Caltex Oil V Dredge (1976) - Landmark Case On Pure Economic Loss In Australia

Write a report outlining the following:

a. Case introduction.

b. The facts of the case.

c. The issues raised by both plaintiff and defendant.

d. The arguments presented by both parties.

e. The judgment of the court.

f. Critical analysis of why the court decided in favour of or against the party you chose (i.e. plaintiff or defendant). Some points to consider for your analysis:

i. If your chosen party won the case. why was its case stronger or more compelling than the other party's case? Why did the court agree with its arguments?

ii. If your chosen party lost the case, why was its case weaker or less compelling that the other party's case'? Why did the court disagree with its arguments? 5. Group report must be submitted via SafeAssign on Blackboard. 

The Background of the Case

The leading case of Caltex Oil v Dredge (1976) is a landmark case wherein the concept of pure economic loss is dealt with. This case is the first case of Australia wherein it was held that there are situation wherein exception to the basic rule that recovery of pure economic loss is not allowed is now permitted. The exception is permitted in situation when the defendant can reasonably foresee that because of his actions there are chances that the plaintiff will suffer some kind of financial loss. But, the plaintiff must be specific plaintiff and not a general class of persons.

In the leading case it was held that the defendant is imposed a duty of care to provide safeguard to the plaintiff so that no pure economic loss is caused to him. The plaintiff is a specific individual and is in proximate relationship with the defendant. Also, the loss that is caused to the plaintiff is within the reasonable contemplation of the plaintiff.

However, it is now important to understand the basic facts of the case, the main issues that are arise, the basic argument that are raised by the parties prior critically evaluating the judgment that is laid down by the court.

There are two parties that were involved in the case:

Plaintiff - Caltex Oil (Australia) Pty Ltd

Defendant –Dredge Willemstad and Decca Survey Australia Ltd

There is a processing agreement that is established amid Caltex Oil (Australia) Pty Ltd and Australian Oil Refining Pty Ltd. As per the agreement Australian Oil Refining Pty Ltd will receive crude oil by Caltex Oil (Australia) Pty Ltd on its refinery on the southern shore of Botany Bay where in such crude oil will be refined by Australian Oil Refining Pty Ltd. After the crude oil is refined by Australian Oil Refining Pty Ltd, then, the same is retoured back to Caltex Oil (Australia) Pty Ltd oil terminal on the northern shore of Botany Bay. The transfer is done with the help of a pipeline owned by Australian Oil Refining Pty Ltd that is running under bay.

The terms of the agreement submitted that whatever risk that is associated while the oil is running through the pipeline lies with Australian Oil Refining Pty Ltd, but, the ownership of the oil will remain with Caltex Oil (Australia) Pty Ltd regardless of its form.

Now, the main event took place on 26^th October 1971.

The Parties Involved

On the said day, in order to search a water channel in the bay, Dredge Willemstad damages the pipeline that is owned by Australian Oil Refining Pty Ltd. When the damage occurred at that time the operators who were searching the water are aware that there is a pipe line under the bay. The main reason because of which the pipeline was destroyed was that the Decca Survey Australia Ltd has provided a chart for track plotter has showed the area of dredging inappropriately. Also, the operators were not able to analyze the problem in the track plotter. They also not used conventional means to check their own position.

Because loss is sustained by Australian Oil Refining Pty Ltd because of the damage of the pipeline, an action is brought in by Australian Oil Refining Pty Ltd against Decca Survey Australia Ltd and Dredge Willemstad.

The main claim was the damage that is sustained by Australian Oil Refining Pty Ltd and the damage of the pipeline and the product.

Also,

A case is also brought in by Caltex Oil (Australia) Pty Ltd against the Decca Survey Australia Ltd and Dredge Willemstad under the law of negligence. The claim is for the recovery of compensation and the costs that is sustained by the  Caltex Oil (Australia) Pty Ltd which is caused  because if arranging some other transport for the delivery of the product till the time the pipeline is repaired. The claim of Caltex Oil (Australia) Pty Ltd was rejected by The Supreme Court of New South Wales on the basis that the property that is damaged by Dredge Willemstad is not the property of Clatex, rather, the same is owned by Australian Oil Refining Pty Ltd. thus the loss that is caused to Caltex Oil (Australia) Pty Ltd is a pure economic loss and thus not maintainable.

Aggrieved by the decision of the Supreme Court of New South Wales, Caltex Oil (Australia) Pty Ltd filed a case in high Court of Australia. (Wiley, 2017)

On these facts there were several issues that are raised by the parties.

The main issues that is raised as per the given fact is whether the loss that is suffered by  Caltex Oil (Australia) Pty Ltd can be recoverable under the law of negligence considering the fact that the loss is the pure economic loss.

The loss was considered as pure economic loss mainly because the loss is caused to Caltex Oil (Australia) Pty Ltd without incurring any kind of physical injury on the property owned by Caltex Oil (Australia) Pty Ltd. in order to gain a claim under the law of negligence it is necessary that loss must be a consequential economic loss. (Ripstein, 2016)

The Main Issue and Arguments Raised

The main argument that is raised by the plaintiff, Caltex Oil (Australia) Pty Ltd, in order to prove its case are:

i. That all the elements that are required to prove negligence on the part of the defendant are present that is there is duty of acre, breach of duty of care and damages suffered by the plaintiff because of the breach of duty on the part of the defendant.

ii. That there is proximity amid the plaintiff and the defendant and thus the defendant own a duty of care against the plaintiff to act in such a manner so that no loss is caused to the plaintiff because of the negligent actions of the defendant;

iii. That the defendant is aware that the area where the work of dredging is carried out is the area where the pipeline of Australian Oil Refining Pty Ltd is laid down and which is in the use of the plaintiff;

iv. That the defendant is aware that the plaintiff is using the pipeline of Australian Oil Refining Pty Ltd for the supply of the final product and thus they must take adequate care to carry out the work in a diligent manner so tat no damage is caused to the pipeline.

After analyzing the facts of the case, the issue that is raised and the argument that is raised by the parties, the High Court of Australia had unanimously decided that the appeal that is raised by Caltex Oil (Australia) Pty Ltd against the decision of the Supreme Court of New South Wales is a valid appeal.

That the appeal of Caltex Oil (Australia) Pty Ltd must be allowed and the economic loss that is suffered must be recoverable.

It was held by the majority of the court that the basic rule that pure economic loss is not allowed must be out to exception and must be allowed in situation were the defendant is at such a position wherein he can reasonably foresee that a specify plaintiff may suffer damage because of their negligence. But, this rule is not applicable to general class of plaintiff. (Manderson, 2006)

It is now important to critically evaluated the rezoning that is provided by the High Court while deciding the case in favor of the plaintiff.

The main reasons that the High Court of Australia has decided the case I favor of Caltex Oil (Australia) Pty Ltd are critically analyzed herein under below: (Bingham, 2011)

The Decision of the High Court of Australia

i. It was submitted by Gibbs J that no pure economic loss is awarded when there is just mere reasonably foreseeability on the part of the defendant. The Judge is looking more than that and submitted that the pure economic loss is recoverable in the cases of negligence when the plaintiff is not a class of person but must be some specific person who is likely to suffer harm because of the negligent act of the defendant (Main v. Leask 1910); Cargo Owners (1947)

It is cortically analysed that the present case falls within the requirements of Gibbs J. It is submitted that the facts of the case falls in favour of the Caltex Oil (Australia) Pty Ltd to make him justify to seek claim from the defendants. It is submitted that the defendant, Dredge Willemstad, has a previous knowledge that the pipeline is of Australian Oil Refining Pty Ltd and the same is been used for the delivery of the final product to Caltex Oil (Australia) Pty Ltd and if any damage is caused to the pipeline then it is the plaintiff who will certainly suffer the loss.

The court disregarded the argument of the defendant that the plaintiff could not had thought that the plaintiff would be the party who will suffer loss if the pipeline was broken. The argument was rejected mainly because of the pre existing knowledge on the part of the defendant that loss is inevitable to occur on the part of the plaintiff because of the broken pipeline (Mutual Life &Citizens' Assurance Co. Ltd. v. Evatt (1970).

ii. The court held that both the defendants own a duty of care against the plaintiff and thus they have to take reasonable care so that no loss is caused to the plaintiff. However, no reasonable attempt is made by the defendants to avoid the loss, rather, the loss is resonate foreseeable when the acts were undertaken by the defendants (Hedley Byrne &Co. Ltd. v. Heller &Partners Ltd. (1964) ;

iii. The court upheld the argument of the plaintiff and submitted that the defendant is aware the location of the pipeline when the act of dredging was conducted by the defendant. Also, the defendant is in violation of duty of care against the Australian Oil Refining Pty Ltd. These two facts has raised a duty of care element upon the defendant against the plaintiff (Weller &Co. v. Foot and Mouth Disease Research Institute (1966) .

iv. Stephen J also submitted that the plaintiff is in the use of the pipeline and this fact is in the knowledge of the defendants. Also, the loss that is caused to the plaintiff because of the acts of the defendant is an immediate and direct loss that is caused because of the negligence of the defendant. Because of these two reasons, the court upheld the argument of the plaintiff that the defendant and the plaintiff are in the relationship of proximity;

v. Justice Mason submitted that there is no requirement of the element of proximity, what is required is that the defendant is aware that his negligent action will reasonably bring loss to a specify individual and not to a class of individual and this reasonable forseeability imposes a duty of care upon the defendant to not to indulge in any act that will cause harm to such specific individual.

Thus, these are the various reasons that are valid down by the judges of the High Court which deviates from the basic rile that no pure economic loss can be claimed by the plaintiff in the cases of negligence. In order to bring a claim of pure economic loss in the cases of negligence it is necessary to prove that the duty of care is breached by the defendant and loss is caused to a specific plaintiff and not to a class of plaintiff. It is however necessary that the loss that is caused to the plaintiff is because of the breach of duty on the part of the defendant and there is proximity amid the parties.

Reference List

Books/Articles/Journals

Bingham T (2011) Lives of the Law: Selected Essays and Speeches: 2000-2010, OUP Oxford.

Manderson D (2006). Proximity, Levinas, and the Soul of Law. McGill-Queen's Press

Ripstein, A (2016) Private Wrong. Harvard University Press. 

Wiley, J (2017). Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 11 ALR 227. Chapter 4

Case laws

Caltex Oil v Dredge (1976);

Cargo Owners (1947) ;

Hedley Byrne &Co. Ltd. v. Heller &Partners Ltd. (1964) 

Main v. Leask 1910;

Mutual Life &Citizens' Assurance Co. Ltd. v. Evatt (1970)

Weller &Co. v. Foot and Mouth Disease Research Institute (1966) ;