THE WAGON MOUND CASE

[Overseas Tankship (UK) Ltd.

Vs.
Morts Dock and Engineering Co. Ltd.]

FACTS OF THE CASE:

Morts Dock & Engineering Company carried on the business of ship-building, ship-repairing
and general engineering at its wharf in Morts Bay in Sydney Harbour. On 30 October 1951,
Morts employees were working on a vessel moored at the wharf using electric and oxy-
acetylene welding equipment. A vessel owned by Overseas Tankship (UK) Ltd, the Wagon
Mound, was moored at Caltex Wharf on the opposite shore of the harbour, approximately
600 feet from Morts Wharf, to enable the discharge of gasoline products and taking in of
furnace oil. A large quantity of furnace oil was spilt into the harbour as a result of the
carelessness of Overseas Tankships employees. The oil spread to Morts Wharf. On 1
November 1951, hot metal from the welding at Morts Wharf fell on cotton waste in the
harbour and ignited the furnace oil. Consequently, the wharf and the vessel upon which Morts
employees were working caught fire. Substantial damage was done to the wharf and to the
equipment on it. Morts Dock brought an action for nuisance and negligence against Overseas
Tankship.

HELD:
The trial court, when deciding the case, applied the rule of directness and held the Overseas
Tankship Ltd. liable to compensate Morts Dock. It was found that the oil escaped through
lack of reasonable care on the part of the defendant, that is, that the defendant was in breach
of the duty which he owed to the plaintiff to use reasonable care and skill not to allow the oil
to escape. In the light of expert evidence given at the hearing, it was clear that the damage for
which compensation was claimed, namely that caused by the fire, was not, and could not
have been, reasonably foreseen by the defendant. Yet the fact that some damage was caused
which was foreseeable, that is, the fouling of the plaintiff's slipways due to the escape of the
oil, meant that the defendant's careless act became "impressed with the legal quality of
negligence".

The defendant appealed from the decision of the trial court in the Supreme Court of New
South Wales. However, the Honourable Court also followed the re Polemis rule, and stating
that the foreseeability of damage by fire was no defence, held the Overseas Tankship liable.

An appeal was again brought by the defendant direct to the Privy Council where the decision
of the New South Wales Full Court was reversed. The Privy Council decided that the
defendants escaped liability, holding that "the essential factor in determining liability (for
negligence) is whether the damage is of such kind as the reasonable man could have
foreseen. It had little hesitation in disapproving the decision given in Re Polemis