Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound No. 1)

Facts

• The defendants' vessel negligently discharged furnace oil into Sydney Harbour. The oil spread to the plaintiff's wharf where welding was underway. Sparks ignited the oil, causing a devastating fire that destroyed the wharf. The defendants argued fire damage from floating oil was not reasonably foreseeable, given furnace oil's very high flash point.

Issue

1. What is the proper test for remoteness of damage in negligence: directness (Re Polemis) or reasonable foreseeability?

Held

• The Privy Council overruled Re Polemis (1921) and held that the test for remoteness is reasonable foreseeability. A defendant is liable only for damage of a kind that a reasonable person would have foreseen as a consequence of their negligence. Since fire damage from floating oil was not reasonably foreseeable at the time, the defendants were not liable for the fire.

Ratio Decidendi

A defendant is liable only for damage of a type that was reasonably foreseeable at the time of the negligent act. The direct consequence test from Re Polemis is no longer good law. Foreseeability of the kind of damage, not merely the directness of the causal chain, is the governing criterion for remoteness.