Caltex Oil (Australia) Pty Ltd V The Dredge Willemstad 1976 - Case Summary

Research on an Australian case (Caltex Oil v Dredge 1976)

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The case of Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) HCA 65, or simply Caltex v Dredge, is one of such cases where the defendant was held liable to have a duty of care, regarding not causing an economic loss to the plaintiff, especially when the property is not owned by the plaintiff (Latimer, 2012). Though, the same is provided only in such cases where the plaintiff had been directly affected as a result of the carelessness of the defendant which led to the property being damaged. This was a significant case in the history of Australia, as this case was the first in the nation, where the exception was brought to the recovery of pure economic losses (Sappideen, 2009). As per this case, in cases where the loss was reasonable foreseeable due to the given circumstances, and still owing to a contravention of obligation of care, a financial loss is incurred by plaintiff, then the defendant has to pay the damages for their negligent behavior, despite the results being pure economic loss (Robertson and Tilbury, 2016).

The following parts present the facts of this case, the arguments made by the plaintiff and the judgment of the court, to provide a thorough summary of the entire case.

Caltex Oil (Australia) Pty Ltd, i.e., Caltex, and Australian Oil Refining Pty Ltd, i.e.., AOR were two parties, amongst which a processing agreement had been drawn, which dictated the delivery of refined crude oil of AOR to the refinery of the company, which was located on the Botany Bay’s southern shore and this delivery was to be carried out by Caltex. And once this process was done, the refined product was sent back to the oil terminal of the Caltex which was located on the Botany Bay’s northern shore through the use of a pipeline, which was located under the bay. The owner of this pipeline was AOR. Caltex had the ownership of the different form of oil that came from the pipeline as per the terms of the agreement and it was the responsibility of the AOR to ensure that no loss or damage was caused to the oil passing through these pipelines, and was responsible for the associated risks of such loss or damage (John Wiley, 2017).

Dredge Willemstad, i.e., Dredge, the defendant in this case, was dredging a water channel in the bay and on October 26^th, 1971, this pipeline was damaged by Dredge. While the dredge was being constructed, the operators had the knowledge of the presence of the pipeline. Due to the track plotter chart which was provided by the company Decca Survey Australia Ltd, or simply Decca, which showed the dredging area in an inaccurate manner, along with the failure on part of the operators of the dredge in identifying the fault in this track plotter chart and failure in checking the position through the use of conventional means was the reason for the damage that was caused to the pipeline (John Wiley, 2017).

Plaintiff’s Arguments

AOR initiated a case against Decca and the operators of the dredge, and applied for recovery of damages, which included the compensation for the damage which was cause to the products contained in the pipeline and the pipeline itself. Decca and the operators of the dredge were held liable by the Supreme Court of New South Wales and AOR was awarded damages amounting to $125,000 (John Wiley, 2017).

Claims were also initiated by Caltex against Decca and the operators of the dredge for recovery off compensation for the costs, which had to be incurred by Caltex for arranging substitute manner of petroleum products’ transportation till the time the pipeline was repaired, which was all caused by the negligence of Decca and the operators. The claims of Caltex were rejected by the Supreme Court of New South Wales on the basis that Caltex was not the owner of the property, which was damaged by the defendants and that the harm which Caltex had incurred was purely an economic loss. However, this decision was appealed against by Caltex in the High Court (John Wiley, 2017).

The plaintiff would like to state that the Supreme Court of New South Wales had erred in their judgment by not awarding the plaintiff, the damages, as were presented to AOL, merely because of the issue of ownership of the area where the incident took place. Hence, the plaintiff pleads the High Court, to set aside the earlier decision and deliver justice in this appeal.

The plaintiff would like to highlight the very basics of negligence. In order to show negligence of an individual, it has to be shown that there was a duty of care owed by one individual towards the other, which was breached and which resulted in loss or harm to the other party (Lambiris and Griffin, 2016). The plaintiff would like to emphasize upon the key term here, which is loss. Due to the negligence in the work being carried on by the defendant, the plaintiff had to suffer economic loss. Even though it is in the nature of economic loss, and not a personal injury or harm, the same is still a loss. To not consider an economic loss which has been caused is unfair for the plaintiff, as the same is still a loss, which qualifies the definition of negligence under the common law (Stewart, 2013).

Moreover, by wrongly drawing the plans, Decca was clearly negligent in discharging their duty of care. As a standard professional, they were required to undertake reasonable care when drawing the plans. The operators of the dredge also failed in their duty of care as they failed to check the accuracy of the plan drawn by Decca by standard conventional means. The duty of care was already present, due to the type of work being undertaken and the knowledge of pipeline. This knowledge would have made a prudent individual apply care while undertaking their work.

The next issue which the plaintiff would request the court to consider is the presence of the rest of the three elements of negligence, i.e., foreseeability, direct causation and remoteness (Greene, 2013). The dredgers knew that there was a pipeline in the area where they were dredging. Yet, they failed to undertake the proper care, which a prudent person would have undertaken. This is the very basic requirement of negligence, i.e., to take reasonable care, as a standard prudent individual would do. Moreover, there was a clear foreseeability in the damage being caused to the plaintiff, as the defendants knew that a pipeline was present in the area (Bingham, 2011). The damages cannot, by any means, be held as being too remote, even when they are economic in nature. Due to the negligence of the defendants, the plaintiff’s work suffered and had to bear additional costs for using the alternative means of transportation. This proves that the defendant had been completely negligent in undertaking their work and hence, the plaintiff has to be compensated adequately (Burrows, 2013).

The point where the previous court had erred was the due to the plaintiff not being the owner of the property; the plaintiff is not qualified to claim the damages. For these purposes, the plaintiff would like to put forward the ruling given by Lord Ardwall in Main v. Leask 1910 SC 772. In this particular instance, as a result of the fault of another vessel, the fishing boat had sunk. This fishing boat was working as per an agreement where the profits which were earned from this boat, had to be divided amid the members of the crew and the owners of the boat. The claim made by the crew for compensation of profits, as a result of the loss occurred by them, due to the sinking of ship, was upheld by the Court of Session (Think, 2017). If the scenario is applied to the present case, it is clear that an agreement was present between AOR and Caltex and that the pipeline was damaged due to the loss of others. Here also, the issue revolved around economic loss. Even though the plaintiff is not the owner of the area where dredging was going on, he suffered losses. In the quoted case too, the relief was granted to the crew, and they were not the owner of the ship. On these bases, the plaintiff deserves relief, even when the plaintiff is not the owner. So, on the basis of this case, the plaintiff should be awarded the damages cited for (Australasian Legal Information Institute, 2017).

The plaintiff would also like to put forward the ruling given by the Ontario Court of Appeal in Seaway Hotels Ltd. v. Cragg (Canada) Ltd. (1959) 21 DLR (2d) 264. In this particular matter, a feeder line was carrying the electricity power to the hotel, and the same was broken negligently. As a result of this, the appliances of the hotel could not work and the food was spoilt and even the bars and dining room had to be closed before the normal time. When a case was brought before the court, the hotelkeepers were successfully able to recover the loss of food, along with the economic loss which had to be incurred by the hotelkeepers due to the closure of the bar and the dining room. The rationale behind giving such verdict was the foreseeability of loss. And so, the economic loss was treated in the exact same manner as a damage or loss of a physical or material thing (Jade, 2017).

The plaintiff requests the court to consider the ruling given in this case and apply the same to the present case. This is because even in this case, there was a clear foreseeability of the loss, due to the awareness on part of the defendants regarding the presence of the pipeline, in the area where they were undertaking the dredging (Denton, 2017).

The plaintiff urges the court to consider the statement made in Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) (1947) AC 265. As per this statement the sphere of duty of care under the tort of negligence depends upon the assessment of the court in the society’s demand for protection from the others’ carelessness. And so, the size and width of the possible range of the claims, which acted as a deterrent to the economic protection, had to be considered. Hence, it is requested to the court to consider the economic loss which the plaintiff had to face in the present instance, in the given circumstances, as the plaintiff requests to be granted damages for the carelessness of the defendant which failed to protect the plaintiff economically (Jade, 2017).

A unanimous decision was given by the judges and the claims of the plaintiff were upheld. Further, the plaintiff was awarded damages for the pure economic loss sustained arising from the negligence of the defendant. The rationale behind awarding this judgment was the reasonable foreseeability of the loss, which was clearly present in this case (Kidner, 2012). They held that when the defendant had the knowledge that a loss, whether purely economic or physical, can take place due to the work being undertaken by them, care had to be taken to not result in such loss. And if the same takes place, the individual has to be held liable for negligence (Ward, 2010). This allowed a duty of care to be owed on part of the defendants towards Caltex and that the defendants had to reasonably apprehend the probability of plaintiff’s loss in case of breakage of pipes. Holding the breach of duty of care of the defendant, owing to their knowledge, a decision in favor of the plaintiff was given by the court (Coveney, 2007).

Conclusion

The key issue which was decided by the High Court in this matter was whether the plaintiff was owed a duty of care on part of the defendant for avoiding such suffering which could translate into a pure economic loss in such a case where the plaintiff was not the owner of the pipeline, but merely a third party. Ultimately, the court ruled in favor of the plaintiff and upheld the duty of care on part of the defendant.

References

Australasian Legal Information Institute. (2017) Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529 (9 December 1976). [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/1976/65.html?stem=0&synonyms=0&query=Caltex%20Oil [Accessed on: 24/05/17]

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

Burrows, A. (2013) English Private Law. 3^rd ed. Oxford: Oxford University Press.

Coveney, G. (2007) Who Said You Can’t Have It All? The Perils of Ignoring Risk Allocation in Cases of Relational Economic Loss. [Online] Bond University. Available from: https://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1331&context=blr [Accessed on: 24/05/17]

Denton, D.H. (2017) Economic loss – Principles In Brief. [Online] David H Denton. Available from: https://www.davidhdenton.com/uploads/2/3/1/2/23125402/economic_loss_-_principles_in_brief.pdf [Accessed on: 24/05/17]

Greene, B. (2013) Course Notes: Tort Law. Oxon: Routledge.

Jade. (2017) Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad". [Online] Jade. Available from: https://jade.io/article/66636 [Accessed on: 24/05/17]

John Wiley. (2017) Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad. [Online] John Wiley. Available from: https://www.johnwiley.com.au/highered/carlon_accounting4e/content/case_summaries/ch04/CaltexOil_v_TheDredgeWillemstad.doc [Accessed on: 24/05/17]

Kidner, R. (2012) Casebook on Torts. 12^th ed. Oxford: Oxford University Press.

Lambiris, M., and Griffin, L. (2016) First Principles of Business Law 2016. Sydney: CCH

Latimer, P. (2012) Australian Business Law 2012. 31^st ed. Sydney, NSW: CCH Australia Limited.

Robertson, ‎A., and Tilbury, M. (2016) Divergences in Private Law. Oxford: Hart Publishing.

Sappideen, C., at al. (2009) Torts, Commentary and Materials. 10^th ed. Pyrmont: Lawbook Co, pp. 309-311.

Stewart, M.A. (2013) Law, Morality and Rights. New York: Springer.

Think. (2017) Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529 (9 December 1976). [Online] Think. Available from: https://think.io/pub/Law%20Notes/Torts/CALTEX%20OIL.txt [Accessed on: 24/05/17]

Ward, P. (2010) Tort Law in Ireland. The Netherlands: Kluwer Law International.