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The 1921 case, Arbitration between Polemis and Furness, Withy & Co., involved a disagreement about negligence liability between a shipowner, Polemis, and a charterer, Furness, Withy & Co. Polemis had a ship carrying petrol and other cargo, chartered by Furness, Withy & Co. to Casablanca. An employee of the charterer dropped a wooden plank in the ship's hold, sparking a fire and explosion that destroyed the ship. Polemis sued for damages, alleging Furness, Withy & Co. was negligent.
The case went to arbitration, where Polemis won. The ruling was appealed to the Court of Appeal, which affirmed the decision of the arbitrators. The Court upheld a direct consequence test for causation and remoteness in negligence, meaning a defendant is liable for all direct results of their negligence, even unforeseeable ones. It rejected limiting liability based on foreseeability or proximity of cause and effect.
This case was significant because it established a strict rule for negligence liability based on direct consequences, emphasizing that negligence is based on fault and not policy or justice considerations. However, this approach differed from the American courts, which used a foreseeability test.
Ultimately, the English courts adopted a foreseeability test, similar to the American approach, in The Wagon Mound (No 1)  AC 388, overruling the direct consequence test from the Polemis case.
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