England and Wales High Court (Admiralty Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMIRALTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		29th May 2002

Mr Justice David Steel :

1. The Court is concerned with a preliminary issue in the claim arising out of the grounding of the Sea Empress off Milford Haven in February 1996. The claim is brought by RJ Tilbury & Sons (Devon) Ltd (“Tilbury”) against the owners of the Sea Empress (“the owners”) pursuant to section 153 of Schedule 4 to the Merchant Shipping Act 1995. The claim is brought in the limitation proceedings that were commenced by the owners on the 29^th April 1999. This preliminary issue proceeds on the basis that the claimants’ pleaded case is presumed to be correct.
2. The totality of the claims arising out of the incident is substantially in excess of the owners limitation figure calculated pursuant to section 157 of the Act. In short, the total sum already paid out to the claimant is in the order of £34 million where the limitation figure is only about £7.4 million. Thus the owners have no further financial interest in the outcome.
3. By virtue of its obligation under the “top up” provision in section 175 of the Act, the International Oil Pollution Compensation Fund 1971 (“the Fund”) is responsible for all claims above the owners limit subject to the Fund’s own limit (which has not and will not arise). The Fund has accordingly intervened in the limitation action.
4. Tilbury is a company engaged in the business of fish processing. It is based in Exmouth in Devon. Something in the region of half of Tilbury’s sales were accounted for in processed whelks. Most of these whelks were Welsh, in respect of which there was a lucrative Korean market (the alternative of Grimsby whelks being far less prized). To this end, Tilbury had a long-term sales contract with Yosung Mulsan Company Limited.
5. Tilbury had supply contracts with fishermen who fished the whelk ground between Tenby and Saundersfoot landing their catch in the Milford Haven area. Following the grounding, some 72,000 tonnes of crude oil spilled into the sea. The spillage lead to the imposition of a fishing ban pursuant to Part 1 of the Food and Environment Pollution Act 1985. That ban was in force from the 28^th February to the 12^th September 1996.
6. The relevant regulation provided as follows:-

“Rule 2

In the opinion of the Secretary of State, any edible plants, edible seaweed and fish in the area designated in Article 3 below may be affected by oil or other chemical substances which are likely to create a hazard to human health if they are consumed.

Rule 4

No person shall fish for or take fish in the designated area.

Rule 5

No person shall gather or pick edible plants or edible seaweed in the designated area.

Rule 6

No person shall remove any edible plants, edible seaweed or fish out of the designated area.

Rule 7.

No person shall in the United Kingdom or in United Kingdom waters -

(a) use any edible plants, edible seaweed or fish taken out of the designated area after the relevant time, preparation or processing for supply of food or anything from which food could be derived…”

7. As a result of these restrictions, Tilbury claim to have lost the profit that it would otherwise have made from processing whelks supplied by the fishermen to the tune of £643,557.00. Tilbury contends that this sum is recoverable without proof of default by virtue of section 153(1) (a) of schedule 4 to the Merchant Shipping Act 1995 which provides:

“Where, as a result of any occurrence…any persistent oil… is discharged or escapes from a ship, to which this section applies, then the owner of the ship shall be liable –

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

8. The claimant’s argument can be summarised briefly:

a) By virtue of Section 170 (I) of the Act, “damage” includes “loss”;

b) Accordingly economic loss caused by contamination resulting from the escape of oil is recoverable in principle;

c) The claimant’s economic loss was caused by contamination in that but for escape of oil no fishing ban would have been imposed ;

d) The escape of oil was the effective cause of the loss of profit;

e) The loss was not too remote since it was foreseeable.

9. The Fund’s case can be summarised equally briefly:

a) The claimant’s propositions (a) to (d) inclusive are correct;

b) Whilst it is accepted that the loss was foreseeable, such is not sufficient to render economic loss recoverable.

c) The claimant’s loss flowed from interruption of a business relationship with the primary victims of the contamination, namely the fishermen.

d) As a matter of law, such a “secondary” or “relational” claim is not recoverable: see Landcatch Ltd v. The International Oil Pollution Compensation Fund [1999] 2 Lloyd’s Rep 316.

Causation / Remoteness

10. The argument focussed on the separate issues of causation and remoteness and it is convenient to adopt the same categorisation. I recognise that there is, however, an element of artificiality about such an approach. As Lord Hoffmann observed in Kuwait Airways Corporation v. Iraq Airways Company [2002] UKHL 19 at para.128:-

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

11. As indicated, there was no apparent dispute on the issue of causation to the extent that it was distinct from the issue of remoteness. This is not surprising. The causative link between the escape of oil and the loss of profitable sales of processed Welsh whelks was unconnected with, let alone interrupted by, any fresh or intervening cause.
12. Of course, the loss would not have been sustained but for a range of other factors: the contracts with the fishermen, the absence of an alternative source of whelks; the distinctive nature of the Korean palate and so on. But these pre-existing factors were simply the circumstances in which the escape could occasion the loss. In short the escape was the only legally effective cause of the loss.

Foreseeability

13. It was, as I have recorded, common ground that the loss sustained by the claimant was foreseeable. Indeed, I apprehend that it was not in issue that losses all the way down the supply chain were reasonably foreseeable:

a) Loss of profit by the fishermen

b) Loss of profit by the processors

c) Loss of profit by the importers into Korea.

d) Loss of profit by the Korean restaurants.

14. Foreseeablity is a prerequisite to recovery in tort: The Wagon Mound (No. 1) [1961] AC 388 (negligence), The Wagon Mound (No. 2) [1967] 1 AC 617(public nuisance), Cambridge Water Co. v. Eastern Counties Water Co. [1994] 2 AC 264 (Rylands v Fletcher and private nuisance), Kuwait Airways v. Iraq Airways [2001] I Lloyd’s Rep 161 (causation). Again, it was common ground that foreseeablity was equally a pre-requisite to a claim for the recovery of damage under the Act.

Economic Loss

15. It was Tilbury’s case that, as a matter of law, foreseeability of damage was sufficient to allow recovery of economic loss. The Fund insisted that, as a matter of law, even if an economic loss was foreseeable, it remained irrecoverable where it was “secondary”, “relational” or “indirect”.
16. In this context, the Fund relied upon the Landcatch decision (supra). This was the culmination of a number of actions arising out of the grounding of the Braer off the Shetlands in January 1993. The claimants reared salmon smolts in Argyll. Their primary market was fish farms in Scotland. The effect of a similar ban to that imposed in the present case was to shut off that market. The Inner House affirmed a judgment by the Lord Ordinary dismissing the claim.
17. I propose to cite only a few short passages from the detailed judgments. Lord Cullen, the Lord Justice Clerk, stated as follows:

“I am in no doubt that if Landcatch had been able to sue, and had sued, the shipowners for damages at common law in regard to those losses, its claim would have failed, on the application the well recognised “pragmatic rule” against secondary or relational claims….

What then is the correct approach to the 1971 Act, which provides for strict liability in compensation, supplanting the right to damages and superseding the need to prove fault?…

….I consider that 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. Fourthly, I have no difficulty in accepting that the mere fact that the expression “loss” is apt to include claims of pure economic loss in the context of this legislation does not entail that every claim for pure economic loss is admissible. That is clearly so where, as in this case, the claim is of a secondary or relational type….

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. I have derived less assistance from the decisions relating to compensation for the use of compulsory powers, since these seem to be influenced by the terms of the compensation statute and by considerations of public benefit which do not have true counterparts in the present case.”

18. Lord McCluskey agreed:

“The whole corpus of cases cited to us from different fields in which the common law or the legislature have conferred rights to compensation, reparation or damages for loss demonstrates, in my view, that the test of remoteness is too well established to be excluded except by express and unambiguous enactment. That test would exclude a claim such as is now advanced by Landcatch on the ground that it was indirect, relational pure economic loss which is too remote from the causal factor which makes the causer liable. I do not consider that Landcatch have succeeded in showing that the words used in the statutes creating liability for this particular compensation have displaced these familiar principles.”

19. So too did Lord Coweie:

“At the risk of over-simplifying this complex action I would only say that, in my opinion, the averments of the pursuers and reclaimers amount to no more than a claim for relational economic loss.

Such a claim has for many years and in several branches of the law been rejected by the Courts.

Accordingly, it seems to me that the real issue in the present case is whether, notwithstanding the reluctance of the Courts to entertain such a claim, the provisions of the Merchant Shipping (Oil Pollution) Act, 1971 and the Merchant Shipping Act, 1974 are wide enough to permit it.

For the reasons which have been stated by your Lordship in the chair, and, in particular, in the absence of clear indications to the contrary, I am satisfied that the Acts do not have that effect.”

20. Tilbury sought to distinguish Landcatch on its facts. The focus of this submission was the contrast between the pre-existing contract with both the fishermen and the Korean consignees in the present case and the absence of any concluded contracts with the Shetland fish farming industry in Landcatch. The effect, it was suggested, was that, for that reason alone, the loss sustained in Landcatch was purely speculative and thus not caused by the escape.
21. The factual distinction is real enough so far as it goes. But there is little suggestion in the judgments of the Inner House that the decision turned on the absence of any concluded supply agreements. As here, the case proceeded on the basis that the pursuers’ pleaded case was presumed as correct. In short, the pursuers contended that the Braer casualty caused the bottom to fall out of the Shetland market for smolt and thus deprived the claimants of what, based on past experience, was an assured market in expectation of which there had recently been incurred substantial expenditure. As Lord McCluskey put it: “It is in essence a claim for loss of the profits which Landcatch expected to make – and were fully entitled to expect to make – but did not make from selling smolt to Shetland fish farmers in and after 1993.”
22. Whilst it is true that Lord Cullen noted that “[Landcatch’s] business did not form part of the business of Shetland fishfarmers and the smolts were not even the subject of an existing contract at the time” there is no suggestion that he would not have regarded the claim as secondary or relational if there had been a contractual commitment
23. Accordingly, against that background, the Inner House found that the loss was caused by the escape. In my judgment, there is no relevant factual distinction between the present claim and that of Landcatch.
24. Tilbury had an alternative argument vis-a-vis the extent to which the decision in Landcatch is determinative for the present case. The claimant re-emphasised that the Inner House drew a firm distinction between loss directly caused by the contamination which was in principle recoverable e.g. loss sustained by the fishermen and losses indirectly caused by the contamination which were in principle not recoverable – e.g. losses sustained by those who supplied, or were supplied by, the fishermen.
25. In this connection, considerable emphasis was placed on the decision in Elliott Steam Tug Company Ltd v. The Shipping Controller [1922] 1 KB 127. As I understood the point, it was contended that, by analogy with that decision, albeit Tilbury had no proprietary interest in the whelks (or in the coastlines threatened by the escape), nonetheless the loss sustained was direct and not relational.
26. Elliott was concerned with a claim by a long-term time charterer of a tug which had been requisitioned. By virtue of the Indemnity Act 1920, any person not being the owner of a ship, who had sustained any “direct” loss by reason of interference with his property or business in the United Kingdom through the exercise, during the war, of any prerogative right, was entitled to payment of compensation. By a majority, the Court of Appeal held the loss of the net earnings of the tug during the requisition was “direct loss or damage”.
27. I derive no assistance from this judgment which is more usually cited for that part of Scrutton LJ’s dissenting judgment which contains the proposition that a claimant need not destroy his own property by way of mitigation. The decision turned on the construction of the statute which was expressly concerned with “direct” loss by reason of interference with “business”. Furthermore, caution is in any event called for in drawing any analogy given the contemporary vogue in that period to refer, in the context of causation, to “direct” consequences both in contract and in tort. Indeed so far as tort is concerned, the decision is contemporary to that in Re Polemis [1921] 3 KB 560 which was not followed in The Wagon Mound No.1 supra:

“It does not seem consistent with current ideas of justice and 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 the consequences however unforeseeable and however grave, so long as they can be said to be “direct””.

28. The claimant’s alternative submission was that Landcatch was wrongly decided. The obvious threshold difficulty with this approach is that there is a respectable argument that the decision of a court of concurrent jurisdiction to the English Court of Appeal is binding on me. The issues arose out of questions of substantive law where there are no differences between English and Scottish law. Since the Fund did not press this suggestion, I will not develop it. But on any view, the decision presents itself as one of the highest persuasive authority.
29. The Fund emphasised the need to impose some form of control mechanism to exclude pure economic loss claims. A whole range of potential claimants can and do emerge from an oil spill: fishermen, hotel owners, suppliers to hotels, suppliers to fishermen, fish processors, public authorities, restaurants, shops etc. The claims are also infinitely variable: loss of sales, loss of tax revenue, loss of bookings, loss of goodwill, costs of marketing campaigns, and so on.
30. All these claims are likely to be foreseeable and there inevitably arises an echo of the words of Lord Wright in Liesbosch Dredger v. SS Edison [1933] AC 449 at p.460:

“The law cannot take account of everything that follows a wrongful act, it regards some subsequent matters as outside the scope of its selection, because “it were infinite for the law to judge the cause of causes” or consequences of consequences… In the varied web of affairs, the court must strike some consequences as relevant, and not perhaps on the grounds of pure logic, but simply for practical reasons.”

31. Against this background, the Fund contended that recovery under the statute should in principle only extend to those claimants who would have been able to recover at the common law if fault were established. The rejoinder of Tilbury was that such an approach lead to the exclusion of the fishermen’s claims despite the fact that the Fund had recognised and paid such claims. In my judgment, whilst 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, the claimant’s submission is based upon a misconception.
32. It is of course correct that as a general rule, no duty of care is owed by a defendant, who carelessly damages property, to a claimant who has no possessory or proprietary interest in the property, but suffers loss because of some economic dependence upon it: Cattle v. Stockton Water Works [1875] Law Reports 10 QB 453, Simpson v. Thompson [1877] 3 AC 279, Lee & Sullivan Ltd v. Aliakaman Shipping Company [1986] AC 785 Candlewood Navigation Corporation v. Mitsui OSK Lines Ltd [1986] 1 AC 1.
33. The fishermen have, of course, no property in the fish (or the whelks). But the general exclusionary principle described above is not necessarily a bar to their claim against the owners:

i) There is no longer any distinction in principle between direct physical damage and direct economic loss. “Since the decision in Dorset Yacht Co. Ltd. v Home Office [1970] AC 1004 it has been settled law that the elements of foreseeablity and proximity as well as considerations of fairness, justice and reasonableness are relevant to all cases whatever the nature of harm sustained by the plaintiff ”: per Lord Steyn in Marc Rich Company v. Bishop Rock Ltd [1996] 1 AC 2 11 at 235. He approved the following passage in the decision of Saville LJ in the Court of Appeal:

“whatever the nature of harm sustained by the plaintiff, it is necessary to consider the matter not only by inquiring about foreseeability but also by considering the nature of the relationship between the parties; and to be satisfied that in all the circumstances it is fair, just and reasonable to impose a duty of care. Of course…these three matters overlap with each other and are really facets of the same thing. For example, the relationship between the parties may be such that it is obvious that a lack of care will create a risk of harm and that as a matter of common sense and justice a duty should be imposed…Again in most cases of the direct infliction of physical loss or injury through carelessness, it is self-evident that a civilised system of law should hold that a duty of care has been broken, whereas the infliction of financial harm may well pose a more difficult problem. Thus the three so-called requirements for a duty of care are not to be treated as wholly separate and distinct requirements but rather as convenient and helpful approaches to the pragmatic question whether a duty should be imposed in any given case. In the end whether the law does impose a duty in any particular circumstances depends on those circumstances… ”

ii) The Merchant Shipping Act 1995 draws no distinction between physical loss and economic loss. I have no difficulty in accepting that the fishermen may be entitled to recover (subject to questions as to the locality of his base and so on). This is because the fishermen’s position is such as to give rise to immediate interference with their economic interests. As Lord McCluskey put it in Landcatch:

“Nevertheless, it appears to me that the loss of his livelihood is properly described as damage that is caused directly and immediately by contamination resulting from the discharge or escape of oil from the ship. The contamination does not set in train a chain of events that eventually results in his suffering loss or damage. On the contrary, the contamination is both the immediate, direct, and, in such a case, the only cause of his loss.”

iii) It must also be borne in mind that the fishermen may be able to pray in aid other causes of action. For instance, there is a public right to take fish (including shellfish) in tidal waters:- Attorney General for British Columbia v Attorney General for Canada [1914] AC 153. An interference with that right to fish is capable of constituting a public nuisance, actionable by a claimant who has suffered particular or special loss: Jan de Nul (UK) Ltd v. Royale Belge [2000] 2 Lloyds Reports 700 [2002] 1 Lloyds Reports 583 (CA).

34. The position of the claimant processors is very different:-

i) Whilst the fishermen had, as Lord McCluskey put it, a direct economic interest in the waters that had been contaminated, this is in stark contrast with the position of a trader who has an economic interest arising out of contracts with those fishermen. Lord McCluskey took the example of a person who supplied fishermen with, say, diesel –

“The trader’s loss of profit, which begins to occur when his expected sales do not eventuate, is essentially relational loss. It is, of course, pure economic loss; but it is not that which is important; what it important is that it is not a loss that is caused directly by contamination. In the same way, the wholesaler who supplies the diesel in bulk to the trader, or the netmaker who sells the trader nets for onward sale to fishermen may be economically prejudiced by the disruption of his market; but his economic prejudice, or loss, is not caused directly by oil pollution, or contamination.”

ii) The processor’s claim in the present case is equally secondary, derivative, relational and/or indirect. In my judgment, this lack of proximity renders the claim too remote. This may be no more than a matter of first impression or even common sense. But I conclude that, otherwise, the owners and the Fund are exposed to an indeterminate number of claimants along an infinite chain.

iii) This conclusion is fortified by reference to the fate of similar economic loss claims arising in analogous circumstances. Reference has to be made in this connection to Weller & Co. v. Foot and Mouth Disease Research Institute [1966] 1QB 569 where auctioneers failed to recover the loss of profits attributable to the closure of their market following an outbreak of foot and mouth disease. Whilst the approach to facts similar to Weller might now be by reference to considerations of proximity and fairness rather than the mere absence of proprietary interest, the outcome would unquestionably be the same.

iv) It might have been argued that the processors’ claim could benefit in the alternative from incremental development of the law in this field: see BCCI (Overseas) Ltd (In liquidation) v. Price Waterhouse (No.2) [1998] PNLR 564 per Sir Brian Neill at p.583 ff. The only decision that I have found which might be of assistance to the claimant in this respect is the decision of the High Court of Australia in Perre v. Apand Proprietary Limited [1999] 73 ALJR 1190. There the claimant potato growers found themselves within a buffer zone in which the import of potatoes was prohibited following an outbreak of bacterial wilt. The claimants brought proceedings against the importers of potato seed which had given rise to the outbreak. On appeal to the High Court, following rejection of the claim both at trial and on appeal to the Full Court, sufficient justification to find in favour of the claimants was found by virtue of the physical closeness of the claimants’ farm to that where the diseased crops had been grown. This decision was neither cited nor relied upon by the claimants. Perhaps that is not surprising. On any view of the facts, the High Court’s incremental approach to the development of the law in this field could not encompass the indirect and relational nature of the claim made by the claimants. Furthermore, all the members of the Court expressed the view that Australian law no longer adhered to the exclusionary rule as exemplified by Candlewood, preferring the line of decisions following on Caltex Oil (Australia) Pty Ltd v. The Dredge Willemstad (1976) 136 CLR 529. In addition, the majority of the Court refused to follow the “threefold test” exemplified by the decisions in Caparo Industries Plc v. Dickman [1990] 2 AC 605 and Smith v. Bush [1990] 1 AC 831.

Conclusion

35. Accordingly for all these reasons, I am fully persuaded that, as the Fund contended, this claim must fail for the same reasons as those in Landcatch.