Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529 (9 December 1976)

HIGH COURT OF AUSTRALIA

CALTEX OIL (AUSTRALIA) PTY. LTD. v. THE DREDGE "WILLEMSTAD";
CALTEX OIL (AUSTRALIA) PTY. LTD. v. DECCA SURVEY AUSTRALIA LTD.;
AUSTRALIAN OIL REFINING PTY. LTD. v. THE DREDGE "WILLEMSTAD" [1976] HCA 65; (1976) 136 CLR 529

Negligence - Shipping and Navigation

High Court of Australia
Gibbs(1), Stephen(2), Mason(3), Jacobs(4) and Murphy(5) JJ.

CATCHWORDS

Negligence - Duty of care - Foreseeability of harm - Economic loss not consequential upon damage to person or property - Damage to property of one person - Economic loss suffered by person as a result - Pipeline carrying oil to plaintiff's depot - Damaged by defendant's negligence - Supply interrupted - Pipeline and depot owned by different persons - Expense incurred by plaintiff in arranging alternative means of delivery - Whether recoverable - Remoteness of loss or damage.

Shipping and Navigation - Action in rem - Action against ship - Negligence - Master not sued as defendant - Appearance entered by master - No proprietary interest in ship - Whether master liable to judgment.

HEARING

Sydney, 1975, July 30, 31; August 1, 5, 6; 1976, December 9. 9:12:1976
APPEALS from the Supreme Court of New South Wales.

DECISION

1976, December 9.
The following written judgments were delivered: -
GIBBS J. The appeals now before us are from judgments delivered in three of New South Wales. (at p535)

2. 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. (at p536)

3. 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. (at p536)

4. 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. (at p537)

5. 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. (at p537)

(1) The master of the dredge.

6. 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. (at p537)

7. 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. (at p538)

8. 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 p538)

9. 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. (at p538)

10. An action in rem is an action against the ship itself: see Aichhorn & Co. K.G. v. The Ship M.V. "Talabot" [1974] HCA 21; (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. (at p539)

11. 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] EngR 477; (1843) 2 W Rob 73, at p 77 [1843] EngR 477; (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. (at p540)

(2) The effect of the negligence of Decca.

12. 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. (at p540)

13. 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. (at p541)

14. 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. (at p543)

15. 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. (at p543)

16. 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. (at p543)

17. 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. (at p543)

(3) Damage for economic loss.

18. 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. (at p544)

19. 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. (at p544)

20. 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. [1963] UKHL 4; (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. (at p545)

21. 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. (at p546)

22. 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] USSC 214; (1927) 275 US 303, at p 309 [1927] USSC 214; (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". (at p546)

23. 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 (N.S.W.) 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. (at p547)

24. However, the course of authority before Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (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 . (at p548)

25. 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. (at p548)

26. Another case decided before Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (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. (at p549)

27. It was in this state of the law that Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (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." (at p550)

28. Notwithstanding the broad dicta of Lord Hodson and Lord Devlin, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (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 [1963] UKHL 4; (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. (at p551)

29. 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. (at p552)

30. One possible view of the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (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. [1963] UKHL 4; (1964) AC 465 applied only to negligent misrepresentations. (at p552)

31. 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] USCA9 260; (1974) 501 F 2d 558 . (at p553)

32. 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 . (at p553)

33. 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. (at p554)

34. 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] UKPC 1; (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] UKHL 2; (1970) AC 1004 and in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (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. (at p554)

35. 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. (at p555)

36. 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. (at p555)

37. 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. (at p556)

38. For these reasons I would allow Caltex's appeals. (at p556)

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. (at p556)

2. 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". (at p557)

3. 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. (at p557)

4. 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. (at p557)

5. 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. (at p557)

6. 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. (at p558)

7. 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. (at p558)

8. 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. [1963] UKHL 4; (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 [1963] UKHL 4; (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. (at p559)

9. 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. (at p559)

10. 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". (at p559)

11. 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. (at p560)

12. 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, N.S.W., 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. (at p560)

13. 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. (at p561)

14. 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). (at p561)

15. 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] EngR 60; (1869) LR 3 PC 101 and in Chapman Bros. v. Verco Bros. & Co. Ltd. [1933] HCA 23; (1933) 49 CLR 306 and from that of the fruit in Farnsworth v. Federal Commissioner of Taxation [1949] HCA 27; (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 ). (at p561)

16. 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. (at p562)

17. 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. (at p562)

18. 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] EngR 713; (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. (at p563)

19. As I have earlier remarked, it was after Hedley Byrne [1963] UKHL 4; (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. (at p563)

20. 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 . (at p564)

21. 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. (at p565)

22. 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. (at p565)

23. 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. (at p565)

24. 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. (at p565)

25. 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. (at p565)

26. 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. (at p566)

27. 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] USCA9 260; (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. (at p566)

28. 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. (at p567)

29. 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 [1963] UKHL 4; (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. (at p567)

30. 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 [1963] UKHL 4; (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. (at p568)

31. 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. (at p568)

32. 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. (at p569)

33. 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. (at p569)

34. 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. (at p570)

35. 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. (at p570)

36. 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 [1963] UKHL 4; [1963] UKHL 4; (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 . (at p572)

37. 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. (at p572)

38. 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. (at p572)

39. 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. (at p572)

40. 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 [1963] UKHL 4; (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 [1963] UKHL 4; (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 . (at p573)

41. 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. (at p573)

42. 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] HCA 46; (1961) 106 CLR 112 , culminated in the death of Dr. Cherry and were held to be reasonably foreseeable. In Caterson v. Commissioner for Railways (N.S.W.) [1973] HCA 12; (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. (at p574)

43. 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 [1963] UKHL 4; (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] UKHL 2; (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. (at p575)

44. 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. (at p575)

45. 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. (at p576)

46. 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. (at p577)

47. 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 [1963] UKHL 4; (1964) AC 465 , in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt [1968] HCA 74; (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. (at p578)

48. 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. (at p579)

49. 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. (at p580)

50. 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. (at p580)

51. 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. (at p581)

52. 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. (at p581)

53. 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. (at p581)

54. 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. (at p581)

55. 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. (at p581)

56. 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. (at p582)

57. 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. (at p582)

58. 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. (at p583)

59. 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. (at p583)

60. 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. (at p583)

61. 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. (at p584)

62. 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. (at p584)

63. 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. (at p584)

64. 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. (at p584)

MASON J. The common law has exhibited a marked reluctance to allow recovery of pure economic damage sustained as a result of negligence. Before Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (1964) AC 465 in the long line of cases that commenced with Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453 no plaintiff succeeded in recovering economic damage which was not consequential upon physical damage - see Simpson and Co. v. Thomson (1877) 3 App Cas 279 ; Societe Anonyme de Remorquage a Helice v. Bennetts (1911) 1 KB 243 ; Chargeurs Reunis Compagnie Francaise de Navigation a Vapeur v. English & American Shipping Co. (1921) 9 Ll LR 464 . It was otherwise if the plaintiff had a proprietary or possessory interest in property: in that event he could recover consequential financial loss (The Okehampton (1913) P 173 ; Elliott Steam Tug Co. Ltd. v. The Shipping Controller (1922) 1 KB 127 ). (at p585)

2. How Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) (1947) AC 265 stood in this scheme of things is a question which has been much debated. Certainly the celebrated example given by Lord Roche (1947) AC, at p 280 of the owners of freight who incurred expense in making alternative transport arrangements when the lorry by which their goods were carried was damaged by the negligence of another indicated that there was no absolute rule inhibiting the recovery of pure economic damage for negligence. On the other hand Lord Simonds (1947) AC, at pp 304-307 invoked the earlier decisions in support of the view that pure economic damage will not ground an action in negligence. However, in Hedley Byrne [1963] UKHL 4; (1964) AC 465 three members of the House of Lords regarded Greystoke Castle (1947) AC 265 as an instance of recovery of damages for pure financial loss. (at p585)

3. None the less before Hedley Byrne [1963] UKHL 4; (1964) AC 465 the influence of the early cases was strong and it seems to have been generally considered that financial loss not consequential upon property damage could not be recovered. For the most part the cases concerned a claim by a plaintiff that he suffered a loss or lost a profit under a contract because the defendant's negligent conduct damaged or destroyed property of the other contracting party thereby putting an end to the contract or rendering it unprofitable. Yet the cases were thought to establish a general principle relating to the recovery of pure economic damage. This was because the judgments emphasized the far-reaching consequences which would flow if financial loss arising under a contract, divorced from any property damage suffered by the plaintiff, could be compensated in damages for negligence and because Blackburn J. in Cattle (1875) LR 10 QB, at p 458 drew a distinction between financial loss caused by negligence and that caused by malicious intention, asserting that in the former case it was not sufficiently proximate and direct for the law redresses "only the proximate and direct consequences of wrongful acts". (at p585)

4. Whether the refusal of relief in these cases was based on the absence of a duty of care (a concept by no means fully developed at the time of Cattle (1875) LR 10 QB, at p 457 ) or remoteness of damage is perhaps not entirely clear. But Blackburn J.'s remarks which I have quoted and those of Hamilton J. in Bennetts (1911) 1 KB, at pp 247-249 , quite apart from the observations of Lord Simonds in Greystoke Castle (1947) AC, at pp 300-308 , indicate that remoteness was thought to be the true foundation of the decisions. (at p586)

5. It was to be expected that the speeches in Hedley Byrne [1963] UKHL 4; (1964) AC 465 , by acknowledging that a plaintiff who sustains financial loss, which is not consequential upon physical damage, as a result of a negligent misstatement, a view confirmed for Australia by Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1970) 122 CLR 628; (1971) AC 793 , would open the way to liability for pure economic damage sustained in consequence of negligent conduct. So far the expectation has been disappointed. (at p586)

6. The English decisions since Hedley Byrne [1963] UKHL 4; (1964) AC 465 have not given much encouragement to the plaintiff who suffers pure economic damage through negligent conduct. No claim for pure financial loss has yet succeeded - see The World Harmony (1967) P 341 ; Weller & Co. v. Foot and Mouth Disease Research Institute (1966) 1 QB 569 ; Electrochrome Ltd. v. Welsh Plastics Ltd. (1968) 2 All ER 205 ; British Celanese Ltd. v. A. H. Hunt (Capacitors) Ltd. (1969) 1 WLR 959; (1969) 2 All ER 1252 ; Margarine Union G.m.b.H. v. Cambay Prince Steamship Co. Ltd. (1969) 1 QB 219 ; 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 . To these cases there should be added a reference to French Knit Sales Pty. Ltd. v. N. Gold & Sons Pty. Ltd. (1972) 2 NSWLR 132 , where Asprey and Hardie JJ.A. thought that financial loss is not recoverable if it is not consequential upon property damage. (at p586)

7. Elsewhere claims for financial loss not consequential upon property damage have succeeded. In Seaway Hotels Ltd. v. Cragg (Canada) Ltd. (1959) 21 DLR (2d) 264 the plaintiff was awarded damages for loss of earnings when the defendant negligently severed a cable carrying power to the plaintiff's hotel, thereby compelling it to close its restaurant and bar and depriving it of rent. In Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 DLR (3d) 530 the plaintiff obtained damages compensating it for the loss of earnings which it sustained by reason of the defendants' failure to give prompt notice of a defect in a crane which resulted in the plaintiff's vessel being out of commission at the height of the fishing season so that the defect could be remedied. Had the notice been given earlier the crane could have been repaired without significant loss of earnings. In the United States fishermen successfully recovered damages reflecting their loss of earnings due to the pollution of fishing grounds by reason of the defendant's negligent spillage of oil (Union Oil Co. v. Oppen [1974] USCA9 260; (1974) 501 F (2d) 558 ). (at p587)

8. Although the English decisions have not favoured the plaintiffs they contain statements which acknowledge in varying degree the right to recover pure economic damage caused by negligent conduct. Broadly speaking, three competing views have been expressed. First, a majority of the Court of Appeal has expressed the view that pure economic damage due to negligence is recoverable where it is "truly consequential", to use the words of Lord Denning M.R. in Spartan Steel (1973) 1 QB, at pp 38-39 or "immediate", as Lawton L.J. put it (1973) 1 QB, at p 47 . Illustrations, according to Lord Denning, are the banker who in reliance on a reference lays out money which is lost (the Hedley Byrne [1963] UKHL 4; (1964) AC 465 situation) and the owner of goods who suffers pure financial loss when the lorry on which they are carried is damaged by the negligence of another (Lord Roche's example in Greystoke Castle (1947) AC 265 ). Winn L.J. who with Lord Denning formed the majority in S.C.M. (United Kingdom), took a more restricted view. He said (1971) 1 QB, at p 352 :

"...it is far more satisfactory in a sociological sense, and
is in accordance with the present law, to say that apart from
the special case of imposition of liability for negligently
uttered false statements, there is no liability for unintentional
negligent infliction of any form of economic loss which is not
itself consequential upon foreseeable physical injury or
damage to property." (at p587)

9. The second approach was that expressed by Edmund Davies L.J. in his dissenting judgment in Spartan Steel. His Lordship rejected the notion that liability for financial loss due to negligence should depend on the occurrence of damage to the plaintiff's property and said (1973) 1 QB, at p 45 : "...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." Later, his Lordship said (1973) 1 QB, at p 46 :

"I should perhaps again stress that we are here dealing
with economic loss which was both reasonably foreseeable
and a direct consequence of the defendants' negligent
act. What the position should or would be were the latter
feature lacking (as in Weller & Co. v. Foot and Mouth Disease
Research Institute (1961) 1 QB 569 ) is not our present concern. By
stressing this point one is not reviving the distinction
between direct and indirect consequences which is generally
thought to have been laid at rest by The Wagon Mound (1966) AC 388 ."

10. Earlier, in Ministry of Housing and Local Government v. Sharp (1970) 2 QB 223, at p 278 Salmon L.J. had said: "...the existence of a duty to take reasonable care no longer depends upon whether it is physical injury or financial loss which can reasonably be foreseen as a result of a failure to take such care." See also Dutton v. Bognor Regis Urban District Council, per Sachs L.J. (1972) 1 QB 373, at p 403 . (at p588)

11. The third approach was that taken by Widgery J. in Weller (1966) 1 QB, at p 587 , where his Lordship said that the earlier cases were to be explained on the footing that "the plaintiff was regarded as being outside the scope of the defendant's duty to take care". His Lordship went on to say of Hedley Byrne (1966) 1 QB, at p 587 :

"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.
In my judgment, there is nothing in Hedley Byrne [1963] UKHL 4; (1964) AC 465 to
affect the common law principle that a duty of care which
arises from a risk of direct injury to person or property is
owed only to those whose person or property may foreseeably
be injured by a failure to take care. If the plaintiff can show
that the duty was owed to him, he can recover both direct and
consequential loss which is reasonably foreseeable, and for
myself I see no reason for saying that proof of direct loss is
an essential part of his claim. He must, however, show that
he was within the scope of the defendant's duty to take care."

In Margarine G.m.b.H. (1969) 1 QB, at pp 250-251 , Roskill J. expressed his agreement with the judgment of Widgery J. in Weller (1966) 1 QB, at p 587 . (at p588)

12. These competing views differ in approach and content. The first, that of Lord Denning M.R. and Lawton L.J., treats the issue as one of proximity of damage and confines the recovery of financial loss to cases in which it is "truly consequential" or immediate. The third, that of Widgery J., treats the issue as one to be resolved in terms of the existence of a duty of care and suggests that if physical damage is foreseeable the plaintiff can recover property damage and financial loss so that if there is a breach of duty of care based on the foreseeability of property damage to the plaintiff, the plaintiff can recover financial loss even if he suffers no property damage. The second approach, that taken by Edmund Davies L.J., does not claim to be comprehensive because it asserts no more than that financial loss which is foreseeable and direct is recoverable and leaves for future decision the question whether financial loss which is foreseeable but not direct is recoverable. (at p589)

13. Liability for damage sustained in consequence of negligence may be treated as a duty of care problem, or alternatively, as a problem of proximity of damage - see, for example, King v. Phillips (1953) 1 QB 429 and Atiyah, "Negligence and Economic Loss", Law Quarterly Review, vol. 83 (1967), pp. 259-260. The earlier cases, as I have already observed, appear to have discussed liability for financial loss in terms of proximity and remoteness of damage rather than as a duty of care problem. (at p589)

14. However, since those cases were decided the foreseeability test has emerged as the chief determinant of the existence of the duty of care (Donoghue v. Stevenson (1932) AC 562 ) and as the principal, perhaps the exclusive, criterion of proximity of damage (Overseas Tankship (U.K.) Ltd. v. Morts Dock & Engineering Co. Ltd. (The Wagon Mound) [1961] UKPC 1; (1961) AC 388 ). In The Wagon Mound it was held that direct damage sustained in consequence of a negligent act could not be recovered unless it was also damage of a kind that was a reasonably foreseeable consequence of the defendant's negligent act. All that the case actually decided was that directness was not a sufficient test of liability, not that it was not a necessary test of liability. But the opinion of the Board, delivered by Viscount Simonds rejected the notion that there was "one criterion for determining culpability (or liability) and another for determining compensation" and approved the statement of Lord Russell of Killowen in Bourhill v. Young [1942] UKHL 5; (1943) AC 92, at p 101 that the foreseeability test was relevant not only to the question of remoteness of damage but also in testing the existence of a duty of care (1961) AC, at p 421 . In The Wagon Mound their Lordships concluded by saying (1961) AC, at p 426 : "... the essential factor in determining liability is whether the damage is of such a kind as the reasonable man should have foreseen.... Thus foreseeability becomes the effective test." (at p589)

15. The Wagon Mound [1961] UKPC 1; (1961) AC 388 dealt with property damage caused by negligent conduct, not economic damage caused by negligent words. When liability for economic damage due to negligent misstatement arose for consideration the foreseeability concept was not accepted as an exclusive or comprehensive test. In Hedley Byrne [1963] UKHL 4; (1964) AC 465 the argument that a duty of care to avoid financial loss arose whenever such loss was a reasonably foreseeable consequence of a misstatement was decisively rejected. And in the more recent English cases to which I have referred the similar argument that a duty of care to avoid financial loss as a result of negligent conduct arises whenever such loss is reasonably foreseeable has also been categorically rejected. It has been otherwise in the latest cases of negligent misstatement resulting in economic loss. In Dutton (1972) 1 QB 373 and Ministry of Housing and Local Government v. Sharp (1970) 2 QB 223 the existence of a duty of case was decided by reference to the foreseeability principle, although in Dutton (1972) 1 QB 373 the existence of a duty of care could also be supported by reference to the special character and duty of the authority. (at p590)

16. All this indicates that in England the foreseeability test which seemed to emerge after the decision in The Wagon Mound (1961) AC 311 as the ultimate touchstone of liability in negligence, has not been accepted as an exclusive criterion of liability for economic damage. There are a number of reasons which tend to support this conclusion. Some of them have to do with the various types of financial loss which are denoted by the expression "economic damage" and with the wide variety of circumstances in which financial loss may be sustained. I may suffer financial loss because I lose a profit or the benefit of expenditure under a contract the performance of which is affected due to the negligence of another. Or my business may be adversely affected by supervening circumstances attributable to the negligence of another (Weller (1966) 1 QB 569 ). Or I may be put to additional expense because I have been deprived of a service or facility through another's negligence. In many of these cases the loss will be foreseeable, though the degree of its connexion with the negligence will vary. (at p590)

17. The factors inhibiting a general right of recovery based on a notion of foreseeability have been discussed in Hedley Byrne (1964) AC, esp at pp 482-483, 534, 536-538 and the later English cases, as well as in the earlier judgments of Blackburn J. in Cattle (1875) LR 10 QB, at p 458 , Lord Penzance in Simpson and Co. v. Thomson (1877) 3 App Cas 279 and Hamilton J. in Bennetts (1911) 1 KB 243 . There is no occasion for me to repeat them. In addition, instructive examinations have been made of the underlying policy considerations relevant to the problem - see Atiyah, "Negligence and Economic Loss" loc. cit.; L. L. Stevens, "Negligent Acts Causing Purely Financial Loss: Policy Factors at Work" University of Toronto Law Journal, vol. 23 (1973), p. 431. (at p591)

18. The principal disadvantage of the foreseeability test as an exclusive criterion of liability for financial loss is that it would impose on an individual defendant a liability "in an indeterminate amount ... to an indeterminate class", in the words of Cardozo C.J. in Ultramares Corporation v. Touche (1931) 174 NE 441, at p 444; 74 ALR 1139, at p 1145 . A minor act of negligence may put out of action a public utility or facility, e.g. a power station or bridge, which serves a large community, with the result that a large class of persons may sustain financial loss thereby. Yet to adapt the words of Viscount Simonds in The Wagon Mound (1961) AC, at p 422 , "it does not seem consonant with current ideas of justice or morality that for an act of negligence, however slight or venial", the actor should be made liable for all the foreseeable consequences in terms of financial loss. As The Wagon Mound clearly demonstrates, the law of negligence must balance against the interest of the injured party in recovering compensation the interest of the wrongdoer in avoiding subjection to a liability disproportionate to his negligent conduct. (at p591)

19. On the other hand, economic damage is, no less than property damage, a very real detriment. Now that the recovery of economic damage not consequential upon property damage is recognized in the case of negligent misstatements, there is no sound reason for accepting the traditional rule that only financial loss which is consequential upon property damage can be recovered. The traditional rule is not only at odds with Hedley Byrne, it is based on an absolute distinction between property damage and economic damage which is difficult to justify (see Hedley Byrne (1964) AC, at pp 517, 538 ). (at p591)

20. The problem is to yield compensation to the individual who suffers financial loss not necessarily consequential upon damage to his property when that loss is closely connected with the failure to take care and yet at the same time to deny compensation "in an indeterminate amount ... to an indeterminate class", in particular, to a large class of persons whose loss arises because their use of a public utility or facility has been interrupted. (at p591)

21. Of the competing criteria which have been proposed there are those which are founded on a concept of proximity between the damage sustained and the negligence. This concept is variously expressed and the various expressions involve different shades of meaning. But in the ultimate analysis they seek to say that economic damage is recoverable when it is sufficiently proximate to the negligence, whether the word "proximate" is selected or one of its alternatives "direct", "immediate" or "consequential", words which were thought to have been banished by The Wagon Mound [1961] UKPC 1; (1961) AC 388 . This approach marks a return to pre-Wagon Mound thinking and the notion of proximity and remoteness echoed in Cattle (1875) LR 10 QB 453 and the succeeding cases. It restores the dichotomy between culpability and compensation and is at odds with the philosophy which underlies The Wagon Mound [1961] UKPC 1; (1961) AC 388 and Hedley Byrne [1963] UKHL 4; (1964) AC 465 , namely that liability for damage is ultimately to be resolved by reference to the existence of a duty of care and breach of that duty. (at p592)

22. All this indicates that a more acceptable path to the solution of the problem is to be found through the duty of care. This approach was pursued in Weller (1966) 1 QB 569 where it was held that a defendant is liable for economic damage sustained by a plaintiff whose person or property is at risk according to the foreseeability test. The adoption of this approach would expand the area in which economic damage may be recovered, yet in limiting recovery to cases in which physical damage can be foreseen, the approach makes recovery conditional upon the fortuitous circumstance that financial loss was suffered by a person who could have recovered had he sustained physical damage. The test is one which effectively narrows the class of plaintiffs eligible to recover financial loss. It achieves this object by reference to the long-established general criterion of the existence of a duty of care framed restrictively in that it is based on the foreseeability of physical damage only. Although it is more liberal than the old notion of recovery of financial loss which is consequential upon physical damage it is founded on a concept of the duty of care which confines it to those who may suffer foreseeable physical damage. (at p592)

23. It is preferable, then, as Mr. P. P. Craig suggests in his illuminating article, "Negligent Misstatements, Negligent Acts and Economic Loss" Law Quarterly Review, vol. 92 (1976), p. 213, that the delimitation of the duty of care in relation to economic damage through negligent conduct be expressed in terms which are related more closely to the principal factor inhibiting the acceptance of a more generalized duty of care in relation to economic loss, that is, the apprehension of an indeterminate liability. A defendant will then be liable for economic damage due to his negligent conduct when he can reasonably foresee that a specific individual, as distinct from a general class of persons, will suffer financial loss as a consequence of his conduct. This approach eliminates or diminishes the prospect that there will come into existence liability to an indeterminate class of persons; it ensures that liability is confined to those individuals whose financial loss falls within the area of foreseeability; and it accords with the decision in Rivtow (1973) 40 DLR (3d) 530 . (at p593)

24. On the facts of the present case (which are comprehensively narrated in the reasons for judgment of Stephen J.) the dredge and Decca were aware of the situation of the pipeline, that it carried oil or petroleum products and that it linked the A.O.R. refinery and the Caltex terminal at Banksmeadow on the other side of Botany Bay. They should have known, if they did not know, that the pipeline carried refined petroleum products from the refinery to the terminal and that the oil was used by Caltex in its business operations as an oil company. Moreover, they should have foreseen, as the primary judge found, that negligence on their parts resulting in a severance of the pipeline would involve not only loss of oil from the pipeline but an interruption in supply which would necessitate the expense of making alternative transport and delivery arrangements, which included the expense of modifying the terminal. (at p593)

25. In these circumstances both the dredge and Decca owed a duty of care not only to the owner of the pipeline but to Caltex whose oil, as Stephen J. in his reasons for judgment demonstrates, was flowing through the pipeline. It was a duty to take reasonable care to avoid damage, whether physical or financial, as might result from negligent navigation of the dredge in the vicinity of the pipeline. This duty was breached and Caltex sustained economic damage in the form of the expenditure to which I have referred and which by agreement amounted to $95,000. (at p593)

26. Decca sought to avoid liability in this amount by submitting that the primary judge should have found that there was no evidence that Decca navigational system was in use at the relevant time or that, if it was in use, it was not the effective cause of the damage. I would reject this submission for the reasons given by Stephen J. (at p593)

27. In the result, in my opinion the two appeals by Caltex should be allowed and it should recover judgment in each of the actions against the dredge and Decca in the agreed amount of damages. (at p594)

28. With respect to the appeals by Caltex and A.O.R. in connexion with the entry of judgment against Captain Henneman I likewise agree with what Stephen J. has to say on this topic. I would accordingly dismiss these appeals. (at p594)

JACOBS J. In three incidents between October 1971 and March 1972 the dredge "Willemstad" damaged an oil pipeline running across Botany Bay from an oil refinery operated by Australian Oil Refining Pty. Ltd. ("A.O.R.") to a terminal operated by Caltex Oil (Australia) Pty. Ltd. ("Caltex"). The first incident is alone the subject of these appeals. It occurred on the night of 25th-26th October 1971. A.O.R. suffered damage to its pipeline amounting, it was agreed, to $125,000. It sued the dredge itself in an action in rem in the Admiralty Division of the Supreme Court of New South Wales alleging negligence. It also sued Decca Survey Australia Ltd. ("Decca") alleging negligence. Caltex suffered loss amounting, it was agreed, to $95,000. It sued both the dredge and Decca alleging negligence. (at p594)

2. In the A.O.R. action against the dredge negligence was in effect admitted at the hearing. The dredge relied on contributory negligence in reduction of damages. The trial judge found in favour of A.O.R. on this issue and found damages of $125,000 in respect of the first incident. Judgment was given in that sum (together with the damages in respect of the second and third incidents) against the company Ballast Trailing N.V. and against the two companies Ballast Australia N.V. and Hollandsche Aarneming Maatschappij N.V. engaged in the joint venture to operate the dredge ("the joint venture"). The trial judge declined to give judgment against the master of the dredge at the time of the first incident, Captain Henneman. He also found for A.O.R. in the action against Decca with damages in respect of the first incident in the sum of $125,000. (at p594)

3. In the action by Caltex against the dredge the trial judge found that no damages were payable by the dredge to Caltex in respect of the first incident and likewise that in the action by Caltex against Decca no damages were payable.

The appeals.

(1) A.O.R. appeals to this Court on the ground that judgment should have been given against Captain Henneman also. The importance to A.O.R. of this appeal is that proceedings are currently afoot to limit damages under s. 503 of the Merchant Shipping Act, 1894 (Imp.) and it would be important to A.O.R. to have a judgment against the master who would not have the benefit of that section.
(2) Caltex appeals to this Court on the ground that it was entitled to a verdict against the dredge in respect of its loss in the first incident. The respondent dredge resists the appeal upon the ground that the trial judge was correct in finding that it was not liable because the loss which Caltex suffered in the first incident was economic loss only.
(3) Caltex appeals to this Court on the ground that it was entitled to a verdict against Decca in respect of its loss in the first incident. Decca resists this appeal on the same ground as the dredge and in addition seeks to uphold the judgment on the ground that no lack of reasonable care by Decca was established as a cause of the damage. (at p595)

4. It should also be mentioned that Decca has appealed to the Privy Council against the judgment against it in favour of A.O.R. (at p595)

(1) The appeal by A.O.R.

5. Upon the subject matter of this appeal I agree with the conclusion of Stephen J. and with the reasons which he has expressed. (at p595)

(2) and (3) The appeals by Caltex against the dredge and Decca.

6. The common ground of these appeals is that the trial judge was in error in finding that because the loss suffered by Caltex was economic loss only Caltex could not recover damages in respect of that loss. The actual loss suffered by Caltex was, it was agreed, $95,000; but the trial judge found that none of this loss was recoverable. The nature of the loss was described by him as follows:

"... I propose to indicate shortly the nature of the damage
which Caltex has suffered as a result of the damage to the
pipeline. I can best do this by setting out part of par. 2 of
Caltex's solicitors' letter of 19th October 1973, written to the
solicitors for the joint venture. That paragraph is, in part,
as follows:
'By reason of the breakage of and damage to the
pipelines caused by the Defendants' negligence, the
Plaintiff lost its normal means of obtaining deliveries
of petroleum products at its Banksmeadow Terminal
while the pipelines were being repaired and restored to
service. In order to obtain deliveries from the refinery
of Australian Oil Refining Pty. Limited at Kurnell, it
arranged for petroleum products to be taken from the
refinery to the Banksmeadow Terminal of the Plaintiff
either by ship or road transport. It was also
necessary, because of the impossibility of sending low
sulphur fuel oil to Banksmeadow Terminal, to deliver
supplies of low sulphur fuel oil to the Balmain
Terminal of the Plaintiff by ship and to supply the
Plaintiff's customers with fuel oil by road transport
from the Balmain Terminal.'
The letter goes on to detail precisely the expense to which
Caltex was put in respect of such matters as the modification
of its Banksmeadow terminal, the modification of its
Balmain terminal, additional handling charges, additional
port and bunkering charges, additional tonnage, wharfage
and harbour dues, certain discharge costs and a number of
other charges and costs incurred of a similar nature." (at p596)

7. On the question whether the loss of Caltex, which is reflected in the costs and expenses incurred by it in arranging alternative methods of obtaining delivery of the oil when it had been refined, was recoverable, Sheppard J. felt himself bound by the decision of the majority of the New South Wales Court of Appeal in French Knit Sales Pty. Ltd. v. N. Gold & Sons Pty. Ltd. (1972) 2 NSWLR 132 . He held that damages for the loss were in law too remote or that no duty was owed in respect of such loss. (at p596)

8. The question of remoteness of damage in the tort of negligence and the relationship of remoteness and duty of care have been the subject of a number of decisions and of academic writing after the decision of the Privy Council in Wagon Mound (No. 1) (1961) AC 388 and again after Wagon Mound (No. 2) [1966] UKPC 1; (1967) 1 AC 617 . These and the earlier cases have been discussed in a number of the recent decisions. See, for instance, Weller & Co. v. Foot and Mouth Disease Research Institute (1966) 1 QB 569 and Stephenson v. Waite Tileman Ltd. (1973) 1 NZLR 152 . In particular there is the decision of the Court of Appeal in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. (1973) 1 QB 27 . I shall refer later to some of the authorities including this recent decision of the Court of Appeal. As will appear, I have some difficulty in accepting the approaches to the problem made in the last mentioned case. (at p596)

9. When a duty of care is found to exist in law one element in that finding is foreseeability of the risk of injury. A defendant is liable to pay damages in respect of the kind of injury the foreseeability of which was the necessary element enabling a finding to be made that a duty of care existed. A defendant is not liable to pay damages for causing a kind of injury which is not foreseeable. Such damage can be described as too remote or it may be said that there is no duty of care to avoid the risk of that kind of injury. That is the principle established by Wagon Mound (No. 1) (1961) AC 388 and Wagon Mound (No. 2) [1966] UKPC 1; (1967) 1 AC 617 .

"In considering whether a person owes to another a duty a
breach of which will render him liable to that other in
damages for negligence, it is material to consider what the
defendant ought to have contemplated as a reasonable
man. This consideration may play a double role. It is
relevant in cases of admitted negligence (where the duty and
breach are admitted) to the question of remoteness of
damage, i.e. to the question of compensation not culpability,
but it is also relevant in testing the existence of a duty as the
foundation of the alleged negligence, i.e. to the question of
culpability not compensation." Bourhill v. Young [1942] UKHL 5; (1943) AC 92, at p 101 ,

per

Lord Russell of Killowen. (at p597)

10. The measure of damages in negligence is thus inter-related with the duty of care. As a result the damages recoverable may differ depending on the kind of injury against the risk of which the duty of care is erected. For example, the foreseeable risk of injury which may give rise to a duty not to make a negligent misstatement will often (though not always) be different in kind from the foreseeable risk of injury which may give rise to a duty not to do a negligent physical act. Consequently the kind of injury for which damages are recoverable may be different in the one case from the other. The difference in the kind of injury for which damages are recoverable lies not in the nature of the negligent act but in the nature of the injury which is foreseeable and which gives rise to the duty of care. (at p597)

11. The relevant duty of care in the present case is the duty of care owed to those whose persons or property are in such physical propinquity to the place where an act or omission of the defendant has its physical effect that a physical effect on the person or property of the plaintiff is foreseeable as the result of the plaintiff's act or omission. The damages for the breach of such a duty of care are those which result from the physical effect on the plaintiff's person or property of the defendant's act or omission. (at p597)

12. A question of central importance in the present case is whether the physical effect in this context is limited to actual physical injury. In my opinion it is not. Person or property may be injured not only physically but also by physical effect thereon short of physical injury: e.g. by an act or omission which prevents physical movement of a person or which prevents physical movement or operation of property. (at p597)

13. The damages for immobilization of property may frequently be quantified as the cost of mobilizing the property and the loss of the use of the property during its immobilization. Such damage may be called pecuniary or economic loss. However, it is an error to concentrate attention on the question whether a particular loss is pecuniary or economic. Rather it is necessary to examine the circumstances of the loss. If the loss arises from the physical effect of an act or omission on the person or property of a plaintiff and that physical effect is one which was foreseeable and that foreseeability gives rise to a duty in the defendant to take reasonable care to avoid that physical effect, it is no answer to the plaintiff's claim for damages that his loss was pecuniary or economic. Nor is there any need or place for such a concept as has been expressed in the term "parasitic damages". Cf. Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd., per Lord Denning M.R. (1973) 1 QB, at pp 34-36 . (at p598)

14. The risk of causing a loss to another which arises solely from a relationship of that other with a third party does not generally give rise to a duty of care to avoid the risk to the other of that per quod servitium amisit, cases which stand apart for historical reasons, A cannot recover damages from B for the loss which he suffers as a result of physical injury to a third person. Thus an employer has no right of action for damage suffered by him as a result of injury to his employee which prevents that employee rendering to the employer the services which the employee has agreed to render: Attorney-General (N.S.W.) v. Perpetual Trustee Co. Ltd. [1955] HCA 9; (1955) AC 457; (1955) 92 CLR 113 . In the absence of statutory provision, a wife or child has no right of action for injuries caused to husband or father. In each case the contractual, marital or parental relationship is an insufficient ground for supporting such a right of action. Although the measures of damages in contract and in negligence are necessarily different because of the different circumstances out of which the rights of action arise, this principle runs through the law on damages for breach of contract as well as damages for negligence. (at p598)

15. Exceptions are apparent but not real. An injured worker receives damages for past and future loss of earnings. These damages appear to be damages arising out of his relationship with a third party, his employer. But, as has often been observed, the damages are not strictly for loss of earnings but for loss of earning capacity. The sums which would probably have been earned enable the loss of earning capacity to be quantified. Likewise in other cases it is necessary to distinguish between profit under a contract with a third party and profitability. The actual loss of profit may be evidence of the profitability of the affected property.

16. Because economic loss commonly arises out of the loss of the benefit of a contract with a third party, and because the loss of the benefit of a contract with a third party is not a kind of injury which of itself gives rise to a duty of care, there has been a tendency of late to express the principle to be that in an action for negligence by a physical act or omission economic loss is not recoverable. Such an expression is incorrect because in every case it is necessary to go further and to examine how the so-called economic loss arises. If it arises in a way which can only be characterized as the loss of the benefit of a contract with a third party it will not be recoverable. However, if it arises out of a physical effect on the person or property of the plaintiff, it will not be irrecoverable simply because it is economic loss. (at p599)

17. In Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453 the act of the defendants carelessly caused a water pipe owned by them to leak. Thereby water entered a tunnel which the plaintiff was building under a road for the owner of the land on which the road was built. The plaintiff lost much of the benefit of this contract because of the additional costs to which he was put. It was held that he could not recover.

"In the present case the objection is technical and against
the merits, and we should be glad to avoid giving it
effect. But if we did so, we should establish an authority for
saying that, in such a case as that of Fletcher v. Rylands
[1868] UKHL 1; (1866) LR 1 Ex 265; (1868) LR 3 HL 330 ,
the defendant would be liable, not only to an action by the
owner of the drowned mine, and by such of his workmen as
had their tools or clothes destroyed, but also to an action by
every workman and person employed in the mine, who in
consequence of its stoppage made less wages than he would
otherwise have done. And many similar cases to which this
would apply might be suggested." (Per Blackburn J.
(1875) LR 10 QB, at p 457 .) (at p599)

18. It might be thought that there is an imperfect analogy between water obstructing work of the plaintiff which he was actually in course of performing under a contract which necessitated him taking at least temporary possession of the site of the work and damage to a place of work whereby a worker could not work at his place of work and thereby earn his wages. However, the principle applied was that loss of the benefit of a contract with a third party was not of itself recoverable. It is not suggested in the example taken by Blackburn J. that a worker who was, by a negligent act which immobilized but did not physically injure his person, prevented from attending at his place of work would not be entitled to damages. (at p599)

19. In Societe Anonyme de Remorquage a Helice v. Bennetts (1911) 1 KB 243 the plaintiffs were the owners of a tug which was towing a ship pursuant to a contract. The ship was sunk through the negligence of a vessel owned by the defendants. The plaintiffs claimed loss of profits on the contract of towage. They failed because the loss of profits on the contract with the third party was not recoverable. There was no physical effect on the property of the plaintiffs. If the towed ship, instead of being sunk, had parted and drifted away so that the tug owners had been put to the expense of recovering the tow, the result might well have been different. The effect on the tow itself reflected in the need to restore the tow would be a physical effect which would be foreseeable not because of any pre-existing contractual obligation but because of the fact that the tow was in course at the time of the defendant's careless act. Cf. The Zelo (1922) P 9 . (at p600)

20. The time charter cases do not establish that if a loss is pecuniary or economic it is not recoverable. In Chargeurs Reunis Compagnie Francaise de Navigation a Vapeur v. English & American Shipping Co. (1921) 9 LI LR 464 the time charterer failed in a claim for damages for the loss through damage to a ship of the benefit of a right to have the ship carry out voyages to its order. To the like effect is the decision in The World Harmony (1967) P 341 . A similar principle was applied in Elliott Steam Tug Co. Ltd. v. The Shipping Controller (1922) 1 KB 127 . In these cases the ships contained no property of the plaintiffs. There was therefore no physical propinquity of any property of the plaintiffs to the place where the act or omission of the wrongdoer had its physical effect. But in the earlier case of The Okehampton (1913) P 173 the time charterer succeeded in a claim for loss of bill of lading freight on a cargo which was actually on the chartered ship at the time that the ship was lost. The physical propinquity of the cargo to the physical act which sank the ship gave rise to a duty to take care to avoid the risk of a physical effect on the cargo itself. The charterer was held to be a bailee of the cargo so that it had a special property therein which was physically affected. I do not think that the decision would have been different if the ship but not the cargo had been physically damaged and if in those circumstances the bill of lading freight had been lost through failure to perform the contract of carriage. See The Minnetonka (1905) P 206 . (at p600)

21. In Simpson and Co. v. Thomson (1877) 3 App Cas 279 Lord Penzance stressed that what could not be recovered as damages for negligence was loss which arose simply from the existence of a contract with a third party whose person or property is physically injured by a careless act. He said (1877) 3 App Cas, at pp 289-290 :

"The principle involved seems to me to be this - 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.
This, I say, is the principle involved in the respondents'
contention. If it be a sound one, it would seem to follow that
if, by the negligence of a wrongdoer, goods are destroyed
which the owner of them had bound himself by contract to
supply to a third person, this person as well as the owner has
a right of action for any loss inflicted on him by their
destruction.
But if this be true as to injuries done to chattels, it would
seem to be equally so as to injuries to the person. An
individual injured by a negligently driven carriage has an
action against the owner of it. Would a doctor, it may be
asked, who had contracted to attend him and provide
medicines for a fixed sum by the year, also have a right of
action in respect of the additional cost of attendance and
medicine cast upon him by that accident? And yet it cannot
be denied that the doctor had an interest in his patient's
safety. In like manner an actor or singer bound for a term to
a manager of a theatre is disabled by the wrongful act of a
third person to the serious loss of the manager. Can the
manager recover damages for that loss from the wrongdoer?" (at p601)

22. In the examples given by Lord Penzance none of the losses under the contracts with persons who were or whose property was physically injured would be recoverable, not because they were economic or pecuniary losses but because the losses were not injury of a kind which gave rise to a duty to take care to avoid the risk of physical injury to person or property. There would be neither person nor property in that physical propinquity to the place where the act or omission had its physical effect which would be the foundation of the only relevant duty of care. (at p601)

23. I come now to Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) (1947) AC 265 . This decision on my view of it supports two presently relevant propositions; first, that a physical effect, short of physical injury, is a kind of injury the risk of which, if it be foreseeable, there may be a duty of care to avoid; and secondly that there will be such a duty where there is physical propinquity of the plaintiff's property to the place where the defendant's act or omission has its physical effect. The cargo was at the place where the careless act or omission of the other ship had its physical effect. The cargo was not physically damaged but there was the physical effect on it of being immobilized in a damaged ship. The price of its mobilization included the general average contribution. The amount of the contribution was part of the quantification of the damage of immobilization. In that way the example of the truck and its load which was taken by Lord Roche was precisely in point (1947) AC, at p 280 .

"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. As
regards the sea, The Minnetonka (1905) P 206 , The Toward
(Shipping Gazette, 8th May 1899.) , and
in the United States of America The Sucarseco
(1935) 51 LI L Rep 238, at p 241 are
authorities completely opposed to this contention of the
appellants."

I do not think that Lord Roche's reference to "common adventure" was more than a statement of commercial reality. It introduced no special qualification of law. (at p602)

24. Lastly I come to the decision of the Court of Appeal in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. (1973) 1 QB 27 . It is, I think, sufficiently clear from the views which I have expressed above that in my opinion, assuming that a duty of care arose in the circumstances, the plaintiff was entitled to damages not only for the physical loss in the spoiled "melt" and the loss of profit from the sale of the metal from that melt but also to damages for the loss of profitability of the plaintiff's property during the time that it was physically affected by being made inoperative by the negligent act of the defendant. I respectfully agree with the dissenting conclusion of Edmund Davies L.J. (as he then was). I would however avoid characterizing recoverable damage as direct or proximate in favour of relating the damage to the nature of the duty of care in any given circumstances. In result there may not be a substantial difference though I would avoid as far as possible the test of causation which is perhaps implicit in tests of directness or proximateness. (at p603)

25. Before I consider application of these principles in the present case, it is necessary to say something more of the facts. In the present case the loss suffered by Caltex may be described as a pecuniary or economic loss but that in itself tells us nothing. It is necessary to examine the circumstances out of which the loss arose and whether any, and if so what, duty of care existed on the part of the dredge and Decca towards Caltex. Caltex was the owner of the crude oil which was delivered to be processed at the refinery of A.O.R. There was current at the time of the incident a processing agreement between A.O.R. and Caltex for the refining by A.O.R. of crude oil owned by Caltex at the former's Kurnell refinery in order to produce petroleum products required by Caltex for marketing in Australia. By cl. 3 it was provided that Caltex should supply crude oil landed at the A.O.R. Kurnell refinery with all freight, insurance, duties and wharfage paid by Caltex. Clause 4 provided that the quantities of crude oil to be processed during each year of this Agreement should be such quantities as would yield substantially all refined petroleum fuels required by Caltex for marketing in Australia from time to time. (at p603)

26. Then it was provided that crude oil should be delivered by or on behalf of Caltex in accordance with schedules set by A.O.R. in terms of the agreement. Delivery of crude oil by Caltex to A.O.R. was to be made by ship at marine unloading facilities nominated by A.O.R. and was to be effected and received at the permanent hose connexion of the vessel and was to be pumped ashore at the expense of Caltex. (at p603)

27. Clause 14 provided that all product deliveries should be made in bulk and should be delivered to Caltex either into a vessel at the A.O.R. wharf or, at the option of Caltex, from time to time, at Banksmeadow Terminal. It also provided that delivery of the finished products by A.O.R. to Caltex should be made at the permanent flange of the carrier, in the case of a coastal distribution vessel or at the boundary fence of Banksmeadow Terminal, by pipeline, and should be pumped into such carriers or terminal at A.O.R.'s expense. (at p603)

28. Clause 18 provided:

"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 AOR 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 AOR'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 AOR." (at p604)

29. By a force majeure clause (cl. 23) it was provided that neither A.O.R. nor Caltex should be liable to the other party for loss or damage of any nature whatsoever incurred or suffered by such other party due to delays or defaults in performance under the agreement caused by force majeure or other circumstances beyond its control and without its fault or negligence, including, inter alia, accident or breakdown of delivery facilities, delays in delivery of products, loss of transportation facilities provided that during the continuance of such hindrance or delay Caltex might obtain elsewhere sufficient quantities of products of a similar kind for the immediate needs of its business. (at p604)

30. In short, therefore, Caltex was to deliver the crude oil to the refinery and A.O.R. was to process the oil on behalf of Caltex. The refined material would not necessarily be the product of the actual oil delivered by Caltex but the equivalent thereto in quantity: nevertheless the agreement was a processing agreement only and the property in crude oil or its refined products to the extent of its delivery to A.O.R. would remain the property of Caltex. (at p604)

31. The defendants owed no duty of care to Caltex arising simply from a risk that A.O.R. might by the physical injury to its property be unable to supply refined petroleum products to Caltex under a contract for the supply thereof. However that is not the end of the matter. There was a duty of care owed by the defendants to Caltex. The duty of care was that owed to a person whose property was in such physical propinquity to the place where the acts or omissions of the dredge and Decca had their physical effect that a physical effect on the property of that person was foreseeable as the result of such acts or omissions. The physical effect of Decca's act or omission was at the place where the dredge went as a result of navigational error, caused by that act or omission. The physical effect of the dredge's act or omission was at the place where it went in its dredging operation. The property of Caltex in physical propinquity to the place where the acts or omissions of the defendants had their physical effect was its crude oil at the refinery and the products thereof so far as the crude oil had been refined. Though there was no evidence of precisely how much crude oil of Caltex was at the refinery at the time of the incident or of how much refined product was awaiting delivery, there was evidence that some was there. The physical effect on this property of Caltex was the immobilization through the pipeline of the crude oil and the products thereof. The risk of such a physical effect was foreseeable as the result of the act of breaking the pipeline. The damage suffered was the immobilization through the pipeline of the processed crude oil. A quantification of the damage was the cost of arranging alternative means of obtaining delivery of the products processed from the crude oil provided that so to do was reasonable. Damages, if they were payable at all, were admitted to be $95,000. This was a formal admission (Exhibit N) which relieved Caltex of proof of any matter going only to damages. Therefore no question arose, or now arises, whether the acts or omissions of the defendants had the physical effect of immobilizing all the crude oil and its refined products for which alternative means of delivery were arranged. That is to say, no question arose, or now arises, whether all the crude oil, for the processed products of which alternative means of delivery were arranged, was at the time of the incident already in physical propinquity to the place of the incident. Nor does any question arise whether the incurring of the cost of arranging alternative means of obtaining delivery of the processed products was reasonable. The duty of care having been found, and the injurious physical effect being of a foreseeable kind, the defendants were respectively liable to pay the agreed damages if a breach of the duty of care was proved against either of them respectively. For the dredge it has not been argued on this appeal that the finding of negligence was wrong. However, it has been so argued on behalf of Decca. I am of the opinion that the trial judge's conclusion on this point has not been shown to have been wrong. I agree with the reasons expressed by Stephen J. in this regard. (at p605)

32. In my opinion the appeal of A.O.R. should be dismissed with costs. The appeals of Caltex should be allowed with costs, the

costs in favour of Caltex against all defendants in the sum of $95,000. (at p605)

MURPHY J. There is no satisfactory general principle governing recovery of economic loss caused by negligence. The difficulties in this branch of the law arise mainly from the doctrine of foreseeability but also from unresolved questions of public policy. (at p606)

2. The general theory of recoverability stated in Donoghue v. Stevenson (1932) AC 562 was useful in opening up avenues of recovery broadly in line with notions of social justice current then, but inevitably it needed refinement or replacement by theories able to be applied more precisely to economic and social requirements. (at p606)

3. The tendency now is to pay lip service to The Wagon Mound (No. 1) (1961) AC 388 while using a variety of techniques to avoid its application (see Professor J. G. Fleming, "The Passing of Polemis" Canadian Bar Review, vol. 39 (1961), p. 489 and Professor J. C. Smith, "Requiem for Polemis" University of British Columbia Law Review, vol. 2 (1964-66), p. 160). In some cases, the foreseeability test is only sustainable by altering the meaning of foreseeable to include the unforeseeable. (at p606)

4. The theoretical bases for liability and remoteness of damage are being increasingly questioned (see C. Harvey, "Economic Losses and Negligence: The Search for a Just Solution", Canadian Bar Review, vol. 50 (1972), p. 580 and the uncertainty surrounding recovery for physical damage when questions of foreseeability arise are magnified in the area of economic loss. (at p606)

5. Social responsibility carries with it a duty of care and liability for damage caused by breach of this duty. Persons causing damage by breach of duty should be liable for all the loss unless there are acceptable reasons of public policy for limiting recovery. One policy reason advanced against allowing recovery of economic loss is the avoidance of multiple actions but procedures can be easily evolved for representative actions (as under Compensation to Relatives Acts and joinder of actions. Another is that payment of huge damages is often beyond the wrongdoer's capacity. If a negligent act results in great damage, there is no reason why the loss should be left with the victim because an individual or corporate wrongdoer is unable to pay fully for it. Where the state (or one of its agencies) is liable, social considerations may require limitation of liability. The state can protect itself by legislation and often has. (at p606)

6. I accept the findings of fact by the trial judge. (at p606)

7. It is obvious that those who managed the dredge were under a duty to take care not to collide with the pipeline, and breach of this duty caused the damage. I also agree with Stephen J. that Decca was negligent. The plaintiff's loss was economic. I do not accept the contention that economic loss not connected with physical damage to the plaintiff's property is not recoverable. I find no reason for limiting recovery. (at p606)

8. The appeal by Caltex in both cases should be allowed. I also agree with Stephen J. that the appeal concerning the entry of judgment against Captain Henneman should be dismissed. (at p607)

ORDER

CALTEX OIL (AUSTRALIA) PTY. LTD. v. THE DREDGE "WILLIAMSTAD"

Appeal allowed with costs except as against Captain H. J. Henneman.

Paragraphs 1 and 2 of order of Supreme Court set aside. In lieu thereof order that judgment be entered for the plaintiff against Ballast Trailing N. V.., Ballast Australia N. V. and Hollandsche Aanneming Maatschappij N. V. in the sum of $98,000 with costs.

Cross-appeal by Captain H. J. Henneman allowed with costs. In lieu of order made by the Supreme Court dismissing Captain Henneman's motion to be dismissed as a party to the proceedings order that Captain Henneman be dismissed as a party to the said proceedings.

CALTEX OIL (AUSTRALIA) PTY. LTD. v. DECCA SURVEY AUSTRALIA LTD.

Appeal allowed with costs.

Paragraphs 1 and 2 of order of Supreme Court set aside. In lieu thereof order that judgment be entered for the plaintiff in the sum of $95,000 with costs.

AUSTRALIAN OIL REFINING PTY. LTD. v. THE DREDGE "WILLEMSTAD"

Appeal dismissed with costs.

Cross-appeal by Captain H. J. Henneman allowed with costs. In lieu of order made by the Supreme Court dismissing Captain Henneman's motion to be dismissed as a party to the proceedings order that Captain Henneman be dismissed as a party to the said proceedings.