The decision in this case has now (7 February 2003) been upheld by the Court of Appeal. To access the note on the Court of Appeal judgment, click here

Facts
This was a preliminary issue in limitation proceedings commenced by the owners of the ’Sea Empress’, which had grounded off Milford Haven in February 1996, causing substantial oil pollution. Claims arising from the incident had substantially exceeded the owners' limitation figure calculated pursuant to s.157 Merchant Shipping Act 1995 (‘MSA’) and the owners had therefore no financial interest in the outcome. Once the owners’ limitation amount had been exceeded, the International Oil Pollution Compensation Fund 1971 ('the Fund') became responsible for further claims and it had intervened in the limitation action.

The claimant, Tilbury, was a fish processor which had suffered economic loss following the imposition of a government fishing ban in the area of the casualty after the pollution. Tilbury claimed to have lost profits amounting to £643,557 that it would otherwise have made from processing whelks supplied by fishermen from that area and on-selling them to its distributor in Korea, to which market the processed whelks were destined. Tilbury contended that this sum was recoverable without proof of default by virtue of Schedule 4 Section 153(1) to the 1995 Act and that foreseeability of damage was sufficient to allow recovery of economic loss. The Fund argued that, as a matter of law, even if an economic loss was foreseeable, it remained irrecoverable where it was "secondary", "relational" or "indirect". The Fund relied upon Landcatch v International Oil Pollution Compensation Fund (1999) 2 Lloyd's Rep 316, a similar case relating to the supply of salmon smolts to the Shetland Isles that was interrupted by a ban on fish farming in those waters consequent upon the oil spilled from the grounding of the ‘Braer’ in January 1993.

The Fund emphasised the need to impose some form of control mechanism to exclude pure economic loss claims. 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 common law if fault were established. Tilbury had replied that this approach would lead to the exclusion of the claims of the fishermen themselves, despite the fact that the Fund had admitted and paid such claims. The judge held that Tilbury’s reply was based upon a misconception.

As a general rule, it was true that no duty of care was owed by a defendant, who carelessly damaged property, to a claimant who had no possessory or proprietary interest in the property, but suffered loss because of some economic dependence on it. (the so-called ‘exclusionary principle’). Although in this case, the fishermen had no property in the fish, the general exclusionary principle was not necessarily a bar to their claim against the owners. As the law had developed, there was no longer a distinction in principle between direct physical damage and direct economic loss. The MSA itself drew no distinction between the two. The position of the fishermen was such that the pollution gave rise to immediate interference with their economic interests. On these grounds, the judge had no difficulty in accepting that the fishermen were in principle, entitled to recover damages for the economic loss they had sustained.

The position of the claimant processors was, however, very different. Whilst the fishermen had a direct economic interest in the waters that had been contaminated, Tilbury were traders whose economic interest arose out of contracts with those fishermen. Tilbury’s claim in the present case was secondary, derivative, relational and/or indirect. This lack of proximity rendered the claim too remote. Otherwise, the owners and the Fund were exposed to an indeterminate number of claimants along an infinite chain.

The court held that there was no relevant factual distinction between the present claim and that of Landcatch (supra) and that the claim had to fail for the same reasons as in Landcatch. It was accordingly dismissed.