5.1 Efficiency of the Negligence Rule and Strict Liability Compared
Whether in the case o f passenger-surface or environmental damage risk, if transaction costs are relatively small, liability rules have little effect on efficient resource allocation. The reason is that the parties can negotiate the efficient agreement. Efficient resource allocation based on rational behaviour, however, is often obstructed by transaction costs and imperfect information about risk. In this situation, the efficient outcome depends on whether the given liability rule creates adequate incentives for parties to take optimal care and whether it can be determined at less administrative cost. Here, discussion will focus on the cases of parties' risk neutrality. No liability will not be considered here, since it will not induce the injurer to take care.
5.1.1 The notion of negligence: Although the concept of negligence cannot be reduced
to one single fixed definition, it can be used to mean a behaviour or conduct which is in breach of recognised community standards and which unreasonably increases the risk of causing harm or loss. In English law negligence is used as synonymous with breach of duty
of care, *20 while in the French law of delictual liability {responsabilité civile délictuelle),
fault (faute) is seen as departure from the standard. *21 In American law negligence is
defined as a "conduct which falls below the standard [of due care]... for the protection of
others against unreasonable risk o f h a r m " . *22 Determining the standard o f due care often
Under positive transaction costs, the cheapest cost avoider can be identified by reference, among others, to who: 1) can better evaluate the risk involved; 2) can insure most cheaply against liability; or/and 3) is less likely to shift the loss in such a way as to reduce the incentives to avoid the losses. G Calabresi, Fault, Accidents and the Wonderful World of Blum and Kalven, 75 Yale LJ (1965) 216, 230; Calabresi & Melamed. 1096-97.
*20 M A liste r (Donoghue) v. Stevenson, n.5 above.
*2t. Mehren & Gordley, The Civil Law System, pt 3, ch 8; A Tunc, Les problèmes contemporains de la responsabilité civile délictuelle. 19 Rev int dr comp (1967) 757; Harlow, Fault Liability, at 517.
requires the courts to weigh the magnitude of risk of a conduct against the cost o f a more careful conduct.
5.1.2 Correct negligence standard and constraints on the negligence rule; Since under
the negligence rule the injurer will be liable for the losses caused by his negligence, he will be induced to take optimal care in order to avoid liability. This is true as long as the courts make no error in determining the optimal level of care in a particular situation. Thus, the question is why a negligence is often determined by reference to 'objective' (e.g. notably reasonable or average man), rather than 'subjective', standards which take into account
variations in the behaviour of different i n d i v i d u a l s . ^^4 Learned Hand t e s t , ‘ ^ 5 for
example, does not draw a distinction between variations o f temperament and intellect, and is not applicable in situations where parties are risk averse or where the court has imperfect information about risk.^^? Thus, the difficulty with fault liability is that of defining the exact nature and scope of the duty of care. The negligence standard may be an elusive goal to fix in the context of the law of carriage by air, given high technicalities involved in aircraft operation, manufacture and air traffic control service. If as a result the court fails to set the correct standard, the injurer will not adequately be induced to take due care corresponding to the efficient outcome. It is nevertheless important to note that the incidence o f judicial errors in determining the optimal level o f care are problematic only insofar as such errors are asymmetrical, that is to say, courts make errors consistently on too much care or too little care.
Another defect in the negligence rule is that there often exists little correlation between the degree of fault committed and its contribution to the consequence (or compensation due). A slight lapse may well cause a disastrous consequence, whereas a gross negligence may cause a negligible outcome. The consequence of a negligent behaviour is thus often out of proportion to the fault giving rise to it.'^^ From the risk allocation viewpoint, if the parties are risk averse, the insurance component o f the negligence rule may produce an
inefficient r e s u l t . *^9 For under the negligence rule, risk is allocated to the consumer and if
in this case he has imperfect information about risk, he would not be motivated to purchase the efficient amount o f first-party insurance.
Shavell, 19. 124. Shavell, 76.
125 United States v. Carroll Towing Co., 159 F 2d 169. 173 (2d Cir 1947). "The defendant is guilt)' of negligence if the loss caused by the accident, multiplied by the probability o f the accident's occurring exceeds the burden o f the precautions that defendant might have taken to avert it": Restatem ent (Second) o f Torts, ss 291-93.
126. Restatem ent (Second) o f Torts, s 283 B.
122. Posner. 122; id. Tort Law _ Cases and Economic Analysis. 1-8. 128. Cane. 4 1 5 ;/W, (1993) 149.
5.1.3 Incentives o f the negligence rule; A common belief or presumption that the negligence rule will create the deterrent effect better than strict liability, may not sound convincing enough to justify its superiority over strict liability. For if this were really the case, all highly dangerous activities must have been subject to the negligence rule. But the
contrary is true as can be seen in the Rome Convention 1952 on surface damage and other
international regimes governing such activities. Further, the carrier or manufacturer has
already a clear financial interest in accident prevention, and to imagine that the
carrier/manufacturer might become careless in his products, clearly glosses over the financial impact o f an accident on the injurer (e.g. loss of an aircraft and liability for passenger and/or surface damage). In addition to the disastrous financial blow, subsequent investigation and legal proceedings may also reveal a hitherto unknown defect in his safety system, causing a further adverse effect on his public image as safe carrier or manufacturer.
In addition, a collision caused by multiple injurers creates substantial uncertainty as to
the exact degree o f fault to which the respective tortfeasor contributed. Thus, if as a
result the court commits errors in calculating the level of due care, parties are likely to take more or less than the optimal care to avoid being found negligent and liable by mistake. Particularly, given the esoteric features o f an aircraft, determination of a defect in the design, manufacturing or certifying process would obviously entail highly technical issues for the court to tackle. If the court fails to assess correctly the level o f due care applicable to each injurer, he will be induced to take excessive or insufficient care, since he will be
misled into thinking o f the court-decided level of care as adequate. A further
consideration in disfavour o f the negligence rule is administrative costs associated with proof of fault and establishment o f causal connection.
5.1.4 Strict liability; Many o f the problems with the negligence rule can be avoided under strict liability where the behaviour o f the injurer is not examined. The only relevant issue is whether the injurer's act was the proximate and probable cause o f the victim's harm. The injurer must pay the victim regardless o f whether he was at fault or whether the burden of care is greater or less than expected cost,*^^ thus forcing him to take all justified
Ch 4 below. For the examples o f highly dangerous acthities regulated internationally under strict