The rule of remoteness of damage runs through the whole realm of compensation.
A plaintiff is not entitled to get damages if the damage sustained by him is too remote a consequence of the defendant's conduct. The chain of causation between the defendant's act and the plaintiff's injury must not be too indirect for no man is liable in law ad infinitum for the consequences of his acts.
The reason for the rule is that law cannot take account of everything that follows a wrongful act; it regards some subsequent matters as outside the scope of its selection.
There is a well-known Latin maxim, in jure non remota cause sed proxima spectatur, which means that in law, the immediate and not the remote cause of any event is regarded. With regard to the test of remoteness, originally the view prevailed that consequences were remote if a reasonable man would not have foreseen them.
Pollock, C.B. expressed a strong doubt whether a man is responsible for all the consequences that may under any circumstances arise in respect of mischief which by no possibility could have been foreseen and which no reasonable person could be called on to anticipate.
He intimated that the rule was that a man is expected to guard against all reasonable consequences, which was christened as the test of reasonable foresight. The test of reasonable foresight thus states that a wrongdoer was only responsible for damage which was intended by him, or which though not intended was the natural and probable consequence of his act.
A consequence for this purpose will be considered natural and probable when it is so likely to result from his actions that a reasonable man in the circumstances of the wrongdoer would have foreseen it and abstained from the act accordingly.
In Polemis v. Furness Withy & Co. Ltd., the test of reasonable foresight was rejected. If a reasonable man would have foreseen any damage likely to result from his act, then he is liable for all the direct consequences of it whether a reasonable man would have foreseen them or not, known as the test of direct cause.
But again the test of reasonable foresight or foreseeability test has been adopted by the Privy Council in its decision in Overseas Tankship (U.K.) Ltd. v. Mort's Dock Engg. Co. Ltd., Wagon Mound No. 1.
There are two aspects which courts have to consider before they can fix liability on defendants. One is the preliminary question of culpability and the next is that of compensation.
The court has to decide first whether the defendant is culpable, i.e., whether he has violated a general duty which he owed to the plaintiff. If it is apparent from the circumstances of the case that the defendant has violated a duty and has thus committed a wrong then arises the further question of what should be the pecuniary compensation that he must pay to the plaintiff.
Scrutton, L.J. said: "To determine whether an act is negligent it is relevant to determine whether any reasonable person would foresee that the act would cause damage". Once the act is negligent, the fact its exact operation was not foreseen (and would not have been foreseen by a reasonable man) is immaterial.
The Court of Appeal in Re Polemis adopted the expression direct cause as indicating the relation which must exist between the act of the defendant and the damage suffered by the plaintiff.
If the defendant's act is only an indirect cause, the damage is too remote and irrecoverable. But the expression "direct cause" was used without making it clear as to what degree of remoteness is required by law.
The decision in Polems v. Furness Withy & Co. Ltd., was definitely disapproved and declared bad law by the Privy Council in a later decision in Overseas Tankship (U.K.) Ltd. v. Mort's Dock Engg. Co. Ltd., Wagon Mound No. 1. In this case, by the carelessness of the appellants' (Overseas Tankship Co.) servants oil from a ship was spilled into a bay.
The oil spread over the water to the respondents' (Mort's Dock Engineering Co.) wharf, which was some six hundred feet away and at which the respondents were carrying out repair work to a ship including the welding of metal.
Molten metal from the respondents' wharf fell on floating cotton waste, which smoldered and ignited the furnace oil on the water. The respondents' wharf sustained substantial damage by fire.
In an action by the respondents for damages for negligence, it was found as a fact that the appellants did not know that the furnace oil was capable of being set alight when spread on water.
It was held that the test of liability for the damage done by fire was the foreseeability of the injury by fire, and, as a reasonable man would not on the facts of the case have foreseen such injury, the appellants were not liable for negligence for the damage, although their servants' carelessness was the direct cause of the damage.
Hence the foreseeability test became re-established, setting aside the distinction of different tests for determining liability and compensation and also holding that the same test of foreseeability governs all actions, both in contract and tort.
In Overseas Tankship (U.K.) Ltd. v. Miller Steamship Co. (P) Ltd., Wagon Mound No. 2, it is interesting to note that the Privy Council gave a favourable verdict to the plaintiffs where the incident was the same as in Wagon Mound No. 1. In the latter case the plaintiffs lost their claim on the ground that the damages caused to them were not foreseeable whereas, in Wagon Mound No. 2, their Lordships held that the damages were foreseeable.
In Wagon Mound No. 2, the ships that were nearby and undergoing repairs were caught in the fire and extensive damage was caused, it was held on the evidence in Wagon Mound No. 2 (distinguishing it from that in Wagon Mound No. 1) that there would have been present to the mind of a reasonable man in the position of the engineer of the appellant'
type that there was a real risk of fire through a continuing discharge of furnace oil on the water, and their knowledge that oil so spread was difficult to ignite and that would occur only very exceptionally would not, in the circumstances of this discharge, make such reasonable men think it justifiable to neglect to take steps to eliminate the risk. Thus the damages were not too remote and the respondents were entitled to recover on the issue of negligence.
In Wagon Mound No. 2 the evidence showed that the discharge of so much oil to the water must have taken a considerable time and a vigilant ship's engineer would have noticed the discharge at an early stage.
The findings show that he ought to have known that it is possible to ignite this kind of oil on water and the ship's engineer probably ought to have known that this had in fact happened before.
The most that can be said to justify inaction is that he would have known that this could only happen in very exceptional circumstances, but that does not mean that a reasonable man would dismiss such risk from his mind and do nothing when it was so easy to prevent it.
Since it is clear that a reasonable man would have realised or foreseen and prevented the risk then it must follow that the appellants are liable in damages. Consequently they were held liable in damages in Wagon Mound No. 2.