is whether damage of the relevant kind was reasonably foreseeable; the rule in Re Polemis that a defendant is liable for all direct consequences is not good law.
• Liability depends on the foreseeability of the kind of damage, not of the precise manner in which it occurs, so that a defendant who could foresee fouling of the wharf by oil was not liable for fire damage that was not foreseeable.

The judgments

Key reasoning

• It would be illogical and unjust if a defendant who is liable in negligence only because harm was foreseeable were then liable for all unforeseeable damage that happened to follow directly from his act; the test of remoteness should match the principle that makes the conduct negligent.
• The rule in Re Polemis made liability depend on the chance of the direct connection between the act and the harm, which had no relation to the defendant's fault, and the foundational principle of Donoghue v Stevenson [1932] AC 562 pointed to foreseeability as the measure.
• The fouling of the wharf by oil was damage which the defendants could foresee, but it was different in kind from the fire damage claimed, so the fact that some damage was foreseeable did not make the fire damage recoverable.

Where it fits in the module

On the FHS Tort list under remoteness. The case sets foreseeability of the kind of damage as the governing test and displaces directness, so the debates are about the limits of that test: the level of generality at which kind of damage is described, as in Hughes v Lord Advocate [1963] AC 837 and Jolley v Sutton LBC [2000] 1 WLR 1082; the eggshell skull rule, as in Smith v Leech Brain & Co Ltd [1962] 2 QB 405; the position of primary psychiatric victims in Page v Smith [1996] AC 155; and the different rule in nuisance in The Wagon Mound (No 2) [1967] 1 AC 617. It is also contrasted with the more generous rule in deceit.

Criticisms

• Foreseeability of the kind of damage is hard to apply because the kind can be described broadly or narrowly, so the result is manipulable, as the differing outcomes in Hughes v Lord Advocate and later cases show.
• The same breach and causal chain produce different results depending on whether the type of damage was foreseeable, which can deny compensation in unusual accidents even where the defendant clearly created the risk.
• The exceptions, including the eggshell skull rule and the rule that the manner of the harm need not be foreseeable, weaken the claim that foreseeability explains the scope of liability, and suggest that the law cannot rely on culpability alone.