1 [1932] A.C. 562 (H.L.).

2 Ibid., at 579.

3 Ibid.

4 Ibid., at 580.

5 Ibid.

6 “The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer’s question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions that you can reasonably foresee are likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be persons who are so closely and directly affected by my act that I ought to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called into question.” Ibid.

7 This point was made by Deane J. in Stevens v. Brodribb Sawmilling, [1986] 160 C.L.R. 16, at 51 (H.C. Aust.).

8 For an example, see Dawson J. in Hill v. Van Erp [1997] 188 C.L.R. 159, 177 (H.C. Aust.).

9 Below, section 4.

10 Above, n. 2.

11 W. Page Keeton et al., Prosser and Keeton on the Law of Torts, 5th ed. (1984), 358.

12 For a recent analysis of negligence either in terms of risk caused or harm suffered without attending to the possible unity of the sequence as a whole, see Heidi M. Hurd and Michael S. Moore, “Negligence in the Air,” (2002) 3 Theoretical Inquiries in Law 333, at 348.

13 Above n. 1.

14 111 N.E. 1050 (N.Y.C.A, 1916).

15 162 N.E. 99 (N.Y.C.A, 1928).

16 Ibid., at 100.

17 Ibid.

18 Ibid., at 101.

19 Ibid.

20 Ibid., at 101.

21 O. W. Holmes, The Common Law (1881), Lecture III. For a criticism of Richard Epstein’s more recent attempt to vindicate strict liability, see Ernest J. Weinrib, The Idea of Private Law (1995), 172–77.

22 Above n. 15, at 103.

23 Overseas Tankship (UK) v. Morts Dock and Engineering (Wagon Mound No. 1) [1961] A.C. 388 (P.C.).

24 The connection of Wagon Mound and Palsgraf is sharply put in a leading text on tort law in the United States: “The decision is the logical aftermath of Cardozo’s decision in the Palsgraf case, since there is an obvious absurdity in holding that one who can foresee some harm to A is liable to consequences to A which he cannot foresee, but is not liable for similar consequences to B.” Page Keeton et al., Prosser and Keaton on the Law of Torts, 296. A similar point was made in the Wagon Mound opinion; see above n. 23, at 425.

25 Above, n. 1.

26 Palsgraf v. Long Island Railroad Co., above n. 15, at 100.

27 Ibid.

28 Ibid., at 101.

29 Ibid., at 99.

30 Ibid., at 101.

31 Ibid., at 100.

32 The treatment of psychiatric injury in England, where “control mechanisms” function “as more or less arbitrary conditions” to restrict liability (White v. Chief Constable of South Yorkshire Police [1999] 2 A.C. 455, at 502 (H.L.)) has been particularly unfortunate; see the criticism of the English approach in Tame v. New South Wales; Annetts v. Australian Stations Pty [2002] 191 A.L.R. 449 (H.C. Aust.).

33 On economic loss, see the important article by Peter Benson, “The Basis for Excluding Liability for Economic Loss in Tort,” in Philosophical Foundations of Tort Law, ed. David Owen (1995), 427.

34 Spartan Steel & Alloys v. Martin [1972] 3 All E.R. 557, at 571 (C.A., per Lawton L.J.).

35 The former formulation is exemplified by Weller v. Foot and Mouth Disease Research Institute [1966] 1 Q.B. 569 (Q.B.D.), the latter by Connecticut Mutual Life Insurance v. New York and New Hampshire Railroad [1856] Conn. 265 (S.C.). The paradigmatic situation, of which these cases are examples, is that of the plaintiff who operates a business that depends on some facility (e.g., a bridge, pipeline, electrical cable) that the plaintiff does not own but that is negligently damaged by the defendant, causing the plaintiff economic loss because business operations cannot proceed as normal. One cannot plausibly argue that, within the systemic logic of the law, the plaintiff has a right to the free-standing economic gain that he or she was prevented from realizing. Because the parties are strangers, there is no possibility of an in personam right. Nor can the plaintiff have an in rem right to the prospective economic gain. First, the intentional diversion of the gain by a competitor is permissible; but it would be a very odd in rem right if someone could rightfully interfere with it intentionally but not negligently. Second, the plaintiff can have a right to an external thing only if the plaintiff has acquired that thing; but there is no mode of acquisition for the prospective economic gain from the existence of another’s facility. Indeed, the classic case of acquisition, Pierson v. Post, 3 Caines (N.Y.) 175 (1805) repudiates the notion that the prospect of a gain in itself creates a right. (I am indebted to Abraham Drassinower for discussion of these points.) And so the plaintiff’s argument must be based on the suffering of the economic loss even though the plaintiff had no right to what was lost. This is the argument that the common law traditionally rejected using the language of duty or remoteness.

36 The question of whether in any particular case the plaintiff had a right as against the defendant is of course subject to legal argument, even in the case of the proprietary and possessory rights that are paradigmatic in this context; see, for example, Courtenay v. Knutson [1957] 26 D.L.R. (2d) 768 (B.C.S.C.) (liability to the bailee of a barge). An interesting variant is Perre v. Apand [1999] 164 A.L.R. 606 (H.C. Aust.), where the defendant, by supplying diseased seed to one potato grower, caused potatoes of the plaintiff, a neighboring potato grower, to be embargoed even though the plaintiff’s crops were not infected. The defendant was held liable for the plaintiff’s economic loss; although the defendant’s land was not contaminated, the defendant’s negligence caused it to be treated as if it were.

37 Glanzer v. Shepard, 135 N.E. 275 (N.Y.C.A., 1921); Hedley Byrne v. Heller [1964] A.C. 465 (H.L.). See the exemplary treatment by Benson, above n. 33, at 450–54.

38 The fact that the entitlement is created through the interaction of the parties and is thus personal to them rather than good against the whole world puts the parties into what Lord Devlin called “a relationship equivalent to contract”; Hedley Byrne v. Heller, above n. 37, at 530.

39 For example, in Haig v. Bamford [1976] 72 D.L.R. (3d) 68 (S.C.C.), the defendant knew the purpose for which it was asked to prepare an audited financial statement. Similarly, in Hedley Byrne v. Heller, above n. 37, the defendant knew the purpose of the plaintiff’s inquiry about its client’s credit-worthiness.

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