Revisiting the Basic Rule: Recoverability of Pure Economic Loss in Negligence

The case of Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad involves a dispute over the damage caused to a pipeline owned by Australian Oil Refining Pty Ltd. The High Court of Australia held that the loss suffered by Caltex Oil (Australia) Pty Ltd is recoverable under the law of negligence, despite being a pure economic loss. The court found that the defendant was aware of the existence and use of the pipeline by Caltex Oil (Australia) Pty Ltd and therefore had a duty of care to avoid causing damage. The court also held that there was a reasonable foreseeability of harm to the plaintiff, which justified the recovery of the loss.

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Cover page
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Contents
Caltex Oil v Dredge (1976).........................................................................................................................3
Case introduction.....................................................................................................................................3
Facts of the case......................................................................................................................................3
Issues raised by both the parties..............................................................................................................5
Argument raised by both the parties........................................................................................................5
Judgment of the court..............................................................................................................................5
Critical analysis of the court decision......................................................................................................6
Reference List.............................................................................................................................................9

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Caltex Oil v Dredge (1976)
Case introduction
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.
Facts of the case
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.

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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 26th October 1971.
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)

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On these facts there were several issues that are raised by the parties.
Issues raised by both 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)
Argument raised by both the parties
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.
Judgment of the court
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

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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.
Critical analysis of the court decision
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)
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

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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

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to the plaintiff is because of the breach of duty on the part of the defendant and there is proximity
amid the parties.

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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) ;