Economic Analysis of Tort Law

The Negligence Determination

Malabika Pal

• Publisher: Routledge India
• Year: 2019
• ISBN:
  9781000627497
• Edition: 1
• Topic: Jura
• Subtopic: Rechtstheorie & -praxis

This book looks at the negligence concept of tort law and studies the efficiency issue arising from the determination of negligence. It does so by scrutinizing actual court decisions from three common law jurisdictions – Britain, India and the United States of America.

This volume fills a very significant gap, scrutinizing 52 landmark judgments from these three countries, by focussing on the negligent affliction of economic loss determined by common law courts and how these findings relate to the existing theoretical literature. By doing so, it examines the formalization of legal concepts in theory, primarily the question of negligence determination and liability, and their centrality in theories concerning tort law.

This book will be very helpful for students, professors and practitioners of law, jurisprudence and legal theory. It will additionally be of use to researchers and academics interested in law and economics, procedure and legal history.

1
Introduction

Negligence is a central concept in tort law. It has been widely accepted that as a matter of doctrine, the expansion of liability in modern tort law took place within the framework of the concept of negligence. Broadly, “negligence” refers to the failure of an actor to take reasonable care to prevent harm caused by the actor’s conduct.¹ One close contender for being the fundamental tort principle is strict liability. It refers to liability imposed on an actor for harm the actor causes, whether or not the actor is negligent.² The concept of “fault” includes negligence and intentional wrongful infliction of harm on others. With respect to only unintentional torts, with which this study is concerned, the concept of fault becomes synonymous with negligence. According to the Restatement (Third) of Torts, the overarching and unifying normative principle of American tort law is fault. Although pockets of strict liability exist, unlike negligence, no overarching principle unifies them in an effective and coherent whole.³

The rule of negligence with the defense of contributory negligence was the dominant rule of tort law not only in America but also in most common law jurisdictions since its inception into English law in the case of Butterfield v Forrester⁴ in 1809 and its espousal in the leading American case of Brown v Kendall.⁵ In the latter case, the defendant took up a stick to separate fighting dogs belonging to the plaintiff and the defendant and during the attempt accidently hit the plaintiff in the eye, injuring him severely. Chief Justice Shaw laid down the rule:

if both plaintiff and defendant at the time of the blow were using ordinary care, or if at that time, the defendant was using ordinary care, and the plaintiff was not, or if at that time, both the defendant and the plaintiff were not using ordinary care, then the plaintiff could not recover.⁶

This rule was, however, considered very harsh, and disenchantment with it led to the softening doctrine of “last clear chance,” enunciated by the prominent case of Davies v Mann.⁷ According to this, the plaintiff could recover despite being guilty of contributory negligence, if the defendant had a sufficiently good opportunity to avoid the accident at a point when the plaintiff did not. There were many who advocated the apportionment of loss; despite that, the rule of contributory negligence continued to dominate well into the middle of the twentieth century.

One of the leading tort scholars, Gary T. Schwartz, had traced the history of tort law in the United States and found that negligence, not strict liability, was at the core of tort law. In an important article, he argued that American courts and legislatures undertook to dismantle a number of formal obstacles that had previously impeded the achievement of the negligence principle’s full potential.⁸ He argued that between 1900 and 1950s, American tort law remained generally stable, with tort opinions only sharpening and clarifying tort doctrines that had previously been presented in a relatively crude manner. This stability provided the backdrop for those tort changes after 1960 that demonstrated the vitality of negligence. He argued:

These changes included the abolition of immunities for charities, governments and family – abolitions that rendered such defendants liable under the standards of negligence. Auto-guest statutes and guest doctrines were eliminated, thereby enlarging the liability of motorists for harms caused by their negligence. Many courts established a general negligence principle to cover the liability of landowners, thereby rejecting rules of limited liability that had been tied to the plaintiff’s status as a land tenant. The locality doctrine in medical malpractice cases was withdrawn, thereby permitting a fuller consideration of the question of the doctor’s malpractice. New affirmative duties were recognized, as in Tarasoff v Regents of University of California – duties which defendants violate if, but only if, they behave negligently. Also, new causes of action were created for the negligent affliction of economic loss and the negligent affliction of emotional distress. The traditional defense of contributory negligence was replaced by the doctrine of comparative negligence, which by apportioning liability in accordance with fault could be seen as an elaboration of the basic idea of fault liability. As well, many courts ‘merged’ the defense of assumption of risk into the doctrine of comparative fault, thereby confirming that negligence is the only feature of the plaintiff’s conduct that merits the law’s attention.

(Schwartz (1992) pp. 605–606)

In Britain too, apportionment of loss between the plaintiff and defendant became possible in cases of maritime collision under the Maritime Conventions Act, 1911. The Law Reform (Contributory Negligence) Act, 1945, applied the principle on which the Maritime Conventions Act, 1911, was based to contributory negligence on land.⁹ Most common law jurisdictions have moved to one form or the other of comparative negligence.¹⁰ In America, although until 1968 only seven states had recognized apportionment by the mid-1970s, it had become the majority rule due to a sudden spurt in support for comparative negligence, and at present almost all states have moved to comparative negligence.¹¹ India has also moved towards apportionment following the change in Britain, without bringing about any corresponding enactment. Although a late entrant in this shift, Australia has also moved towards apportionment.

Since the whole issue of apportionment depends on negligence determination, what constitutes negligence is crucial for the judgments. It turns out that it is crucial for the economic analysis of law as well. This is because one of the central issues that legal scholars and economists analyzing law are concerned with is the efficiency of tort law doctrines. An analysis of the literature on the economic analysis reveals that the efficiency question hinges crucially on the conceptualization of negligence. In what follows, we first explore the issue of negligence determination as conceptualized in the economic analysis of law to bring out its efficiency implications. That section is followed by a review of the legal literature in an attempt to compare the alternative conceptualizations with that assumed by the economic model. This is followed by a section on the basis of selection of a set of negligence cases from three common law countries to examine which notion of negligence is used in actual cases litigated in court. A final section will briefly outline the chapterization.

1.1 Economic analysis of law

The origin of the economic analysis of law is often traced to the publication of the seminal article, “The Problem of Social Cost,” by Ronald Coase in 1960. However, some works such as Rowley (1998) and Posner (2005) have argued that this perspective ignores the important contributions of the great political philosophers and economists of the Scottish Enlightenment and those of Jeremy Bentham, who wrote almost two centuries prior to Coase.¹² Richard Posner concentrates on the inspiration provided by the works of Bentham, particularly his Introduction to the Principles of Morals and Legislation.¹³ Posner emphasizes that this influence is discernable in two respects: first, with respect to the explicit use of economic logic in the analysis of crime and punishment, and second, as an early proponent of non-market economics.

Regarding the first aspect, Posner writes:

Bentham has made a number of important economic points in the Introduction: a person commits a crime only if the pleasure he anticipates from the crime exceeds the expected cost. To deter crime, therefore, the punishment must impose sufficient pain that when added to any other pain anticipated by the criminal will exceed the pleasure that he anticipates from the crime; punishment greater than this should not be imposed, because the result would be to create pain (to the undeterrable criminal) not offset by pleasure (benefits) to the potential victims of crime; the schedule of punishments must be calibrated in such a way that if the criminal has a choice of crimes, he commits the least serious; fines are a more efficient method of punishment than imprisonment because they confer a benefit as well as impose a detriment; the less likely the criminal is to be caught, the heavier the punishment must be, to maintain the expected cost great enough to deter.

Posner argues that these points formed the basis of the economic theory of crime and punishment revived later by Gary Becker.

Posner, however, argues that just because Bentham confined his economic approach (as far as law was concerned) to criminal law, it does not follow that his influence on the economic analysis of law is necessarily confined to the area of crime. In fact, Bentham’s insistence on the universality of utility calculations in human decisions can be considered to be the foundation of the economics of non-market behaviour, which is to say, “the investigation by economists of behaviour that occurs other than in explicit markets.” Posner writes:

A good deal of the economic analysis of law is an application of that economics, because law is primarily a non-market institution and one that regulates non-market as well as market behavior – the behaviour of criminals, prosecutors, accident victims, divorcing couples, testators, polluters, religious believers, speakers and so forth, as well as businessmen, workers and consumers engaged in their conventional activities (an important qualification since businessmen for example, can be polluters or criminals as well as buyers and sellers)… . Bentham may be taken to have invented non-market economics.

Bentham’s promise of the universality of the economic model of human behaviour was resurrected by Gary Becker in the 1950s in his doctoral dissertation on the economic analysis of racial discrimination. In his collection of essays, The Economic Approach to Human Behavior, Becker has used the economic approach in attempting to understand human behaviour in a variety of contexts and situations. In the first chapter he elaborates on what constitutes this “economic approach” and argues that what most distinguishes economics as a discipline from other disciplines in the social sciences is not the subject matter, as has often been projected, but its approach. Summarizing the economic approach, he argues: “all human behavior can be viewed as involving participants who maximize their utility from a stable set of preferences and accumulate an optimal amount of information and other inputs in a variety of markets.” He concludes by saying that “the economic approach provides a valuable unified framework for understanding all human behavior.”¹⁴

In the field of law, until the 1960s economic analysis was virtually synonymous with anti-trust economics. That was due to the influence of Aaron Director in the Chicago Law School. He was joined later by Ronald Coase in editing the Journal of Law and Economics, which Posner describes as a landmark development in the law and economics movement. Coase’s “The Problem of Social Cost” undoubtedly had a revolutionary impact on the way the legal world thought about the effects of liability rules. His demonstration of the lack of effect of a legal rule on the allocation of resources where transaction costs are zero came to be known as the Coase theorem.¹⁵Priest (2005) argues that the roles of Coase and Director in law and economics are essentially similar, although the Coasean approach has application to a much broader range of legal rules than the Director approach. Neither had an interest in law or the development of law; both of them attempted to explain social behaviour alone.¹⁶

Priest distinguishes between two strands of analysis: one concerned with the explanation of behaviour and the influence of law on behaviour exemplified by the Director-Coase type of work; and another concerned with the explanation of law itself – shown by the work of Guido Calabresi and Richard Posner. According to Priest, the sudden intellectual rise of law and economics and its impact on American legal thought can be attributed to the publication of Calabresi’s 1970 book, The Cost of Accidents and Posner’s The Economic Analysis of Law, soon after. The former applies economic analysis, not to practices that led to legal disputes in the manner of Director and Coase, but to the accident law system in its entirety. The framework of the book was considered sufficiently general to implicate a range of other legal fields as well. However, it was Posner’s Economic Analysis of Law, in which he proposed a theory that the central unifying feature of the common law is that its rules are defined to achieve efficiency, that had a greater impact and compelled the legal world to give greater attention to law and economics.

The reason why Posner’s analysis had such widespread impact compared to Calabresi’s¹⁷ was his focus on one single central principle – efficiency, underlying all of common law. Priest emphasizes that Posner’s theory of the law is simple:

that common law rules are efficient, that common law judges define a legal rule as if they consciously weigh the relative costs to the disputants of avoiding the dispute and then consciously determine how to optimize future behaviour. Judges, of course, draft opinions incorporating legal terms and concepts, but the analysis of the central rules of common law shows t...