Redefining Legal Responsibility for Pure Economic Loss in the Innovation Economy

AuthorMoshood Abdussalam
PositionLaw Lecturer, Auckland University of Technology, New Zealand
M A *
In the var ied web of aai rs, the law mus t abstrac t some
consequences a s relevant, not pe rhaps on ground s of pure
logic but simply for prac tical reasons .1
is paper prop oses a new standard for determ ining legal responsib ility in the law of
negligence, b ut particularly p ure economic loss ca ses across Common wealth jurisdic tions.
e paper argues that the prevailing standards for determining pure economic loss do
not measure up to th e novel legal chall enges and promises thrown up by th e innovation
economy. is pap er argues that cou rts should alw ays commence the ir determinat ion
of legal respons ibility with co nsideration gi ven to the public co st-benef‌it implic ations
of the defendant’s act ions. It is on this b asis that cour ts should initi ate their decis ion
on whether to impo se responsibility or exclu de it. Where, however, dispute s do not raise
public intere st concerns, t hen courts sho uld determine ea ch case based on it s peculiar
justice needs.
I. Introduction: Pure Economic Loss and
the Innovation Economy
In tort law, ther e exist exclusion ary ru les that di sallow compen sation for
pure economic los s (that is, losses r esultin g from events th at have no beari ng on
damage t o persons or property). However, it is obser vable that these rules i n their
prevail ing form rema in largely u namenable t o the pecul iarit ies and dyna mics of
the innovat ion economy. For this rea son, these ru les should be recon sidered to
measure up t o the chal lenges and promi ses of the innov ation economy. Atta ining
1 Per Lord Wrig ht, in Liesbo sch Dredger v Edi son SS [1933] AC 449, 4 60 (HL).
* Law Lect urer, Auckla nd Universit y of Technology, New Zealand . I would like t o thank M ike
French and T homas Nkomo for thei r suggest ions. Tha nks to Jeremy D’ Souza and K ayne Menezes
for the resea rch assista nce provided. I woul d also like to t hank the anony mous reviewer(s) for
the correc tions.
34 [Vol 26, 2020]
this is po ssible with a revi sion of the prevaili ng fetters to compen sation by allowi ng
innovati ve entrepreneurs t o secure compen sation for pure econom ic loss. By so
doing, we wi ll be deployin g tort law as a socio -economic policy t o support in novative
entrepreneur s in our increasin gly disembodie d economic era.
Commentator s often use the ter m “innovation economy” i n dierentiation wi th
the previous ly governing ma rket order sign if‌icantly c haracter ised by the product ion
and dist ribution of good s and serv ices, in which i ncremental ad vancements in
knowledge played a c ritical , albeit indep endent, role in bri nging ab out outcomes.2
However, the innovat ion economy is a networked and d isembodied econom ic milieu
in which pat terns of va lue creation, d istribut ion and consu mption are im mensely
dependent on the spil lover eects of know ledge and infor mation resour ces.3 In
other words, kno wledge and in formation a re the pivotal driv ing forces of patterns
of socio-economic r elations in the i nnovation economy.4 Ad vancements in scienc e
and tech nology (par ticula rly informat ion science and te chnology) have broug ht
about a parad igm shift in the so cial order for creat ing, dis tributi ng and assessing
economic value.5 Hence, legal ru les, like tho se currentl y governing com pensation
for pure economic loss , founded on a distinc tion between physica l and non-physical
damage, a re unsustai nable in the innovat ion economy, which is ess entially shaped
by intan gibility.
The most problemat ic aspect of the s aid exclusiona ry rules i s that which
prohibits comp ensation for relat ional economic lo ss (that is, losses s uered by a
part y associated, for exa mple, by contract wit h a property owner whos e property is
damaged b y negligence). Concerning r elational economic loss, t he general attitude
across Commonwea lth jurisdiction s is essentia lly the sa me—that compen sation is
not to be allowe d except it where can be shown th at both the victim of t he loss and
2 See, Jonath an Haskel and Sti an Westlake Capit alism Without Capital:  e Rise of the Intangible
Economy (Princet on Universit y Press, P rinceton , 2017); and see a lso, Zhouyi ng Jin Global
Technological Ch ange: From Hard Technolog y to Soft Technology (2 nd ed, Intellec t Books, Bris tol,
3 See, Ma rk Lemley and Bret t Frishman n “Spillovers” (200 6) 100 Colum L Rev 101; and s ee also,
Anupam a Phene and Stephe n Tallma n “Knowledge Spillove rs and Al liance Form ation” (2014)
Journa l of Management St udies 1058.
4 See, David Teece “Cap turin g Value from Kno wledge Asset s: The New Economy, Ma rkets for
Know-How, and Int angible Asset s” (1998) 40 Californ ia Management Revie w 55; and see also,
Jeremy Ri in Zero Margina l Cost Society (St M artin’s Gri n, New York, 201 4).
5 Klaus Schw ab Shaping t he Futur e of the Fourt h Industr ial Revolut ion: A Guide t o Buildi ng
a Better World ( Portfolio Pe nguin, Lon don, 2018); and se e also, Jeremy R iin , The Third
Industr ial Revolut ion: How Latera l Power is Tran sforming En ergy, the Economy, and the Worl d
(St. Mar tin’s Grin , New York, 2013).

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT