This article was originally published in the winter 1998 issue of the Expert Witness.
This is the third in a series of articles in which I examine the application of economic reasoning to questions of liability in torts. In the previous two articles, I argued that the principles of tort liability can best be understood if it is assumed that the goal of the courts has been to deter future inefficient behaviour – rather than to compensate victims for past harms.
One corollary of that analysis is that if the threat of tort damages is not the most effective means of preventing a particular type of harm, the courts should refuse to treat the case under the rubric of tort law. In short, one would expect that there would be a “gatekeeper” doctrine in law that would allow the courts to divide the cases appearing before them into two streams: “tort cases” and “not tort cases.”
Economists argue that “duty of care” rules act as this doctrine. That is, to say that a party owes a duty of care is tantamount to saying (i) that any (potentially) negligent behaviour in which the party engages could be deterred by threat of tort damages; and (ii) that tort law is the most efficient technique for deterring any such behaviour. The advantage of viewing duty of care as having this gatekeeping function is that it provides a relatively simple framework in which to understand one of the most complex and misunderstood areas of tort.
In some cases, it is clear, even before the court has heard evidence concerning the actions of a party, that the threat of tort damages could not have induced that party to change his or her behaviour. The clearest instance of this situation is that in which the party in question could not have foreseen that its actions had the potential to cause an injury.
In the classic Canadian case of Nova Mink v. Trans-Canada Airlines  2 D.L.R. 241, a low-flying airplane so scared the animals in a commercial mink farm that they ate their young, causing the owner considerable harm. The airline was held to owe no duty of care to the mink farm and, therefore, was not required to pay damages.
This decision is consistent with the view that tort actions are to be allowed only when they can deter harmful behaviour. (And it is strongly inconsistent with the view that the function of tort law is to compensate “deserving” plaintiffs.)
To have ruled in favour of Nova Mink would have established a precedent to the effect that injurers owe a duty even when they cannot foresee the consequences of their actions. Yet when those consequences could not (reasonably) have been foreseen no precautions against such consequences could have been taken. Therefore, any court action in such a situation could have produced no change in the behaviour of the parties. It could only have resulted in a transfer of income from the defendant to the plaintiff, at a great cost (in terms of judicial expenses) to society.
The Misfeasance/Nonfeasance Distinction
Even if the defendant has foreseen the harmful event, he/she will often not be found to owe a duty of care if his/her failure to act is one of nonfeasance rather than misfeasance. If it is the actions of the defendant which create the circumstances in which a third party may be harmed, failure to take precautions to avert that harm is called misfeasance. In that circumstance, the defendant will be held to owe a duty of care. If, however, the defendant has merely observed that a third party may be harmed if a certain precaution is not taken, and has not taken that precaution, that failure to act is termed nonfeasance. In that circumstance, the defendant may be found to owe no duty of care (assuming that he/she did not create the circumstances – i.e. that he/she was not also a misfeasor).
For example, if A knocks down a stop sign and lack of that sign subsequently contributes to the injury of B at that intersection, A may be found to have owed a duty of care to B – and may be found negligent for having failed to report the initial accident. On the other hand, if, after A has knocked over the stop sign, C notes the absence of the sign and fails to report that fact, C will not be found to have owed a duty of care to B.
On economic grounds this distinction initially appears arbitrary. If it is efficient for a person who knocks over a stop sign to report that fact to the authorities, it must also be efficient for an individual who observes that a stop sign has been knocked over to report that fact. How, then, can the difference in legal duty between these two situations be reconciled?
The answer may lie in the relative difficulty of identifying potential defendants. When A has knocked over the stop sign it will be much simpler to identify him as the defendant, ex post, than it will be to so-identify “innocent” passerby C. Whereas there will be only one individual like A (or at least a very limited number of such individuals), who will generally leave evidence of their involvement; there may be a very large number of individuals like C. Furthermore, very few individuals like C will leave any evidence of their presence at the scene. And most, if identified as being present, will be able to deny plausibly any knowledge of the potential harm, or may be able to argue that they thought someone else was attending to the matter. Thus, whereas the pursuit of efficiency may require that the individual whose actions initiate a harmful situation owe a duty to those who are (potentially) harmed, that pursuit may require that some alternative mechanism be employed to induce third parties to offer their assistance.
One such alternative would be to offer third parties incentives to induce involvement, rather than deterrents to prevent non-involvement. That is, the common law might provide a means by which those who performed “good deeds” – benefactors – would be able to force those who benefited from those deeds – beneficiaries – to provide them with rewards. The advantage of this approach, in terms of the analysis of the preceding paragraph, is that the problem of identifying potential benefactors, ex post, would be avoided. Those who observe a (potentially) harmful situation and feel that the benefit of their actions will exceed the costs will present themselves as “rescuers”, that is, they will become involved in the attempt to rectify the harmful situation.
In fact, we observe that if the costs of identifying benefactors are low relative to the benefits of the rescue, the law does operate in this manner. Awards are provided to those who rescue salvage at sea; doctors can charge fees to individuals whom they have rescued from imminent danger; and individuals who have stored lost property can claim for their expenses.1
The preceding analysis also helps to explain why a duty of care is found in one class of (apparent) nonfeasance – that in which it is inexpensive to identify the potential benefactor, ex post. In particular, a duty is often owed in situations in which the nonfeasance occurs on the property of the potential benefactor and in cases in which the benefactor has a pre-existing legal and/or contractual relationship with the beneficiary. For example, a homeowner has a duty to visitors to keep his sidewalks clear of ice; a municipality may have a duty to the users of its roads to ensure that stop signs are erected (and maintained) at dangerous intersections2; and shopkeepers may have a duty to their customers to ensure the safety of their premises. In each case, there is a party who is clearly-identifiable, ex post, who could have acted to protect the plaintiff.
There is also an efficient exception to this exception. Various altruistic groups – usually governments and charities – offer free services that may be interpreted as the provision of warnings concerning potential “harms”. For example, a local government may offer to send out its engineers to check earthen banks to ensure that there is no danger of them becoming unstable.3 Failure to respond to a request to provide these services clearly constitutes a nonfeasance. Yet, although the nonfeasor is easily identified, no duty of care is found. The reason that this ruling may be considered to be efficient is that if the “altruist” is found liable for failing to provide a service, the response of the altruist can be expected to be to withdraw that service. Such an outcome cannot generally be considered to be in society’s best interest.
The economic analysis of torts leads to the suggestion that the function of duty of care rules is to act as a “gatekeeper,” separating tort cases from non-tort cases. If the harmful behaviour of either party could have been deterred through the threat of tort sanctions, (and if such sanctions are the most efficient method for altering that party’s behaviour), the case should be considered to fall within the rubric of tort law. Otherwise, the gatekeeper should redirect the case away from the tort system.
1. For an economic analysis of the laws concerning “rescue”, see W. Landes and R. Posner, “Salvors, Finders, Good Samaritans, and Other Rescuers….,” 7 Journal of Legal Studies (January 1978), pp. 83-128. [Back to text]
2. See Anderson v. County of Ponoka (1980) 12 A.L.R. 320. [Back to text]
3. See Windsor Building Supplies v. Art Harrison Ltd. (1980) 14 C.C.L.T. 129. [Back to text]