The tort of negligence presents an awkward dialectic. On the one hand, there is the ultimate desire to compensate each and every deserving claim presented to the courts by plaintiffs who have suffered genuine injury or damage: a truly altruistic ideal. Yet, on the other hand, this is negated by the clear need to impose limits to avoid the greatly feared scenario of "liability in an indeterminate amount for an indeterminate time to an indeterminate class".
1 When two such opposing forces present themselves, one question above all becomes of prime concern: is the resulting synthesis, artificially and consciously formulated by the courts, that which most effectively and objectively combines the merits and ideals of one force with the legitimate fears and reservations of the other? The search for this elusive balance has proved difficult at best, if not almost impossible at times, as is readily visible, for example, from the specific torts of pure economic loss and negligently inflicted psychiatric damage, or 'nervous shock'.
Analysis of the development of these areas of tort since the nineteenth century demonstrates quite lucidly the extreme hesitancy of the courts to grant any form of recovery, no matter how deserving the cause, instead giving precedence to overbearing fears such as were expounded by Cardozo, J. How far, then, have we come, from a starting point of almost blatant refusal to compensate in the mid-nineteenth century, and just how far have we left to go to achieve the ultimate aspiration of an equitable synthesis?
An obvious starting point for any analysis of pure economic loss, (economic loss unaccompanied by physical injury or damage to property), and refusal to compensate therein, must be Cattle v. Stockton Waterworks Co. 2; here the ground rule was laid down that there could be no recovery where the plaintiff had not suffered physical injury. This was emphatically re-affirmed in two years later in Simpson & Co. v.
Thomson3, where it was held "[an action can only lie] in the name, and therefore, in point of law, on the part of one who had either some property in, or possession of, the chattel injured". 4 The exclusionary rule, as laid down in the above cases, was strictly applied to pure economic loss cases of all sorts, in the U. K. , and elsewhere, for a number of decades, justified by virtue that it adroitly provided protection from the spectre of unlimited liability. Even with the introduction of Lord Atkin's 'neighbour principle' in Donoghue v.
Stevenson,5 which remained applicable primarily to acts giving rise to physical damage, it was only in 1964, with the advent of Hedley Byrne v. Heller,6 that the clearly lopsided exclusionary rule, as noted above, began to succumb to significant change. Here the defendant was held liable for pure economic loss resulting from a negligent misstatement, with the concepts of reliance on behalf of the plaintiff, and assumption of responsibility on behalf of the defendant, being imposed to restrain the floodgates.
In light of Hedley Byrne the concept of recovery for economic loss stemming from negligent misstatements became a standard exception to the general exclusionary rule, and more deviations followed. Lord Wilberforce's proposed two-tier approach in Anns v. Merton London Borough Council7 (foreseeability and sufficient proximity between the negligent act and the loss, and the absence of any policy considerations that would require limited liability) posited the possibility of treating economic loss in the same fashion as other forms of negligence.
Following upon this decision recovery for pure economic loss was extended to situations such as a solicitor negligently causing a plaintiff to loose out on an inheritance,8and products liability cases. 9 The decision in Junior Books, building upon Anns, appeared most significant in that great weight was given to the actual facts of the case at hand, instead of refusing recovery on grounds of the floodgates argument, and emphasis was especially placed on the close proximity between the parties.
What this suggested was that recovery could be extended to other areas of economic loss if the same degree of proximity could be identified. Such optimism, however, as far as the United Kingdom was concerned, was far too premature. Shortly after Junior Books, the House of Lords/Privy Council and the Court of Appeal began to express reservations as to the judiciousness and wisdom of Anns, and the decisions that stemmed from it. In the Peabody10 case, recovery for economic loss was refused to a property developer, with the court holding that the test in Anns was not universally applicable.
Further curtailment ensued in the field of economic loss with the Privy Council refusing recovery in two cases in 1985,11 the first concerning attempted recovery by the time charterer of a ship for damage done to the chartered vessel, the second concerning the extent of duty owed by a customer to its bank. In the Candlewood decision, the Privy Council invoked the floodgates argument once more, fearing the ripple effects of allowing recovery to parties in contract that suffered losses as a result of physical damage to the property of a third party.
12 The House of Lords went even further shortly after, refusing recovery in the case of Leigh & Sullivan Ltd. v. Aliakmon Shipping Co. Ltd. 13 Even though the floodgates argument contained little or no weight – the possibility of indeterminate liability did not exist on the facts of the case – their Lordships opted for the (somewhat disingenuous) stance that 'bright line' general rules (even those which systematically refuse any recovery) provide an essential certainty that is wholly necessary in commercial life.
14 The prelude to an end came in 1988 with D & F Estates & Others v. Church Commissioners and Others,15 when the House of Lords refused to apply Anns in a building case concerning defective materials, similar to Junior Books, specifying that Anns applied only to cases concerning liability of local authorities. The end in question came in the form of Murphy v. Brentwood District Council,16 with complete rejection of the Anns formula, even where a local authority was concerned.
Their Lordships considered that Anns did not offer sufficient protection from the danger of indeterminate liability or any clear doctrine as to when liability would be imposed, and so felt that the best remedy was to return to the pre-Anns exclusionary rule which denied recovery in all economic loss cases save for negligent misstatements as laid down by Hedley Byrne. Thus remains the situation in the United Kingdom. The development in Ireland, needless to say, has paralleled that of its neighbour in most respects.
In contrast to the United Kingdom, however, the Irish courts have made a clear effort to adopt Anns, as suggested by Ward v. McMaster17. McCarthy J. defined a duty in negligence "as arising from the proximity of the parties, the foreseeability of the damage and the absence of any compelling exemption based on public policy". 18 This criteria for assessing general negligence appears to have been incorporated into the area of economic loss subsequent upon a negligent act in light of the decision given by Flood J. , in the case of McShane Wholesale Fruit and Vegetables Ltd. v.
Johnston Haulage Co. Ltd. 19 Here it was asserted that the test as to whether economic loss stemming from a negligent act was actionable in this jurisdiction remained the same as that of general negligence as set out by McCarthy J. in Ward v. McMaster. Flood J. specifically commented "that the fact that the damage is economic is not in itself a bar to recovery". 20 In light of this, however, it must be remembered, firstly, that the decision in question by Flood J. was only a reply to a preliminary issue on a general point of law, in the absence of any specific set of circumstances.
Secondly, the Supreme Court has not yet had a chance to utter on the application of this test in any case concerning economic loss subsequent upon a negligent act. Given the absence of any significant case law in this field consequent to Flood. J. 's ruling, therefore, and bearing in mind the caveats noted above, it would seem premature to make any prophesies on the standing of recovery for economic loss in this country, especially economic loss stemming from a negligent act. The main observation to be drawn from the above chronologies is a clear, persistent and inherent reluctance, some one hundred and twenty-five years on from Cattle v.
Stockton, to grant recovery for economic loss suffered as a result of a negligent act perpetrated by another, encouraged by the ever-present fear of opening the floodgates and precipitating indeterminate liability, and the desire to uphold a 'bright line' rule that maintains certainty in this area. This is most clear in the United Kingdom, but even in the wake of such cases as McShane in Ireland, it has not yet been established here that recovery will necessarily spread to economic loss as a result of negligent acts, but only that "such loss is not inevitably irrecoverable".
21 After all, Anns itself was revoked after an established lifespan of some thirteen years, and the fears it posed were legitimate, even if the solution imposed was less than satisfactory. A number of questions, therefore, beg answering. How credible are the floodgates and 'bright line' arguments? ; should they be invoked to support an absolute ban on recovery for economic loss resulting from a negligent act? ; and is there sufficient reason to refuse recovery in cases of negligent acts when it is allowed in cases of negligent misstatements? In short, have the limits of the duty of care been placed at the correct position?
As regards the floodgates argument, an analysis of the cases in which it has been invoked suggest that it is often being employed arbitrarily and illogically, in many circumstances where it holds little or no weight. In Candlewood, for instance, the plaintiff boasted a close contractual dependence on the damaged property, yet the floodgates argument was employed for fear of claims being issued by other third parties whose contractual relationships stood to suffer some sort of loss also; the close proximity between the plaintiff and the defendant was therefore not entertained.
Leigh & Sullivan displays an even more compelling situation – here the possibility of indeterminate liability was nil on the facts of the case and yet this argument was still disregarded in favour of a 'bright line' general rule. In D & F Estates and Murphy such was the irrelevance of any floodgates problems that the issues were not even raised. It becomes quite clear, in this light, that the floodgates argument in itself cannot be justified in completely denying recovery for loss in every circumstance subsequent upon a negligent act.
Yet even when the floodgates argument does not hold, the reasoning of maintaining a so-called 'bright line' general rule which promotes commercial certainty is summonsed to reject the possibility of distinguishing between different categories of economic loss. In the words of Lord Brandon of Oakbrook, "where a general rule, which is simple to understand and easy to apply, has been established by a long line of authority over many years, I do not think the law should
allow pleading in a particular case within the general rule to detract from its application. If such a detraction were to be permitted in one particular case, it would lead to attempts to have it permitted in a variety of other particular cases, and the result would be that the certainty which the application of the general rule presently provides, would be seriously undermined. Yet certainty of the law is of the utmost importance, especially but by no means only in commercial matters".