Context

Hedley Byrne and its American analogue, Restatement (Second) of Torts §552, are landmarks in the law of negligent misstatement. Each represents a major expan­sion of liability from restrictive precursors, and neither has settled the controversy over the proper scope of liability.

The non-liability rule of Savings Bank v Ward reflects classical legal thought, the body of law usually seen as dominant from 1870 to 192 0.^[1304] Classical legal thought conceived of a world of independent individuals, each acting within a broad sphere of legal autonomy to pursue his own self-interest. The role of courts in private law cases was to facilitate this pursuit by applying a complete, coherent and formal body of contract, tort and property law. Fact situations such as S avings Bank v Ward fell within the scope of private ordering governed by contract law—one was either a client or one was not—so privity reigned and barred a tort remedy.

Cardozo J's opinions in Glanzer and Ultramares embody the movement away from classical legal thought. Cardozo J was the most important common law judge of the first half of the twentieth century,^[1305] and his stature certainly enhanced the importance of the opinion, which became widely lauded as a proper assessment of the law and policies applicable to negligent misstatement. Cardozo J was a transitional figure in modernising the law, a bridge between the late nineteenth century and the mid-twentieth century. He was deified by the movement among pragmatists, Progressives, sociological jurisprudents, and American Legal Realists who developed a critique of classical law. In their critique, law could not be com­plete, coherent and formal; the inadequacy of language and the complexity of facts made the ideal unrealisable; rules could not be both precise and comprehensive, so judges, not rules, decided the cases.

Cardozo J embodied this critique by looking to facts and context and not just rules in deciding a series of cases across private law, and his influence was aided by a gift for the memorable phrase. Obligations in contract law extended beyond the express terms of the parties' agreements because business settings often were ‘instinct with an obligation'.^[1307] The trust invested in fiduciaries required them to adhere to ‘a punctilio of honor most sensitive'.^[1308] Tort liability for foreseeable harm was situational because ‘the orbit of the danger as disclosed to the eye of reason­able vigilance would be the orbit of the duty' and ‘negligence, like risk, is thus a term of relation'.^[1309]

Ultramares expresses this approach with its emphasis on the detrimental effects of potentially indeterminate liability on the part of accountants and other profes­sionals; Glanzer was different because of particular facts in its situation such that the relationship was almost contractual. Yet Ultramares is transitional because it had not incorporated elements of the critique of classical thought that ultimately would shift the focus of tort law from corrective justice to collective justice.^[1310]

Section 552 and the opinions and the commentary prior to and surrounding its development are examples of neoclassical law in the United States, the domi­nant mode in private law from the 1960s to the present.^[1311] Cardozo J recognised the bankruptcy of the aspirations of classical law to formality and objectivity; later judges and scholars also recognised the incompleteness of the substantive vision of classical law. The classical vision was individualist, but collectivist con­cerns of social welfare also were important in judicial law making. This was true in theory—the market is not the measure of all things—and it is even more evident in practice.

In neoclassical tort law, fairness largely is redefined in collective terms as the advancement of the policies of injury prevention and compensation, often best achieved through loss spreading. Enterprise liability became a basic tenet of tort law.^[1313] Activities and enterprises, especially business enterprises, should internalise the costs of the accidents they produce and distribute the costs among those who participate in or benefit from the activity. Enterprise liability promotes safety by placing the incentive to reduce accident costs on the entity best able to control risks, and it affects fairness by shifting the focus of analysis from an individual accident to the enterprise or activity in which the injurer is engaged.

The expansion of liability for negligent misstatement in §552 is consistent with these trends. Savings Bank v Ward viewed the problem of negligent misstatement as contractual. Ultramares recognised a broader context—the indeterminacy problem—but through a stylised approach that failed to consider fully the busi­ness context of the rule and the need to protect relying parties. When the Texas Tunneling Court analysed the manifold relations in construction projects and concluded that ‘ The growing complexity of business relations and the growing specialization of business functions all require more and more reliance in business transactions upon the representations of specialists' ^[1314] it was employing a much richer analysis.

The continuing controversies over the scope of liability for negligent misstate­ment, between the Credit Alliance rule and, within applications of §552, between intent-focused approaches such as Bily and approaches that lean towards foresee­ability, are hardly surprising. At one level these can be seen as typical disagreement about doctrine or policy. Courts deciding similar cases often use different rules, or use the same rule in different ways. But from the broader perspective this chapter has suggested, something else is going on.

Neoclassical law always has embodied tension; it is neoclassical precisely because it attempts to balance elements of classical law with elements of the critique—autonomy and regulation, private and public, contract and tort, among others. The conflict between Credit Alliance and Bily on the one hand and broad interpretations of §552 on the other continue to embody that tension. The former focuses on contract or contract-like relationships and the dangers that arise from imposing liability where it has not been assumed. The latter emphasises tort prin­ciples of harm and relations of reliance and responsibility.

The restrictive approach to negligent misstatement even may have gained strength by something of a classical revival in the law in the past few years.^[1315] This movement is called a classical revival because it aims to restore the primacy of private ordering over public regulation in private law. In this view, contract is primary and tort is subordinate. The neoclassical expansion of tort liability, because it is not based on a traditional conception of fault, imposes unfair bur­dens on social actors. Within the law of negligence, for example, the expansion of liability through foreseeability or other tests of duty goes too far in imposing liability out of proportion to fault.

And more: what is in play here is not just legal doctrine or legal theory but also ideology and politics. The privity requirement of Savings Bank v Ward reflected classical legal thought, which was law for the late nineteenth century Gilded Age, the age when ‘conservatives—or better, pro-corporate apologists—hijacked the vocabulary of Jeffersonian liberalism and turned words like “progress”, “opportu­nity”, and “individualism” into tools for making the plunder of America sound like divine right’.^[1316] Restatement §552 reflects the culmination of the period from the New Deal through the Great Society, when all the tools of government, legislative and judicial, were applied to create a modest American version of the welfare state. Social Security, Medicare and the War on Poverty were accompanied by a dramatic expansion of liability through interest balancing in tort law and regulation of bar­gaining in contract law, all in service of a just world. The classical revival illus­trated by Credit Alliance and restrictive interpretations of §552 represent at their most extreme the resurgence of conservatism. This is law for the age of Reagan (or Thatcher), in which ‘Government is not the solution to our problems; government is the problem’.^[1317] Broad liability for negligent misstatement is at odds with the proper role of government. As described by Judge Richard Posner:

The government’s role is to provide an unobtrusive framework for private activities. Government provides certain goods, such as national defense and (in some versions) education, that private markets will not provide in sufficient quantities. But beyond that it merely protects a handful of entitlements (property rights and some personal liberties) that are necessary to prevent markets from not working at all or from running off the rails.^[1318]

These lines of association may seem too dramatic or even apocalyptic. Sometimes a cases is just a case, a rule just a rule. But no case or rule is a tub on its bottom. One of the ambitions of scholarship is to situate cases and rules within concentric circles of context, and legal change and political process are part of the context.