Caltex Oil Case Study Analysis

This assignment requires students to critically analyze the landmark case of *Caltex Oil (Australia) Pty Ltd v Dredge Willemstad*. The focus is on understanding the legal principles surrounding economic loss and their application in contract disputes. Students must examine the facts, arguments presented by both parties, the High Court's decision, and its impact on subsequent Australian tort law.

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Introduction
Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) HCA 65 is deemed as amongst the
leading cases when it comes to defending party being made liable for breaching the duty of
care, where a physical injury was not caused, instead, the plaintiff suffered economic loss and
the property for which this matter was brought forward, was not even owed by the plaintiff
(Latimer, 2012). However, such damages are awarded only where the plaintiffs are affected in a
direct manner due to the defendant’s carelessness particularly where the property of the
plaintiff is damaged. This was deemed as a major case in Australian history as due to this case,
the exception regarding the recovery of pure economic loss was presented (Sappideen, 2009).
Where the losses are foreseeable in a reasonable manner, as a result of the circumstances
surrounding the case, and the duty of care is violated, resulting in financial loss to plaintiff, the
defendant would be required to compensate the plaintiff for the pure economic loss suffered
by them due to their negligent behaviour (Robertson and Tilbury, 2016). In the following
segments, this case has been analysed, where the issues and arguments raised by the parties,
the court’s decision and the background of the case has been elucidated.
Factual Background
Caltex Oil (Australia) Pty Ltd, herein referred to as Caltex, along with Australian Oil Refining Pty
Ltd, herein referred to as AOR were the two parties who had a processing agreement drawn
between them as per which, the refined crude oil of AOR was to be delivered to the refinery of

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AOR and this refiner was situated on the southern shore of Botany Bay. Further, Caltex was
supposed to carry out this delivery. Upon the completion of this process, the refined products
had to be sent back to Caltex’s oil terminal, and this was situated at the northern shore of the
Botany Bay by using the pipeline which was owned by AOR and had been located under the
Botany Bay. The oil which came from the pipeline had ownership of Caltex due to the terms
covered in the undertaken agreement and it was deemed as the obligation of AOR for making
certain that no damage or loss resulted from the oil which was passing from the pipelines;
further, it was also obligated towards the loss or damages as a result of associated risks (John
Wiley, 2017).
Dredge Willemstad, herein referred to as Dredge was the defendant in this matter. While he
was dredging a water channel in the Botany Bay on 26th Oct, 1971, the pipeline was
damaged.the operators had clear knowledge when they were dredging the water channel that
the pipeline was present at that spot. The pipeline was damaged due to the inadequate track
plotter chart which was prepared by Decca Survey Australia Ltd., herein referred to as Decca.
The inaccurate portrayal of dredging area in addition to the shortfall of the operators of dredge
in properly identifying the fault in track plotter chart along with their shortfall in checking the
position by using conventional means was deemed as the reasons for the pipeline being
damaged (John, Wiley, 2017).
A case against dredge operators and Decca was initiated by AOR and they sought damages in
form of compensation for the products and the pipeline which were damaged. The dredge
operators and Decca were made responsible by NSW Supreme Court and damages of $125,000

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were awarded to AOR. Caltex also initiated case against dredge operators and Decca for
recovering the compensation for costs which Caltex had to incur for arranging the alternative
way of transportation of petroleum products till such time of pipeline being repaired, which
was damaged due to their negligence. However, the NSW Supreme Court rejected these claims
owing to the reason that Caltex did not own the property and due to the loss being purely
economic in nature. And so, a claim in the High Court was made by Caltex (John Wiley, 2017).
Issues and arguments raised by parties
The defendant relied upon the verdict given by the NSW Supreme Court and stated that they
did not owe a duty for the economic loss which was caused in this case. They also stated that
the appeal of the plaintiff should be quashed.
The plaintiff, on the other hand, stated that the NSW Supreme Court had erred in the
judgement just because of the absence of ownership, and appealed for the decision to be
overturned. In this regard, they highlighted that there had been a duty owed towards the
plaintiff which was contravened and which caused loss to the plaintiff (Lambiris and Griffin,
2016). The emphasis was laid down on the term loss. The plaintiff suffered an economic loss
due to the negligence of the defendant. An economic loss was also a loss, even when it is
differentiated from personal injury. And by not considering economic loss, it would be unfair to
the plaintiff (Stewart, 2013).
The standard of professional care which was required on part of Decca while they were drawing
up their plans was not upheld. The duty of care was failed as they did not check if this plan was

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accurate as per the standard conventional means. The duty of care cannot be denied and the
knowledge of the person having such profession cannot be denied.
There was presence of the three major requirements of negligence in this case, i.e. remoteness
of losses, reasonable foreseeability and direct causation (Greene, 2013). There was a clear
foreseeability in the losses as a prudent person would have deployed care when they knew that
the area in which they were dredging had a pipeline situated below it (Bingham, 2011). The
dredges did not take the reasonable care which resulted in a direct loss to the plaintiff. The
damages were substantial in nature and could not be deemed as remote just because of their
economic nature. The work of plaintiff was suffered gravely and they had to incur additional
costs, for transportation, which would not be a requirement, had the duty of care been fulfilled.
And so, the plaintiff requested for being compensated (Burrows, 2013).
With regards to the point raised in the case from which this appeal was derived, particularly for
damages not being awarded as the plaintiff was not the owner of the property, the case of
Main v. Leask 1910 SC 772 had to be referred. In this case, the fishing boat sunk due to another
vessel’s shortfall. This boat was working based on agreement in which the profits earned from
the boat were required to be divided between the owner of the boat and the members of crew.
Crew made a claim for compensation of profits due to the loss which they suffered from the
sinking of ship. The Court of Session upheld this particular claim (Think, 2017).
Applying the ruling given by Lord Ardwall in this case, to the case in discussion, the plaintiff
argued that the damage was suffered due to fault of others and this permitted them to make a
case of economic loss against the defendant. The crew was granted relied when they were not

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the boat owners and in this regard, the plaintiff was also to be paid the damages as per the
arguments put forward by the plaintiff (Austlii, 2017).
The Seaway Hotels Ltd. v. Cragg (Canada) Ltd. (1959) 21 DLR (2d) 264, which is a case of Ontario
Court of Appeal was also highlighted in this case. This case revolved around the feeder line
which carried electricity to hotel and broke down negligently. Due to this, the applicances of
the hotel did not work in a proper manner and the food spoiled. Also, the dining room and the
bar had to be shut down before the normal closing time. The hotelkeepers successfully sued for
the loss of food and the economic loss caused due to closure of dining room and bar. The key
point here was the loss being foreseeable and this led to the economic loss being considered as
a physical loss (Jade, 2017). And so, the plaintiff requested the court that on the basis of
foreseeability, owing to their awareness about the pipeline, the defendant should be made
liable (Denton, 2017).
Decision of Case
In order to give their decision, the court considered the points raised by the plaintiff and the
defendant. They also considered certain other points like the case of Morrison Steamship Co.
Ltd. v. Greystoke Castle (Cargo Owners) (1947) AC 265. The statement given in this case
provided the sphere of obligation of care based on negligence, to be dependent on the court’s
assessment in the demand of society for protecting from the carelessness of others. So, for
economic protection, there was a need to consider the width and size of the potential claims.

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This case allows for the claims of the plaintiff to be upheld and to adequately protect the
plaintiff for the economic losses (Jade, 2017).
This case saw a unanimous decision being given by the judges and the plaintiff’s claims being
upheld by the High Court. The court accepted the points which were raised by the plaintiff,
particularly based on the quoted case laws. As a result of this, the plaintiff was awarded
damages for the pure economic loss which the plaintiff had to bear due to the defendant being
negligent and failing in fulfilling their respective duties. The raison d'être which led to the
verdict being given was majorly due to the reasonable foreseeability of the loss, which was
aptly highlighted by the plaintiff, to be present in this particular matter (Kidner, 2012).
It was held by the court that the defendant held clear knowledge that there was a possibility of
a loss resulting from their activity, which could be physical or economic, due to their work being
undertaken in a careless manner and which was opposed to the required standard of care. Due
to this reasonable foreseeability of the losses, there was a need for the defendant to be held
responsible for their actions (Ward, 2010). All this led to the defendants owing a duty of care to
Caltex and failing in apprehending the possibility of the loss to plaintiff in a reasonable manner
owing to the breakage or damage to the pipes. And as a result of the duty of care being
contravened by the defendant, the court upheld the appeal of the plaintiff (Coveney, 2007).
The decision given in this case was quite right and the court had rightly emphasized over the
economic losses being made payable when there was clear and reasonable foreseeability of the
pipeline being damaged when the work of dredging was being undertaken. Also, a faulty map is
bound to result in improper work and for not undertaking their work properly, the court was

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right in upholding the claims of the plaintiff and holding the defendant liable for the pure
economic loss which the plaintiff had to bear, in terms of the additional costs of transportation
for the period during which the pipeline had been damaged.
Conclusion
In the preceding parts, a thorough discussion took place with regards to the claims which were
raised by Caltex against the dredges and Decca. The arguments of the parties, and the factual
background were also highlighted in the previous parts to present a conclusive summary of this
case. In this case, the High Court was appealed to by the plaintiff and they decided upon
whether or not the plaintiff should be allowed to claim damages from the defendant for the
pure economic loss, particularly when the plaintiff did not own the pipeline which was damaged
and had been actually a third party in this case. However, the reasonable foreseeability led to
the case being ruled in favour of the defendant, along with the case laws in the past where
third parties were awarded damages for pure economic loss. This is a key case because a third
party was awarded damages for pure economic loss as the requirements of negligence were
fulfilled.

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References
Austlii. (2017) Caltex Oil (Australia) Pty Ltd v Dredge "Willemstad" [1976] HCA 65; (1976) 136
CLR 529 (9 December 1976). [Online] Austlii. Available from: http://www.austlii.edu.au/cgi-
bin/sinodisp/au/cases/cth/HCA/1976/65.html?stem=0&synonyms=0&query=Caltex%20Oil
[Accessed on: 28/09/17]
Bingham, T. (2011) Lives of the Law: Selected Essays and Speeches: 2000-2010. Oxford: Oxford
University Press.
Burrows, A. (2013) English Private Law. 3rd 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:
http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1331&context=blr [Accessed on:
28/09/17]
Denton, D.H. (2017) Economic loss – Principles In Brief. [Online] David H Denton. Available from:
http://www.davidhdenton.com/uploads/2/3/1/2/23125402/economic_loss_-
_principles_in_brief.pdf [Accessed on: 28/09/17]
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: 28/09/17]

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John Wiley. (2017) Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad. [Online] John Wiley.
Available from:
http://www.johnwiley.com.au/highered/carlon_accounting4e/content/case_summaries/
ch04/CaltexOil_v_TheDredgeWillemstad.doc [Accessed on: 28/09/17]
Kidner, R. (2012) Casebook on Torts. 12th 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. 31st 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. 10th 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: 28/09/17]
Ward, P. (2010) Tort Law in Ireland. The Netherlands: Kluwer Law International.