Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) (No 1) [1961] AC 388

Facts

  • The owners of the ship Wagon Mound, as defendants, negligently discharged furnace oil into Sydney Harbour.
  • The oil spread and came into contact with a wharf owned by the plaintiffs, where welding operations were occurring.
  • A fire subsequently broke out on the wharf, causing significant damage to the wharf and nearby vessels.
  • The ignition of the oil and resulting fire were not considered a foreseeable consequence of the oil spill.
  • The plaintiffs sought to recover damages for fire damage caused by the oil igniting.

Issues

  1. Whether the defendants could be held liable in negligence for damage arising from a consequence (fire) not reasonably foreseeable, but directly resulting from their negligent act (oil discharge).
  2. Whether the direct consequence rule from Re Polemis should continue to determine remoteness of damage in tort law, or be replaced by a test of reasonable foreseeability.
  3. Whether limiting liability to reasonably foreseeable consequences provides a fairer and more predictable approach to remoteness in negligence.

Decision

  • The House of Lords rejected the direct consequence test from Re Polemis and adopted reasonable foreseeability as the standard for remoteness of damage.
  • The court held that the risk of fire from the oil spill was not reasonably foreseeable by a reasonable person in the defendants' position.
  • The defendants were found not liable for the fire damage, as this harm was not within the scope of foreseeable risk created by the negligent act.
  • The judgment redefined the boundaries of liability in negligence, aligning them with what could reasonably be anticipated.

Legal Principles

  • Liability in negligence is limited to loss or damage that is a reasonably foreseeable consequence of the defendant’s breach of duty.
  • The prior rule from Re Polemis, focusing on direct causation regardless of foreseeability, was expressly rejected.
  • The test of reasonable foreseeability provides a more proportionate and fair basis for assessing liability than direct consequence.
  • The Wagon Mound rule promotes clarity and predictability by restricting liability to foreseeable forms of harm, even if the precise manner of occurrence is not anticipated.
  • Judicial emphasis shifted to balancing claimants’ and defendants’ interests, ensuring liability is justifiably imposed.

Conclusion

Wagon Mound (No 1) [1961] AC 388 redefined the test for remoteness of damage in negligence, holding that only harm reasonably foreseeable to a defendant at the time of breach is recoverable. This case overruled the direct consequence test and established foreseeability as the key criterion for liability in tort, shaping the law in subsequent negligence cases.

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