England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH
DIVISION – ADMIRALTY COURT
[2002] EWHC 1095 (ADMLTY)
(DAVID STEEL J)

		Royal Courts of Justice Strand, London, WC2A 2LL
		7th February 2003

Lord Justice Mance:

Introduction

1. By judgment dated 29^th May 2002 given on the trial of a preliminary issue, David Steel J determined against the appellant claimants that (assuming proof of the facts which they had alleged) their claim for loss of profits did not constitute "damage caused …. by contamination resulting from the discharge or escape" of oil from the Sea Empress within the meaning of section 153 of Schedule 4 to the Merchant Shipping Act 1995. This appeal is brought with his permission.
2. The Sea Empress grounded at St Ann's Head, Milford Haven on 15^th February 1996, leading to the escape of some 72,000 tonnes of crude oil into the sea. There followed a fishing ban in an area of sea around Wales extending from St David's Head in the west to the Gower Peninsular in the east. The ban was imposed under The Food Protection (Emergency Prohibitions)(Oil and Chemical Pollution of Fish and Plants) Order 1996 (S.I. 1996 No. 448). The Order recited that the Secretary of State for Wales was "of the opinion that there exist or may exist circumstances which are likely to create a hazard to human health through human consumption of food and that in consequence food which is derived or may be in the future derived from fish and plants in the area described in the following Order is, or may be, or may become, unsuitable for human consumption". The Order prohibited anyone from fishing for or taking fish or gathering or picking edible plants or edible seaweed or fish in the designated area. The ban lasted from 28^th February 1996 until, the appellant alleges, 12^th September 1996 (although the respondents plead until only 29^th August 1996). The prohibited area includes whelk fisheries off Tenby and Saundersfoot.
3. At the material time the appellant had a business which included the processing of whelks in Devon, at Exmouth which is some 200 miles by road from Milford Haven. We were told that processing involved removal of the shells and packing in tins, which were in turn packaged in boxes for export. There was probably also a cleaning process before the packing in tins. The facts to be assumed regarding the impact of the ban on the appellant's activities include the following. The appellant had a long term contract for the supply of Welsh whelks to a Korean buyer, Yusung Mulsan Co. Ltd. Welsh whelks were particularly attractive for Korean buyers, and the appellant was at the forefront of a business that had been fast expanding between March 1995 and January 1996. By the beginning of 1996 almost half of the appellant's business consisted of whelk processing, and of these whelk sales a substantial proportion were Welsh whelks. The appellant had contracted with 8 fishing vessels (based, it would appear, in the South Wales area) to take such whelks as it would catch for the 6 month period ending 31^st July 1996. The ban brought an immediate end to the catching of Welsh whelks, and destroyed the appellant's business with its Korean buyers. The appellant was unable to replace the supplies of Welsh whelks with products from other fishing grounds. The only other potential fishing ground was off Grimsby, but Grimsby whelks were not only smaller with much thicker shells, but also inferior in condition, due to the longer time Grimsby boats spent at sea and the longer road trip from Grimsby to Exmouth; further, the appellant's Korean buyers had stated that they would not accept them. The 8 fishing vessels would, but for the contamination and the ban, have caught some 1655,603.44 kgs of Welsh whelks during the period of the ban. The appellant thus suffered loss of gross profits totalling £746,632, less avoided expenses of £103,075 which it accepts would have been incurred but for the contamination of the fisheries.
4. The effective respondent to this appeal is The International Oil Pollution Compensation Fund 1971 ("The Fund"), which was joined as third defendant in the proceedings. S.153 of Schedule 4 to the Merchant Shipping Act 1995 provides as follows:

"(1) Where, as a result of any occurrence taking place while a ship is carrying a cargo of persistent oil in bulk, any persistent oil carried by the ship (whether as part of the cargo or otherwise) is discharged or escapes from the ship, the owner of the ship shall be liable, (except as otherwise provided by this Chapter), -

(a) for any damage caused in the territory of the United Kingdom by contamination resulting from the discharge or escape; and

(b) for the cost of any measures reasonably taken after the discharge or escape for the purpose of preventing or reducing any such damage in the territory of the United Kingdom; and

(c) for any damage caused in the territory of the United Kingdom by any measures so taken.

……..

(4) For the purposes of this Chapter, where more than one discharge or escape results from the same occurrence or from a series of occurrences having the same origin, they shall be treated as one; but any measures taken after the first of them shall be deemed to have been taken after the discharge or escape.

(5) The Law Reform (Contributory Negligence) Act 1945 and, in Northern Ireland, the Law Reform (Miscellaneous Provisions) Act (Northern Ireland) 1948 shall apply in relation to any damage or cost for which a person is liable under this section, but which is not due to his fault, as if it were due to his fault."

S.170 of Schedule 4 to the 1995 Act contains the following definitions:

"(1) "damage" includes loss; …".

S.157 enables the shipowner to limit liability under s.153, in the absence of actual fault or privity, and s.175 makes the Fund liable for pollution damage in the territory of the United Kingdom if the person suffering the damage has been unable to recover full compensation because the damage exceeds the shipowner's liability under s.153 as limited by s.157. The present proceedings have been brought against the Fund accordingly.

Landcatch

5. The appeal has been argued on a carefully limited basis, having regard to the Scottish authority of Landcatch Ltd. v. International Oil Pollution Compensation Fund [1998] 2 Ll.R. 552 (Lord Gill); [1999] 2 LlR 316 (Inner House). The appellant accepts that case as correctly decided against the pursuers on its facts. However, they seek to explain and distinguish it in ways which leave the present claim on the other side of the line. It is clear that the facts in Landcatch were not in all respects on all fours with those of the present case. However, the Fund submits that the principles to be derived from Landcatch embrace the present facts.
6. Landcatch was concerned with the contamination caused by the grounding of the Braer off Shetland on 5^th January 1993 with consequent escape of some 84,700 tonnes of crude oil and 1,600 tonnes of bulk fuel oil. Statutory instruments were issued on 8^th and 17^th January 1993 banning fishing in an area around Shetland of about 400 square miles, which included salmon rearing and harvesting areas. The pursuers' business, carried on at Ormsary Argyll, about 500 kilometres from Shetland, was to rear salmon from eggs to smolt in freshwater conditions, and then to sell them for ongrowing to maturity in seawater conditions such as those off Shetland, which was their principal market. Yearly contracts were normally concluded in about February, and performed in about April or May. So the pursuers' loss arose from inability to make and perform the usual yearly contracts. The losses claimed by the pursuers consisted of (a) smolt which they had to cull because of lack of sales; (2) reduced selling prices of smolt sold in 1993 and 1994 when prices had not resumed their normal level; (3) additional rearing costs incurred in making special arrangements for ongrowing 260,000 smolt; and (4) "expenses in pursuing claim".
7. The claims were made in Landcatch under predecessor legislation consolidated in the 1995 Act, namely the Merchant Shipping (Oil Pollution) Act 1971 and the Merchant Shipping Act 1974. Ss.1(1) and 20(1) of the 1971 Act were the predecessors of ss.153 and 170(4) of Schedule 4 to the 1995 Act. Bearing in mind that the 1995 Act was a consolidating Act, and aimed in this respect at consolidating the same international conventions, it has not been not suggested that the change in legislation is material when considering the relevance of Landcatch to the present case.
8. The issues came before the Scottish courts in Landcatch on the procedure roll. They were considered, as the present case has been, on the basis of the pursuers' averments. Both Lord Gill and the Inner House rejected the pursuers' claims. Lord Gill emphasised that the issue was one of interpretation of the statutory provisions (pages 567 right and 568 right). He was unimpressed by a submission that assistance could be gained from considering decisions made by the Fund in relation to other prior claims (page 569, and cf page 564). He accepted (as the Fund had) that the sections imposed liability for pure economic loss. But he found nothing in them to embrace indeterminate liability for all such loss which would not have been occurred "but for" the contamination. He referred to the limits placed in the general common law of negligence on the recovery for economic loss, incurred by persons without any proprietary or possessory interest in property suffering physical damage due to their contractual relations with those having a proprietary or possessory interest in such property.
9. In this connection Lord Gill referred to words of Lord Fraser in Candlewood Navigation Corp. Ltd. v. Mitsui OSK Lines[1986] AC 1, 19D-G and 25B, and then said:

"I can see nothing in these sections to displace the general rule. On the contrary the use of the familiar concepts of loss, causation and contributory negligence (1971 Act, s.1(5); 1974 Act, s.4(9)) tends to suggest that the ordinary principles of liability apply.

It is plain, in my view, that the liability imposed under the 1971 Act is not unlimited. Under the 1971 Act the claims appear to be localized and to be confined to the area of the contamination (cf. s.1(1)(a); s.1(2)). The same can be seen in the 1974 Act (cf. ss.1(3) and (4)). In my view, ss.1 and 4 of the 1974 Act, in their references to "contamination", to "preventive measures" (s.1(3)) and to damage "outside the ship", point to there being a localized liability rather than an indeterminate one relating to effects felt far and wide.

Section 1(1)(a) of the 1971 Act imposes liability for damage caused in the area of the United Kingdom by contamination resulting from the discharge or escape of oil. To this area it added two further heads of liability, namely the cost of measures reasonably taken (s.1(1)(b)) and the damage which those measures caused (s.1(1)(c)). These are significant additions. If liability was indeterminate, it would have been unnecessary for Parliament to make them. On a "but for" test, such claims would have been recoverable (Shelbourne v Law Investment & Insurance Corporation, [1898] 2 QB 626). I infer that if, in contrast, the heads of liability in pars. (b) and (c) had not been set out in s.1(1), the claims to which they relate would have been excluded.

It is also significant that ss.4 and 5 of the 1971 Act limit the liability of the owners and lay down a procedure for the resolution of claims on what may be a limited fund. Moreover, the Act provides for direct claims against the insurers, who may also limit their liability for claims arising under s.1 (cf. s.12(3)). I find it unlikely that such a structure of liability would have been erected if there was to be no limit to the extent of claims arising under s.1. Such a structure would in that event have been unworkable.

There is a further indication of this in the limitation of liability conferred upon the Fund. Although s.4(1) of the 1974 Act implies that the purpose of the Fund is to provide full compensation to victims, the liability of the Fund itself is limited (1974 Act, s.4(10); Fund Convention, art. 4.4 to 4.6, as amended). This suggests that the Fund is to compensate proximate claimants and not remote claimants. On the other hand, if the Fund's liability had been unlimited, the Fund would always be inadequate and no claimant could ever be fully compensated. These in my view are strong indications that liability under the 1974 Act is, as under the 1971 Act, closely circumscribed to the area of the contamination.

I conclude therefore that while the fact that these are claims for economic loss is not sufficient per se to exclude them, the statutory liabilities on which they are founded are not indeterminate in extent. In the context of these sections the liability for pure economic loss can be satisfactorily interpreted to mean a liability for such loss where it is directly caused by the contamination in accordance with established principles of law. It is therefore for the pursuers to aver and prove that the necessary proximity exists between the parties in order to bring themselves within the category of cases in which such losses are recoverable.

I therefore reject the first submission for the pursuers."

10. At pages 570-573, Lord Gill considered and rejected the pursuers' further submission that their averments satisfied the common law requirements for a claim to recover economic loss. Their averments that their business was "bound with" and "closely integrated" with the Shetland salmon fishing industry were descriptive, but, in his view, unsupported and empty phrases. Since the pursuers did not even have an existing contractual relationship with anyone suffering physical damage, they were simply removed "by one further step" from the ambit of the shipowners' and the Fund's liabilities, and had "suffered nothing more than relational economic loss" (page 570).
11. In the Inner House, the Lord Justice Clerk, Lord Cullen, with whose reasoning Lord Cowie agreed, set out the parties' respective submissions and noted certain points, which have their counterparts under the 1995 Act. Since the points that he noted are, in my opinion, relevant and important, I set them out (with some abbreviation):

i) s.1 of the 1971 Act (or now s.153 of Schedule 4 to the 1995 Act) shows that the liability which it imposes follows upon a series of physical events – the occurrence, the discharge or escape of persistent oil from the ship and contamination;

ii) the references in s.1 of the 1971 Act (or s.153) to "damage caused in the territory of the United Kingdom" imply that the damage has an identifiable geographical location;

iii) the liability imposed by s.1 (or s.153) is in compensation, as distinct from liability in damages at common law, and does not depend on fault. Further, s.3 (or s.156) goes on to provide that the only way in which a shipowner can be liable for any damage or cost caused by contamination resulting from any discharge or escape of persistent oil is under such section, and that no servant or agent of the owner shall have any liability therefor;

iv) s.1 does not state to whom the shipowner is to be liable, nor for what damage or loss;

v) the fact that s.1 (or s.153) makes specific provision covering the cost of preventive measures and any damage caused by such measures implies that, without such provision, these matters would not, or at least might not, have been covered;

vi) the 1971 (or 1995) Act specifically provides that certain statutory rules are to apply in connection with claims under it, e.g. those regarding contributory negligence (cf s.153(5)).

12. Against that background, Lord Cullen dealt first, shortly, with the pursuers' submission that they could satisfy the tests for recovery of economic loss at common law. He had no doubt that their claims would fail, on the application of the well-known "pragmatic rule" against secondary or relational claims. Their case could be no more than that due to market conditions they did not make the expected returns on their investment in smolt, and incurred additional expenditure. Their business "did not form part of the business of Shetland fish farmers, and the smolts were not even the subject of an existing contract at the time" (page 328 right).
13. Lord Cullen then dealt with the alternative submission that claims for compensation under the legislation were distinguishable from claims of damages for economic loss at common law, in that the legislation enables a shipowner to limit his liability. He rejected this for four reasons:

i) a "but for" construction of causation opened up a limitless chain of claims. Even if claims were to be restricted to "those who have some form of connection with the economic activity of the place where the contamination occurred", this did not provide a satisfactory solution, being an extremely vague qualification and appearing to lack any foundation in principle;

ii) the shipowner's right to limit did not mean that the impact of allowing relational claims could simply be ignored, since it could attenuate the sums payable by the Fund to those directly affected by contamination (the Fund itself not being limitless) and the shipowner's right to limit was itself also conditional upon absence of "actual fault or privity";

iii) "the fact that the Act refers to damage and loss in conjunction with causation without any further explanation points to an intention that these terms should be understood as coming fully armed, as it were, with concepts with which lawyers in this country are well familiar"; and

iv) the mere fact that the expression "loss" is apt to include claims of pure economic loss does not entail that every claim for pure economic loss is admissible. That was clearly so, he said, when the claim was of a secondary or relational type. However, Lord Cullen went on to express doubt about another restriction, by reference to location, for which the Fund had argued, saying this:

"It is difficult, in my view, to justify a distinction between claims made by sea fishermen according to the geographical location of their home ports. It may be said that in each case the economic loss occurred where, but for the effect of the contamination, the fishermen would have obtained a benefit. However, that point is not material for present purposes. Likewise, I have some difficulty with the principle which Counsel for the Fund was applying in conceding that certain claims by persons carrying on business in Shetland adjacent to the exclusion zone would be admissible. However, this does not affect the principal submissions that were made on behalf of the Fund and which I regard as determinative of Landcatch's reclaiming motion."

14. Lord Cullen's conclusion was as follows:

"In these circumstances I consider that "loss", as included in "damage" for the purposes of s.1(1) of the 1971 Act, does not cover secondary or relational claims. I have arrived at that conclusion by applying considerations similar, though not identical, to those which have led to the development of a rule against such claims in actions at common law."

In substance, therefore, he concluded that secondary or relational claims are generally excluded both at common law and under the statute. Nevertheless, his discussion of the position of fishermen accustomed to fish in a particular area suggests that the statutory context and purpose may shape the court's conclusion as to what amounts to a secondary or relational claim.

15. Lord McCluskey stressed his agreement with the Fund's concession that fishermen would be able to recover for pure economic loss (page 332). Although they had no proprietary interest in the waters, they had "in a figurative sense …. a direct economic interest". He contrasted their case with that of the trader supplying a fisherman with diesel, whose economic interest had its location, not in the waters, but in the place of supply of the diesel, where there was no contamination. His loss would not, in Lord McCluskey's opinion, be "caused directly by the contamination". Lord McCluskey's conclusion, on the pursuers' submission that the statute covered all economic loss that would not have been incurred "but for" the contamination, was that, if the statute had been intended to depart from "the old and widely accepted principles governing and limiting the liability of wrongdoers for damages in reparation for delict, quasi-delict, nuisance or breach of statutory duty" the legislature would have been expected to make this abundantly clear (page 334). As it was, the words it used were "not freshly minted in a new currency whose value is unknown". Some of the words, including "damage", "caused by", "liable" and "fault" appearing in the statutes "have been used so often in statute and common law litigation that they carry with them an aura, a lawyers' baggage" (page 335). He too also referred to the reference to the contributory negligence legislation as a positive clue in this direction. On this basis Landcatch's claim was to be excluded "on the ground that it was indirect, relational pure economic loss which is too remote from the causal factor which makes the causer liable". Finally, he too rejected the pursuers' submission that their averments supported a sufficiently close relationship between them and the Shetland fish farming industry to establish the proximity necessary to recover.

The proper approach to construction of the 1995 Act

16. The 1971 and 1974 Acts, and the 1995 Act into which they have been consolidated, were passed to give effect to the United Kingdom's international obligations under the International Convention on Civil Liability for Oil Pollution Damage (dated Brussels, November 29, 1969) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (dated Brussels, December 18, 1971), which are referred to in several sections of the United Kingdom legislation. Counsel on the present appeal referred us to this aim in general terms, but pointed out that the terms of these Conventions had not themselves been specifically enacted into or scheduled to the relevant United Kingdom legislation. Nevertheless, in construing the legislation, we should bear in mind that it is concerned to implement international conventions. The United Kingdom legislation should therefore "be given a liberal and broad rather than a restricted construction, and so construed, if reasonably possible, to conform to the language of the convention": Samick Lines Co. Ltd. v. The Owners of The Antonis P. Lemos [1985] 1 AC 711, 717B per Parker LJ, approved at 726H-727A by Lord Brandon, with whom all other members of the House of Lords agreed.
17. As to the proper approach to questions of causation, counsel for the appellant, in well considered and constructed submissions, drew attention to words of Lord Hoffmann in Kuwait Airways Corp. v. Iraq Airways Company [2002] UKHL 19; [2002] 2 AC 883:

"One cannot separate questions of liability from questions of causation. They are inseparably connected. One is never simply liable; one is always liable for something and the rules which determined what one is liable for are as much part of the substantive law as the rules which determine which acts give rise to liability."

In Fairchild v. Glenhaven Funeral Services Ltd. [2002] UKHL 22; [2003] 1 AC 32, Lord Hoffmann repeated this and added:

"The rules which delimit what one is liable for may consist of causal requirements or may be rules unrelated to causation, such as the foreseeability requirements in the rule in Hadley v. Baxendale (1854) 9 Exch 341. But in either case they are rules of law, part and parcel of the conditions of liability. Once it is appreciated that the rules laying down causal requirements are not autonomous expressions of some form of logic or judicial instinct but creatures of the law, part of the conditions of liability, it is possible to explain their content on the grounds of fairness and justice in exactly the same way as the other conditions of liability."

The approach to causation described by Lord Hoffmann is consistent with a "liberal and broad" approach to construction, and is as applicable to legislation giving effect to international conventions as it is to domestically inspired legislation.

Analysis of the parties' submissions

18. The appellant submits that Landcatch was decided on an issue of causation, and that the Scottish courts did not conclude that no "damage" had occurred within the meaning of the 1971 Act. The appellant therefore took issue with Lord Cullen's statement at the foot of the left column on page 322, that: "The question …. is whether the loss claimed by Landcatch is within the scope of the expression "damage" in s.1(1) of the 1971 Act". To my mind, however, this submission by the appellant fails to take due account of the holistic approach indicated by Lord Hoffmann. The judges deciding Landcatch accepted that there could be cases of pure economic loss recoverable as damage under the statute. Their decision was that the statute did not embrace within its conception of damage the particular economic loss claimed by Landcatch. That is how Lord Cullen was defining the issue.
19. The appellant also draws attention to the pursuers' submission in Landcatch that the statute allowed recovery of all economic loss which would not have been suffered "but for" the contamination. Clearly, such a submission would, if accepted, have extensive consequences. It was firmly rejected by the Scottish courts in Landcatch, and has not been repeated before us by the appellant. However, Landcatch itself was not a case where the pursuers were seeking to focus on some commonplace, though necessary, preceding event, without which their later loss would not have arisen. Viewing the matter in the abstract and without reference to the issue which now arises or its statutory context, it would be easy and natural to say that that the contamination had "caused" Landcatch loss - indeed, the pursuers in Landcatch were advancing as an alternative case that they and their losses were so proximately and closely related to the contamination that such losses would (apart from the legislation) have been recoverable in negligence at common law. The Scottish courts were not therefore concerned either with circumstances in which it could be said that some other cause than contamination was primarily responsible, or with a question of causation arising in the abstract. They were concerned, as we are, with the proper scope of liability (including causation) under specific statutory wording.
20. The appellant submits that the Scottish courts did not decide that the proper scope of the statutory liability could be defined by taking under the statute precisely the same approach to the recovery of economic loss as the common law would in a case of negligence. Both parties to this appeal refer in this connection to Lord Cullen's concluding words, to the effect that he had "arrived at this conclusion by applying considerations similar, though not identical, to those which have led to the development of a rule against such claims in actions at common law" (page 329 left). But it is clear from his earlier reference on the same page to the statutory terms as "coming fully armed, as it were, with concepts with which lawyers in this country are well familiar" that he regarded the common law principles as of considerable assistance. Lord McCluskey's judgment, with its references (page 335 left) to the words as not "freshly minted" and as carrying with them "an aura, a lawyers' baggage" are, if anything, still more forceful in this direction.
21. We are, however, concerned with a statute which gives effect to international conventions and focuses on the consequences of contamination resulting from the escape or discharge of oil. For both these reasons, I share the note of caution expressed by Lord Cullen, as well as by David Steel J in his judgment below when he recognised that "it may be undesirable to import the entire baggage of rules relating to causation and remoteness in the tort of negligence to claims made under a statute providing for strict liability" (page 329 left). The liberal and broad construction required to effect the purposes of legislation specifically focused on the consequences of oil pollution is not necessarily to be derived from an incorporation in every detail of domestically developed rules. But by the same token, the rules which English and Scots law have developed regarding economic loss cannot themselves be discarded as idiosyncracies. They reflect solutions to problems involving the balancing of conflicting interests which must be faced by all legal systems. The House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 was able to refer to United States and South African authority (cf. page 488 per Lord Reid and page 537 per Lord Pearce). No reason has been suggested or exists for regarding the common law rules limiting the recovery of economic loss as being generally out of line with international thinking in other jurisdictions, common law or civil.
22. A further relevant consideration is that those drafting and enacting the relevant domestic legislation to give effect to the international conventions must be taken to have been aware of the English and Scots legal background. It was the clear purpose of the legislation to introduce liability independent of fault, to the exclusion of any common law claims in negligence. If Parliament had understood or intended that there was to be a radical expansion of the scope of recovery for damage and loss, it is surprising that the legislation concentrates on physical factors, does not make it clear that such an expansion is intended and does not address the question to what extent.
23. For these reasons, it is legitimate to bear in mind the general attitude of the common law, as exemplified in the Candlewood case (paragraph 9 above) and other well-known common law authority such as Cattle v. Stockton Water Works (1875) LR 10 QB 453 and Lee & Sillavan Ltd. v. Aliakmon Shipping Co. Ltd. (The Aliakmon) [1986] AC 785, 809, where Lord Brandon stated that:

"….there is a long line of authority for a principle of law that, in order to enable a person to claim in negligence for loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss of or damage to it."

24. The structure of the appellant's argument before us was, first, that the common law rules do not provide any decisive test of the scope of recovery intended by the statute. As to this, I would, for the reasons already given, agree that the common law rules, although of considerable relevance, cannot be absolutely decisive. The appellant went on to submit that the only remaining issue is whether the appellant's loss can properly be said to have been caused by the contamination. At first sight, this is an attempt to invoke an abstract conception of causation for simple importation into the statute. The appellant's alternative formulation, that the contamination must have been the "instrumentality" of the loss (a word drawn from counsel for the Fund's submissions in Landcatch) does not, to my mind, elucidate the conception. I have already dealt with the appellant's submission that Landcatch was a case where no-one could even describe the pursuers' loss as having been "caused" by the contamination, except on a crude "but for" basis. However, the appellant's submissions were more refined, and it accepts that the court is ultimately concerned with drawing an appropriate line as a matter of policy or justice and fairness, having regard to the aims of the statute. It suggested as an alternative encapsulation of its case that the loss must be a sufficiently "direct" result of the contamination.
25. In this connection, the appellant endorses the correctness of the views expressed in Landcatch regarding the admissibility of claims by fishermen. However, it also acknowledges that the statute cannot have been intended to cover all economic loss which could be said to have resulted from contamination. That acknowledgement seems to me to have been inevitable, since the appellant does not seek to challenge the correctness of the result reached in Landcatch. It endorses Lord McCluskey's opinion that a diesel or net supplier could not recover for his loss of business due to the contamination. It does not suggest that the absence in Landcatch of any actual contracts was decisive. Nor do I think that any such suggestion would have had weight; it is clear that in that case the contamination meant that no contracts were made; and it is also clear that the absence of any contracts was merely regarded by the Scottish courts as a reinforcing factor in a conclusion that they would anyway have reached.
26. The appellant submits that the present case is to be distinguished both from Landcatch and from the case of a diesel or net supplier by virtue of the close physical association between the contamination and the appellant's loss. The submission runs as follows. The contamination of the relevant sea area affected the whelks, and prevented the appellant from receiving the whelks - the very thing that was or may have been contaminated - from the contaminated waters of the very sea area from which it was to receive such whelks. In contrast, in Landcatch the contamination never physically affected the pursuers' smolt; it merely prevented them from being ordered from the pursuers and supplied to the Shetland fish-farmers in the contaminated area under the usual annual contracts. The appellant submits that the position of the suppliers in Landcatch was therefore similar to that of a diesel or net supplier, who, even if he has an annual contract for such supply, does not have any physical involvement with anything contaminated. I have to say that the distinction thus drawn between a frustrated purchase of fish (or whelks) which would have been, but because of contamination and a ban never were, taken from a contaminated area and a frustrated sale and delivery of actual fish (or whelks) to fish farms in a contaminated area appears on any view a narrow one.
27. The appellant also submits that its case would not open the way to recovery by anyone below it in the supply chain. Even if its onwards contracts for sale of the processed whelks had been, for example, with London wholesalers or restaurateurs, who could be said to have suffered loss within the United Kingdom, the buyers or users of the processed whelks could not recover under the statute. The argument is that they had no interest in the contaminated waters or in any contaminated whelks; their only interest was in whelks as processed by the appellant in Devon and onsold to them. Again, this is on its face a narrow distinction. To support it, the appellant suggests that processing "realises the intrinsic value" of the whelk or "consolidates its intrinsic nature" by preserving it, whereas subsequent buyers or users are simply acquiring or using a commodity from which the intrinsic value has been extracted. Even accepting the anthropomorphic aspect of the analysis^[1], it does not appear to me to bear examination from the viewpoint of Adam Smith. The whelk is a marine creature; it acquires an economic value in human eyes when caught and landed. Some Welsh whelks are no doubt sold and/or consumed locally. If whelks are transported elsewhere and there processed and exported, these additional operations (involving work and expense) add to their economic value. It is in respect of the loss of the added value arising from these operations that the appellant claims.
28. David Steel J recorded in paragraph 15 of his judgment his understanding that the appellant was contending that foreseeability was sufficient to enable recovery of economic loss. That would not appear to have been a correct description of the appellant's case below, and it was certainly not its case before us. The appellant was, as I have indicated, concerned to define the scope of the statute's operation so as to draw a line between its and the fishermen's claims on the one hand and, as they put it, less "direct" losses on the other hand. In this sense, it accepts that secondary or relational losses are not recoverable.
29. The word "direct" in the present context evidently derives from Lord McCluskey's use of it at pages 332-3 in Landcatch. There, however, Lord McCluskey was concerned to explain how in his view the statute could not only cover damage caused directly by contamination (e.g. fouling of property), but also a fisherman's loss through being unable to fish in his traditional waters, "the immediate, direct and, in such a case, the only cause" of the fisherman's loss was in Lord McCluskey's view the contamination, because of his "direct" interest in such waters. In all these passages Lord McCluskey was emphasising a fisherman's close physical involvement with the contaminated waters. It is difficult to see how the present appellant in Exmouth, Devon can claim any matchingly close involvement with the contaminated waters off Dyfed. It is true that it has a strong economic interest in such waters continuing to be available for fishing by its local Welsh fishermen suppliers, and so in continuing to be able to process and profit out of the Korean contracts. But that is a much less direct and physical link with the contaminated waters or with any whelks which may have been contaminated.
30. The appellant submits that assistance as to the nature of direct loss is to be found in Elliott Steam Tug Company Ltd. v. The Shipping Controller [1922] 1 KB 127. The issue there was whether a towage and salvage company which had chartered a tug for their business for as long as they pleased, subject to 14 days' notice of cancellation, could recover compensation for loss of profits, as well as the hire payable to the owner, after the tug was requisitioned by the Admiralty, in circumstances where it was impracticable to hire another. The Indemnity Act 1920 provided that any person, not being the owner of a ship, who has "incurred or sustained any direct loss or damage by reason of interference with his …. business …. through the exercise …. during the war of any …. power under any enactment relating to the defence of the realm … shall be entitled to payment or compensation in respect of such loss or damage". The majority held that the statute enabled recovery of loss of profits, and not merely the hire. Scrutton LJ dissenting would have applied the common law rule to exclude recovery for loss of profits. Like David Steel J, I find no real relevance in this decision under a different statute, which referred expressly to any direct loss or damage by reason of interference with business. It is (as David Steel J also said) of some relevance to note that the statute was passed at a time when even common law principles were thought to allow recovery of unforeseeable consequences of tort, so long as they could be said to be direct: cf re Polemis [1921] 3 KB 560, which was not followed in Overseas Tankship (U.K.) Ltd. v. Morts Dock & Engineering Co. Ltd. (The Wagon Mound - No. 1) [1961] AC 388, 422 where Visc. Simonds said that:

"…. it does not seem consonant with current ideas of justice or morality that for an act of negligence, however slight or venial, which results in some trivial foreseeable damage the actor should be liable for all consequences however unforeseeable and however grave, so long as they can be said to be 'direct'".

31. Like the Scottish courts and David Steel J, although it is not necessary to decide the point on this appeal, I accept that damage consisting of economic loss may well be recoverable under the statute by persons such as fishermen accustomed to fish in the waters which become contaminated. For the reasons given by Lord McCluskey, the interests and losses of such fishermen can be very closely related to the physical waters and the physical contamination that occurs. It may be that we also know too little about the nature of the relevant marine activity (both in the case of the salmon fisheries which were in mind in Landcatch and in the case of the whelk fisheries to which the present particulars of claim refer) to be able to appreciate the full degree of the physical involvement. Fishermen may be involved in the physical arrangements or process by which salmon are kept, or whelks breed, within certain areas. David Steel J also pointed out that there is, in tidal waters, a public right to take fish including shell-fish, and that interference with such right would at common law be actionable as a public nuisance: Attorney General for British Columbia v. Attorney General for Canada [1914] AC 153 and Jan de Nul (U.K.) Ltd. v. N.V. Royale Belge [2002] 1 LI.R.583. However, I am prepared to assume that there can be claims under the statute for loss suffered by fishermen, which apart from the statute would not be recoverable at common law, even assuming negligence. Making that assumption, such claims arise from the very close relationship between the contaminated waters and the fishermen's activities and loss.
32. It is unnecessary to attempt to give answers to all the other hypothetical or actual situations to which our attention was drawn. We were for example told that local businesses, such as a water skiing shop, had received payments for losses incurred by their businesses as a result of the contamination from the Sea Empress. Counsel for the appellant said that he found himself sharing a doubt expressed in Landcatch about the application of the statute in such a case. We were also shown a schedule of other claims and payments made by the Fund. However, neither such claims and payments nor the Fund's practice (which may be more generous than strictly necessary in some sensitive cases) can construe the statutory language, any more than they did in Landcatch. Further, in the present case such claims and payments were not even investigated below, and the Fund, understandably, did not come to this court to explain either their precise circumstances or why payments had in any particular case been made.
33. Despite the difficulty of drawing the line in any case such as the present, I consider, at the end of all the arguments, that the appellant falls on the wrong side of it. It was not engaged in any local activity in the physical area of the contamination. Its interest was in landed whelks, not in the whelks in their natural habitat. The contamination has prevented local fishermen, whose physical activities are closely affected by the contamination of the waters and of whelks, from supplying the appellant with the landed whelks for which it had contracted. The appellant's resulting loss arises from its inability to carry out processing and packing and deliveries of processed and packed whelks at points far away from the contaminated areas. I consider that this is a form of secondary economic loss, which is outside the intended scope of a statute which is closely focused on physical contamination and its consequences. I do not regard the undoubted differences between the circumstances in Landcatch, where the contamination prevented the pursuers supplying further smolt to the contaminated area, and those here, where the contamination prevented the fishermen supplying further whelks to the appellant, as sufficient to justify a different conclusion with regard to the essentially secondary nature of any loss caused to the appellant in the United Kingdom by the contamination resulting from the discharge or escape of oil from the Sea Empress.
34. Before concluding I would record that counsel did not refer or address any submissions to the language of the international conventions, to which the 1995 Act gives effect. In particular, it was not suggested that there was any disconformity between the language of the international conventions and the United Kingdom legislation. Had any possible disconformity existed, then it would have been our duty to construe the legislation, if reasonably possible, so as to conform to the language of the convention: see paragraph 16 above. If one does look at the language of the conventions, they "apply exclusively to pollution damage caused on the territory including the territorial sea of a Contracting State and to preventive measures taken to prevent or minimize such damage" (article II of the 1969 convention). "Pollution damage" is defined as meaning "escape or discharge caused outside the ship carrying oil by contamination resulting from the escape or discharge of oil from the ship, wherever such loss or damage may occur, and includes the costs of preventive measures and further loss or damage caused by preventive measures"; while preventive measures are defined to mean "any reasonable measures taken by any person after an incident has occurred to prevent or minimise pollution damage" (article I of the same convention). The background points made by Lord Cullen in Landcatch with reference to the United Kingdom legislation and its predominantly physical focus (cf paragraph 11 above) can be made with at least equal, if not greater, force in relation to the international conventions.

Conclusion

35. For these reasons, which for the most part reflect those given by David Steel J, and despite some undoubted differences between the facts in this case and in Landcatch, I would dismiss this appeal.

Lord Justice Chadwick:

36. The Sea Empress grounded off Milford Haven in February 1996. At that date the relevant provisions in relation to liability for oil pollution and the right to be compensated by the International Fund, first enacted in the Merchant Shipping (Oil Pollution) Act 1971 and the Merchant Shipping Act 1974, were contained in schedule 4 to the Merchant Shipping Act 1995.
37. Section 153(1) in schedule 4 to the 1995 Act imposed liability on the owner of a ship from which there had been a discharge or escape of persistent oil in bulk "for any damage caused in the territory of the United Kingdom by contamination resulting from the discharge or escape" or from any damage caused in that area by measures taken to prevent or reduce any such damage. Section 157 enabled an owner who had incurred liability under section 153 by reason of a discharge or escape which had occurred without his actual fault or privity to limit his liability in accordance with the provisions in Chapter III of schedule 4. Section 175(1) provided that where a person who had suffered pollution damage had been unable to obtain full compensation under section 153 because (inter alia) the damage exceeded the liability under section 153 as limited by section 157, "the Fund shall be liable for pollution damage in the territory of the United Kingdom". In that context "the Fund" meant the Fund established by the 1971 Fund Convention – see section 172(1)(b) and (c); and "pollution damage" meant "damage caused outside the ship carrying oil by contamination resulting from the escape or discharge of oil from the ship, wherever the escape or discharge may occur" and included the cost of preventive measures and further damage caused by preventive measures – see section 181(1). "Damage" included "loss" – ibid.
38. The question on the preliminary issue before the judge – and the question on this appeal – is whether the economic loss suffered by the claimant/appellant, R J Tilbury & Sons (Devon) Limited, was "caused by contamination resulting from the escape or discharge of oil from the ship". It has not been argued that the loss was caused by preventive measures.
39. The answer to that question is not to be found by approaching the required causal link between economic loss and contamination as if it were some autonomous expression of logic – to borrow the phrase used by Lord Hoffmann in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22, [2003] 1 AC 32, in the passage which Lord Justice Mance has cited. The task for the court is to construe the statutory provisions in their context in order to ascertain what the legislature intended by the words used.
40. That context includes section 176(1) of schedule 4 to the 1995 Act. That section provides that the liability of the Fund under section 175 shall be subject to the limits imposed by paragraphs 4, 5 and 6 of Article 4 of the Fund Convention. Those paragraphs are set out in Part II of schedule 5 to the 1995 Act. Paragraph 4 limits the aggregate amount of compensation payable by the Fund in respect of any one incident to an amount which is fixed (in the sense that it can be determined). Paragraph 5 provides that, where the amount of established claims against the Fund in respect of any one incident exceeds the aggregate amount of compensation payable by the Fund under paragraph 4, the amount available is to be apportioned pro rata between the claims. The effect of those provisions is that, in respect of any one incident, the Fund must be regarded as 'a common fund' – that is to say, as a source of compensation which is finite in amount and in respect of which potential claimants must compete to have recourse. The causal link between economic loss and contamination – required by sections 153 and 175, read with the definition of "pollution damage" in section 181(1) – provides the means of control. The need to establish that link distinguishes those who are permitted to share in the common fund from those who are not. The more restrictive the test, the more likely it is that those who satisfy it will receive full compensation; the less restrictive the test, the more likely it is that those who satisfy it (including those who could satisfy a more restrictive test) will not receive full compensation.
41. It is, I think, reasonable to assume that the intention of the Contracting States who were parties to the 1971 Fund Convention – and the intention of the legislature when enacting the Merchant Shipping Act 1974 and, thereafter, incorporating the provisions of that Act in schedule 4 of the Merchant Shipping Act 1995 – was that those who established the causal link between economic loss and contamination should be compensated in full so far as that were possible within the financial constraints imposed by the nature of the Fund; that is to say, within the constraints inherent in the need to obtain contributions from those engaged in the importation of oil by bulk carrier – see section 173 in schedule 4. Paragraph 6 of Article 4 of the Fund Convention points to that intention. It empowers the Assembly of the Fund to vary upwards the monetary limits imposed by paragraph 4 of Article 4 "having regard to the experience of incidents which have occurred and in particular the amount of damage resulting therefrom".
42. It is consistent with the intention that those who establish the causal link between economic loss and contamination should be compensated in full – so far as possible within the financial constraints to which the Fund is subject – that the test of causation should be restrictive; in the sense that it should operate so as to enable those whose loss is more proximate to recover in full by excluding from participation in the common fund those whose loss is less proximate. The need to draw a line so as to include some claims and exclude others – notwithstanding that those others would satisfy a less restrictive test of causation – is not in doubt. The need can be justified on the basis of pragmatism – see the observations of Lord Frazer of Tullybelton, when delivering the advice of the Judicial Committee of the Privy Council in Candlewood Navigation Corporation Ltd v Mitsui O S K Lines Ltd and another [1986] AC 1, 16C, 17F. As he explained, the justification at common law for denying a right of action to a person who has suffered economic damage through injury to the property of another – as shown by a line of cases from Cattle v Stockton Waterworks Co (1875) LR 10 QB 453 to Weller v Foot and Mouth Disease Research Institute [1966] 1 QB 569 – is that "for reasons of practical policy it is considered to be inexpedient to admit his claim". That is not to say that pragmatic considerations when applied to the international scheme for compensation in respect of loss caused by oil pollution – established by the 1971 Convention, enacted as part of domestic law by the 1974 Act and incorporated as schedule 4 to the 1995 Act – will lead the line to be drawn in the same place as it would be at common law. But it is to affirm that pragmatic considerations "dictated by necessity" – to adopt Lord Fraser's words in Candlewood (ibid, at 16C) – require a line to be drawn.
43. As I have said, the need to draw a line so as to include some claims and exclude others is not in doubt. Nor has the need for a line been in dispute on this appeal. The appellant accepts the reasoning of the Inner House in Landcatch Ltd v International Oil Pollution Compensation Fund [1999] 2 Lloyd's Rep 316. For my part, I have found much assistance, also, in the judgment of Lord Gill, sitting in the Outer House in that case; I refer, in particular, to the passage from that judgment which Lord Justice Mance has set out. The problem, of course, is where that line is to be drawn in the given case.
44. It is, I think, necessary to avoid the temptation – towards which we were lured by Mr Westcott in his opening submissions with forensic skill, notwithstanding that he disclaimed any such invitation – of seeking some basis upon which to rationalise the decisions already taken by the Fund to accept, or reject, other claims arising out of the grounding of the Sea Empress. It is necessary to avoid that temptation, first, because we cannot know the facts which led the Fund to take the decisions which it did; and, second, because the principles which underlie those decisions – although, no doubt, adopted by the Fund after a proper consideration of its obligations under the Convention – may or may not reflect obligations imposed by English domestic law as enacted in the 1995 Act. I respectfully endorse the observations of Lord Cullen in the Landcatch case ([1999] 2 Lloyd's Rep 316, 327). We are not concerned with other decisions taken by the Fund. They have not been tested in litigation. We are concerned only with the decision taken on the present claim.
45. It is necessary, also, to avoid the temptation to offer guidelines as to the causative test to be applied by the Fund when making decisions in the future. The Fund has not suggested that it needs assistance in this respect. It recognises the need, on pragmatic grounds to draw a line so as to include some claims and exclude others. It would, no doubt, assert that, with the benefit of its accumulated experience in the administration of claims over the past thirty years, it is likely to be in a much better position than the Court to decide where the line should be drawn in particular cases; and that its decisions have generally commanded confidence. At the least, it can say that it has not yet been held to be wrong. That is not, of course, to suggest that the Fund is not subject to the control of the Court; nor that the Court should not correct a decision which does not accord with the Fund's obligations under statute. It is only to recognise that the precise extent of those obligations is best left for determination on a case by case basis.
46. The Court's task is to determine whether the decision in the present case – to exclude the appellant's claim – is consistent with the obligations imposed by statute. That task is made easier by the fact that, in this Court, the appellant did not challenge the correctness of the result reached in the Landcatch case. The appellant accepted that its appeal can succeed only if the decision in the Landcatch case can be distinguished on the facts. It is necessary, therefore, to identify the facts which led the Inner House to reach the decision which it did.
47. The immediate, or most proximate, cause of the economic loss suffered by Landcatch Ltd was the decision of Shetland salmon farmers not to purchase smolt in the early months of 1993. But that decision was inevitable, given the provisions of the Order which had been made by the Secretary of State on 17 January 1993. The effect of that Order was (i) that salmon farmers operating within the exclusion zone could not have fish in their possession and (ii) that smolt could not be delivered to sites in Shetland outside the exclusion zone if (as was the case) they would have to pass through exclusion zone waters – see the judgment of Lord Cullen at [1999] 2 Lloyd's Rep 316, 320-321. The Order was made following the escape or discharge of oil from the tanker Braer, which had grounded off Shetland on 5 January 1993. In those circumstances there was, plainly, some causal link between the economic loss and contamination resulting from the escape or discharge of the oil from the ship; but the court held (affirming Lord Gill's decision in the Outer House) that the link was too tenuous to bring the economic loss suffered by the pursuer within the meaning of "pollution damage" for the purposes of what was then section 4(1) of the Merchant Shipping Act 1974 (re-enacted as section 175(1) in schedule 4 to the 1995 Act). The loss was not "damage caused . . . by contamination".
48. In the present case, the immediate cause of the economic loss suffered by the appellant was the failure of whelk fishermen to perform existing contracts for the supply of whelks. That failure was inevitable, given the provisions of the Order which had been made by the Secretary of State on 26 February 1996. The effect of that Order was that the whelk fishermen could not take whelks from the waters between St David's Head and Port-Eynon Point on the Gower Peninsular; in particular, could not take them from the rocks and pools below mean high water springs which were covered and uncovered by the tide. The Order was made following the escape or discharge of oil from the Sea Empress. As in the Landcatch case, there is some causal link between the economic loss and contamination resulting from the escape or discharge of the oil from the ship; but, as in the Landcatch case, that link is formed by reliance on (i) the making of an Order by the Secretary of State, (ii) the effect of that order on the operations of persons other than the claimant within the designated area (or at a place closely associated with the designated area) and (iii) the decision of those persons (albeit inevitable in the circumstances) not to perform (or, in the Landcatch case, not to enter into) contracts from which the claimant could expect to derive profit. It is important to have in mind that the appellant, in the present case, did not suffer loss as a result of the contamination of any whelks in which it had a property interest; or as a result of any operation which it was carrying on (or would, but for the Order, have been carrying on) within (or at a place closely associated with) the designated area. Its loss, in common with the loss of the pursuer in the Landcatch case, was caused by the inability of persons with whom it had (or would, but for the Order, have had) trading relations to carry on their operations within the designated area. As the decision in Landcatch shows, that is not sufficient to bring the loss within the meaning of "pollution damage" for the purposes of section 175(1) in schedule 4 of the 1995 Act.
49. I agree with Lord Justice Mance that such differences as there are between the factual circumstances which were before the Court of Session in the Landcatch case and those before this Court in the present case are insufficient to lead this Court to a different result. I note, as he has done, that the appellant did not submit, in this Court, that the absence of concluded contracts between Landcatch Limited and the Shetland salmon farmers was material in that context. I agree that the appellant was right to take the view that the existence of the contracts with the whelk fishermen would not, of itself, entitle the appellant to succeed. The appellant has its contractual rights and remedies against the whelk fishermen, for what those may be worth in the circumstances that the contracts may be said to have been frustrated by a supervening event. Nothing which we decide on this appeal can be taken as determinative of the question whether or not the whelk fishermen would be entitled to compensation from the Fund in respect of contractual damages (if any) for which they might be liable as a result of their failure, or inability, to supply whelks.
50. For those reasons - as well as for the reasons set out by Lord Justice Mance, with which I agree - I, too, would dismiss this appeal.

Lord Justice Kennedy:

51. I agree with the judgments of both Lord Justice Mance and Lord Justice Chadwick.

Note 1   A whelk or a biologist would presumably share the eldest oyster’s view of what is natural: “The eldest oyster looked at him,
But never a word he said:
The eldest oyster winked his eye,
And shook his heavy head –
Meaning to say he did not choose
To leave the oyster-bed.”
(The Walrus and the Carpenter, Alice in Wonderland)     [Back]