Overseas Tankship (UK) Ltd v The Miller Steamship Co [1966] UKPC 10 (Wagon Mound no 2)

Ship charterers negligently spilled oil in Sydney Harbour. Welding sparks ignited cotton debris floating on the oil, causing a fire that damaged the claimant’s ships. The court found that although the risk of fire was slight, it was a real and foreseeable risk, making the charterers liable.

Facts

The appellants (defendants) were the charterers of the ship, the Wagon Mound. The ship’s engineers negligently allowed a large quantity of furnace oil to be discharged into Mort’s Bay, Sydney Harbour. The oil spread over a significant part of the bay and congealed on the water’s surface around the respondents’ (plaintiffs’) ships, the Corrimal and the Audrey D, which were undergoing repairs at a wharf. Welding operations were being carried out on these ships. Molten metal from the welding fell onto a piece of cotton waste floating on the oil, which ignited. The resulting fire caused extensive damage to the respondents’ ships and the wharf. The trial judge found that the appellants did not know and could not reasonably be expected to have known that the furnace oil was capable of being set alight when spread on water. However, he also found that some damage from the spillage was foreseeable, and that a ‘real risk’ of fire existed which a reasonable person would not have brushed aside as far-fetched.

Issues

The primary legal issue before the Privy Council was the test for remoteness of damage in the torts of negligence and nuisance. Specifically, if a type of damage is foreseeable as a possible consequence, albeit a very slight or remote risk, is the defendant liable for that damage? This case required the court to clarify and apply the ‘reasonable foreseeability’ test established in the earlier case, Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound (No. 1)), which arose from the same incident but involved different plaintiffs.

Judgment

The Judicial Committee of the Privy Council, delivering its judgment through Lord Reid, held the appellants liable. The court distinguished the findings of fact in this case from those in The Wagon Mound (No. 1). In the first case, the evidence led the court to believe the fire was not foreseeable at all. In this case, the evidence showed that while the risk was small, it was indeed foreseeable.

Lord Reid articulated a crucial refinement of the foreseeability test, balancing the degree of risk against the cost and difficulty of preventing it. He reasoned that a reasonable person would not ignore a risk, even a small one, if it could be eliminated with little to no difficulty, expense, or disadvantage. He stated:

If a real risk is one which would occur to the mind of a reasonable man in the position of the defendant’s servant and which he would not brush aside as far-fetched, and if the criterion is to be what that reasonable man would have done in the circumstances, then surely he would not neglect such a risk if action to eliminate it presented no difficulty, involved no disadvantage and required no expense.

The court concluded that a ‘real risk’ of fire existed, and a reasonable chief engineer would have been aware of it. Since preventing the oil spill would have incurred no cost or difficulty, the failure to do so constituted negligence. The damage by fire, being a foreseeable even if unlikely consequence of that negligence, was not too remote. Therefore, the defendants were liable for the damage caused to the respondents’ ships.

Implications

This case, often referred to as The Wagon Mound (No. 2), significantly qualified the test for remoteness of damage laid down in The Wagon Mound No 1. It established that foreseeability does not require the risk to be probable or likely. A slight risk can be sufficient to establish liability, provided it is a ‘real risk’ that a reasonable person would not dismiss as ‘far-fetched’. The decision is important for incorporating a cost-benefit analysis into the foreseeability test: the gravity of the potential harm is weighed against the burden of taking precautions. This nuanced approach remains a cornerstone of the modern law of negligence.

Verdict: The defendant’s appeal was dismissed. The defendant (Overseas Tankship) was found liable in negligence and nuisance for the damage caused by the fire.

Source: Overseas Tankship (UK) Ltd v The Miller Steamship Co [1966] UKPC 10