Caltex: Working Out the Principles Behind Pure Economic Loss
Speaking in Hull v Canterbury Municipal Council in 1974, Nagle J, said that ‘It may not be inaccurate to remark, as lawyers do, that this branch of the law has been “clarified” of recent years, although the full measure of “clarification”, if this term is apposite, may not yet have been reached’.
[141] In holding that a statement made under a statutory duty might give rise to a claim in negligence,[142] Hedley Byrne was presented as an application of the neighbour principle in Donoghue v Stevenson.[143] This was certainly not how the House of Lords, in Hedley Byrne itself, saw matters, but it signalled the beginning of the drift of Hedley Byrne into the mainstream of negligence. Before long, the decision would stand as more than an authority on misstatement.[144] This change is hugely significant. The issue of pure economic loss caused by conduct soon began to trouble the courts. After the failure of this sort of claim in French Knit Sales Pty Ltd v N Gold & Sons Pty Ltd,[145] Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’, [146] gave the High Court an opportunity to explore these questions.A dredger damaged an oil pipeline connecting an oil refinery and an oil terminal owned by the plaintiff. The pipeline was owned by Australian Oil Refining Pty Ltd. Refined oil carried through the pipeline was the property of the plaintiff but the risk of damage or loss lay with Australian Oil Refining Pty Ltd. The plaintiff incurred costs transporting the refined oil during the period that the pipe was damaged and sought to recover these from the defendant. Mason J observed hat ‘ it was to be expected that the speeches in Hedley Byrne... would open the way to liability for pure economic damage sustained in consequence of negligent conduct’.[147] Hedley Byrne played a crucial part in the reasoning of Justices Gibbs, Stephen and Mason.
It was used to justify both liberating liability in negligence for pure economic loss and at the same time restricting it. Counsel for the defendant argued that Hedley Byrne was just an exception to the rule of no recovery for pure economic loss based on a negligent misstatement. Gibbs J held that such a limited interpretation would be ‘surprising’.[148] It might, he said, lead to practical problems: ‘ It is often not easy to decide whether a particular act of negligence can rightly be described as a negligent misstatement or as negligent conduct’. [149] Despite the objections to recovery for pure economic loss,[150] the High Court held that a duty of care was owed on the facts. Yet Hedley Byrne was used to justify placing a limit on that duty. Gibbs J observed that ‘ It is important to notice that their Lordships did not simply place liability for negligent words on the same footing as liability for negligent acts’. [151] Nor did the decision ‘obliterate' the distinction between pecuniary and physical loss.[152] Foreseeability was certainly insufficient. Rather according to Gibbs J, ‘ there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of am unascertained class, will be likely to suffer economic loss as a consequence of his negligence’. [153] He also thought that it was material but not sufficient ‘that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure’. [154] Gibbs J was thinking in terms of a rule of no recovery, to which exceptions could be created.[155] Stephen J was less inclined to give ‘special status’ as such to pure economic loss[156] but, relying on Lord Devlin in Hedley Byrne,[157] thought that ‘proximity’ between the act and the damage was required.[158] In cases of pure economic loss mere foreseeability was not enough.[159] Sufficient proximity could be found on the facts.[160] But unlike Lord Devlin, Stephen J saw liability as turning on the relationship between the act causing the loss and the damage. This is a matter of remoteness rather than an issue of duty.[161] Mason J also held that foreseeability was insufficient on the basis of Hedley Byrne,[162] and preferred something like the first limb of Gibbs J’s formulation.[163] [164] Jacob and Murphy JJ both advocated broader formulations for the duty of care and rejected a distinction between pure economic and other loss. Tellingly, neither referred to Hedley Byrne.Justice HH Glass would argue that Caltex ranks in importance with Hedley Byrne12i The way in which the earlier decision was used was still problematic. The reasoning of the majority in Caltex compels them to accept a distinction between pure economic loss and physical injury. In the former case, it will be more difficult to establish a duty of care. It is worth remembering that in Hedley Byrne most of the Law Lords did not afford the distinction much weight.[165] Lord Hodson and Lord Devlin were unequivocal that such a distinction was without foundation.[166] There is another difficulty. A general limitation on liability for pure economic loss was fashioned from Hedley Byrne while at the same time ignoring the fact that it was critical to the decision that the loss was caused by a statement.[167] [168] Even if Caltex ‘is plainly a terminus a quo'12 extracting a ratio is no easy task.[169] It also marked the start of a divergence in the reasoning of the courts in relation to economic loss in Australia and England, which has never been bridged.[170] [171] IV.