The Non Liability of a Bank (in England) and the (Potential) Liability of the State (in Israel): Pure Economic Loss in Light of Recent Developments - A Comparative Analysis and Evaluation

Abstract

The circumstances of Her Majesty’s Commissioners of Customs and Excise v. Barclays Bank plc. raised the following question: was Barclays Bank, having been served with a freezing order granted to the Commissioners of Customs against the account of one of its customers, under a duty of care to comply with the terms of the order and thus liable to the commissioners for the loss caused by its negligence. The House of Lords decided that no such duty existed: the bank did not assume responsibility; it was not fair, just or reasonable to widen the scope of liability for pure economic loss under such circumstances; and the incremental test adopted by previous case law did not favor such liability. In Paz Oil Co. Ltd. v. State of Israel the plaintiff owned a gas station located on the highway, close to a busy junction in the center of the country. Due to construction work, the entrance to the gas station was temporarily moved a few hundred meters down the highway. The plaintiff claimed that the state and its organs were negligent with regard to both the detour and the duration of the construction work, which had been scheduled for six months and eventually stretched to 22 months. The Israeli Supreme Court found no negligence on the part of the defendants, yet explicitly declared that, had it found such negligence, it would have imposed liability on the state for the economic loss suffered by the gas station. My aim in this paper is to compare these two decisions and use them to both highlight the problems and to suggest new methods for dealing with the dilemma of pure economic loss caused by negligence. The Israeli legal system is classified as a mixed legal system whereas the English legal system is a pure common law system. Yet Israeli tort law was (originally and fully) and still is (to some extent) English Common Law oriented. So the difference between these two decisions regarding the issue of pure economic loss cannot and should not be attributed to the distinct type of legal system. Each legal system applies restrictive liability tests and both share the same concerns regarding the proper balance between competing policy considerations. The conclusion in both cases is based mostly on social and economic considerations which differ from one court to another as well as on the willingness to expand tortious liability in negligence cases, in general. This paper aims to question the means adopted by both legal systems, as well as other systems like that of Canada, the US, Australia and Denmark, for deciding pure economic loss cases. Part I discusses the facts of both decisions in detail. Part II compares the two decisions, focusing on the ideological, theoretical, and practical motifs of both courts. It highlights the differences in rhetoric and legal research. While the House of Lords, although still searching for reasonable guidelines, has reconciled itself to the notion that there is no clear cut test for the problem of negligently-caused pure economic loss, the Israeli Supreme Court unhesitatingly embraces the opportunity (in this case, a missed opportunity) to impose liability on a negligent public authority albeit with no sufficient theoretical grounds for such ideological choice. Both courts unquestioningly apply the well-known taxonomy of pure economic loss cases (negligent misrepresentation, negligent performance of a service, defective products, defective buildings and relational economic loss) and both agree (the Israeli Supreme Court is very stingy with explanations yet its logic can be inferred from other, similar cases) that, as a matter of policy, pure economic loss cases call for a different agenda. However, when it comes to the bottom line, the House of Lords resolves the issue in the bank’s favor, while the Israeli Supreme Court would have favored the plaintiff if only it could have shown that the state was in fact negligent. Part III tries to achieve the impossible - to convince the reader that the above categorization of factual cases of pure economic loss is misleading and cannot serve as a logical tool for dealing with this complicated issue. I try to show that, while too many cases deviate from the well-accepted categories, at the same time, too many cases fall correspondingly into two or more factual categories. The negligent bank and the 'almost' negligent Israeli road construction division serve as good examples. Following this discussion, Part IV proposes to return to the good old policy considerations applied in negligence cases, in general, and to employ the relevant considerations in pure economic loss cases exactly in the same manner in which the courts decide which policy considerations are relevant in physical loss cases. It is my contention that both English and Israeli courts apply pure economic loss criteria to physical loss cases. The case of a negligently handled DNA sample and the case of a horse riding accident, in England and Israel, respectively, were both decided according to negligently caused pure economic loss reasoning. The English Caparo case and the Israeli Weinstein case are frequently applied to non-economic loss cases. In my opinion, this is not and should not be a one-way street. The wide range of discretion granted to the courts in negligence cases, especially in common law systems should not be wasted and traded for pigeonhole liability pockets. The list of considerations, such as special relations, special foreseeability, reasonable reliance, assumption of responsibility, identity of the parties (public/private), commercial/private surrounding, the intensity of the competing interests, the scope of the potential liability and loss, and alternative legal remedies, are all relevant to both physical and economic losses. There should not be a special check-list for economic loss cases. There should be special considerations. There should not be a uniform test for all pure economic loss cases. There should not be a taxonomy of pure economic loss cases. There should be a wide range of considerations applied differently in each and every negligently caused loss, both physical and economic. Then, and only then, the issue of pure economic loss would be reduced to its natural boundaries; problems such as the definition of pure economic loss, differences between verbal statements and other forms of human behavior, and ill-based categorizations will cease to inspire a great deal of (often fertile) debate, and the issue of economic loss will become, if not trouble-free, then at least no more troubling than any other type of negligently caused loss.