The Wagon Mound (No.2)

Overseas Tankship (UK) Ltd v The Miller Steamship Co

For the previous case on remoteness of loss, see The Wagon Mound (No 1).

Overseas Tankship (UK) Ltd v The Miller Steamship Co or The Wagon Mound (No 2) [1967] 1 AC 617 is a landmark tort case, concerning the test for breach of duty of care in negligence. The Judicial Committee of the Privy Council held that loss will be recoverable where the extent of possible harm is so great that a reasonable man would guard against it (even if the chance of the loss occurring was very small).

The Wagon Mound (No 2) should not be confused with the previous case of the Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd or The Wagon Mound (No 1), which introduced a remoteness as a rule of causation to limit compensatory damages.

The defendant owned a freighter ship named the Wagon Mound which was moored at a dock. The plaintiff owned two ships that were moored nearby. At some point during this period the Wagon Mound leaked furnace oil into the harbour while some welders were working on a ship. The sparks from the welders caused the leaked oil to ignite destroying all three ships.

The appeal to the Privy Council was on the basis of whether the defendant should be liable.

The Council found that a reasonable person in the position of the ship's engineer would have been aware of the risk of fire. Since the gravity of the potential damage from fire was so great there was no excuse for allowing the oil to be discharged even if the probability or risk of fire was low. A reasonable person, the Council held, would only neglect a risk of such a potentially great magnitude if he or she had a reason to do so, e.g. if it were cost prohibitive. Lord Reid said at 718-719,

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It follows that in their Lordships view the only question is whether a reasonable man, having the knowledge and experience to be expected of the chief engineer of the Wagon Mound, would have known that there was a real risk of the oil on the water catching fire in some way.

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The words "real risk" are the requirement of remoteness of damage but the test of foreseeability does not depend upon the actual risk of occurrence. The test is really whether the engineer ought to have foreseen the outbreak of fire, i.e. the type of consequence ought to have been foreseen.

Significance

This idea of a balance between magnitude and seriousness of risk is similar to that proposed by Learned Hand in United States v. Carroll Towing Co. 159 F.2d 169 (2d Cir. 1947) on the subject of legal causation. Such a formulation of the issue has struck some in the field as an argument along the lines typically made in the Law & Economics camp usually seen to be represented by the American Judge Richard Posner.