Governmental liability used to be on the retreat, especially but not only in the field of negligence liability. In Bourgoin S.A. v. Ministry of Agriculture, Fisheries and Food the majority of the Court of Appeal flatly stated that not every infringement of Community law was a tort. Moreover, in the recent decision in Murphy v. Brentwood District Council the House of Lords, departing from Anns v. Merton London Borough Council, dramatically curtailed any hope - or fear, it depends on the point of view - of development of governmental liability in the field of economic loss.
In the Anns case, which concerned the assumed failure or the local authority to inspect the foundations of a building which proved to infringe safety regulations as to buildings and caused loss and expense to subsequent purchasers, the House of Lords, affirming the Court of Appeal decision in Dutton v. Bognor Regis Urban District Council, came close to establishing a general principle of fault liability, not far in its consequences from the neminem laedere principle known to many legal systems on the Continent. Anns extended the line of cases originating in the decision of Donoghue v. Stevenson, in which Lord Macmillan stated that "the categories of negligence are never closed", and Lord Atkin stated his widely known neighbourhood principle - a line taken further in more recent times by Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. and by Dorset Yacht Co. Ltd. v. Home Office . Those cases pointed to a significant tendency to abandon the traditional common law system of tort liability, characterised as a system of pigeon holes, of typical torts, each of them different in structure, a system entailing the need to find "a peg" on which to hang the action.
The development of the law of negligence opened the door to the acceptance of a more widely based rule of liability: the duty of care element in the tort of negligence, that is the element which generates liability in law for damage caused by fault, was interpreted in an extensive way by recognising a duty not to cause foreseeable harm, as in Lord Wilberforce's speech in Anns.
Given that "foreseeability" in itself is relevant in establishing fault, it could be said that the new version of the neighbourhood principle emerging in Anns deleted the element of the duty of care from the tort of negligence; fault, causation and damages were sufficient to establish liability, or at least a prima facie liability that could only be excluded by overriding policy considerations. Liability had become the rule where fault was found.
Even if the developments of the law of tort briefly outlined here appertain to the general or private law, as a continental would see it, they nevertheless had great influence on public law, in the field of governmental liability. The defendants, both in Dutton and in Anns, were local government public bodies.
But the reach of the case law described above was much greater; it resulted in the extension of fault liability to the field of mere economic loss.
Public bodies can cause damage in the same way that private persons can; it is sufficient to think of a car accident caused by a military truck, for after all a car accident is a car accident both in private and administrative law. The same can be true in relation to a case of medical malpractice: the fact that the defendant was performing his duties as part of the NHS when he caused damage is irrelevant to the question of establishing liability.
But public bodies can cause harm in ways no private person can. In the welfare state citizens very often expect individual benefits from the government, such as grants, housing, and so on. In the modern state many activities are subject to permission or licence or other forms of control by the government, be it central or local. By wrongly refusing a grant, or a permission, or, conversely, by failing to duly exercise its powers of control, the competent public body can cause significant harm to the citizens. In such cases, there being no physical harm at all, the harm is purely economic.
As the Justice-All Souls report put it:
"If what is done by the administration can be made to fit within one of the recognised torts (such as trespass, nuisance, negligence, breach of statutory duty) then liability can be established; but if the wrongful conduct will not fit into one of these pigeon-holes there is no liability. The objection to this approach is that it ignores the fact that wrongful conduct by the administration is capable of inflicting damage in ways in which private persons cannot. The administration has this capacity both by virtue of the enforceable statutory powers with which it is often clothed and through the pressure and influence which it applies".
The extension of negligence liability to the field of economic loss could have brought with it an extension of governmental liability capable of covering harm caused to citizens by flawed decisions.
As recalled above, the decision of the House or Lords in Anns, after being distinguished on several occasions, was finally departed from by the House of Lords in Murphy v. Brentwood District Council, which also overruled Dutton.
In Murphy, as well as in Anns and in Dutton, damage was caused by negligent approval of building plans or foundations inconsistent with the applicable regulations. But its effects are not limited to the area liability for buildings; Murphy represents a change of approach by the English judiciary as regards the problems of tort liability.
The House of Lords in Murphy reverts to the incremental approach which had characterised the law of tort in general and the law of negligence in particular before the 1970s. In his speech Lord Keith of Kinkel emphasises:
"it is clear that Anns did not proceed upon any basis of established principle, but introduced a new species of liability governed by a principle indeterminate in character but having the potentiality of covering a wide range of situations, involving chattels as well as real property, in which it had never hitherto been thought the law of negligence had any proper place".
Lord Oliver of Aylmerton, for his part, observed that,
"as was pointed out by Lord Diplock in Dorset Yacht Co. Ltd. v. Home Office  A.C. 1004, 1060, Lord Atkin's test, though a useful guide to characteristics which will be found to exist in conduct and relationships giving rise to a legal duty of care, is manifestly false if misused as a universal; and Lord Reid, in the course of his speech in the same case, recognised that the statement of principle enshrined in that test necessarily required qualification in cases where the only loss caused by the defendant's conduct was economic. The infliction of physical injury to the person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorised as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen. Thus the categorisation of damage as economic serves at least the useful purpose of indicating that something more is required and it is one of the unfortunate features of Anns that it resulted initially in this essential distinction being lost sight of".
Murphy, which was soon followed by Department of the Environment v. Thomas Bates and Son Ltd., suggested that negligence liability for economic loss was to be confined to the area of mistaken business information relied upon by a third party who in consequence sustained a damage, in accordance to the House of Lords' ruling in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd..
The implications of the exclusion of liability for mere economic loss in the field of governmental negligence are manifestly important if the considerations outlined above with regard to the particular powers and duties conferred upon public bodies are kept in mind. But again in Murphy Lord Oliver could see no reason:
"why a local authority, by reason of its statutory powers under the Public Health Acts or its duties under the building regulations, should be in any different case".
In Jones v. Department of Employment, the Court of Appeal held that:
"it is a general principle that, if a government department or officer, charged with the making of decisions whether certain payments should be made, is subject to a statutory right of appeal against his decisions, he is only susceptible in public law to judicial review or to the right of appeal provided by the statute under which he makes his decision".
The new restrictive trend of the judiciary was also evident in two recent cases decided by the Privy Council: Yuen Kun-yeu v. Attorney General of Hong Kong and Davis v. Radcliffe. In both cases a customer of a credit institution now insolvent sued the control authority for failure to exercise its powers properly, and the claim was rejected on the ground that even if harm to customers was a foreseeable consequence of allowing unsound banks to continue in business, foreseeability alone was insufficient to establish a duty , no such duty being owed by the authority to individual customers, since its powers and duties were conferred in the interest of the public at large.
If the tort of negligence was on the retreat, the most recent case law concerning another important tort, the breach of statutory duty, was no more favourable to the plaintiffs. In Bourgoin s.a. v. Ministry of Agriculture, Fisheries and Food, a case to which we will have to refer again in the following pages, the majority of the Court of Appeal, Oliver L.J. dissenting, held that the infringement of certain articles of the EEC Treaty concerning the free movement of goods did not give rise to liability under the head of breach of statutory duty. Liability could be based only on the rarer and comparitively minor tort of misfeasance in public office, if the Minister had knowingly infringed the Treaty.
Against this background of the declining scope of governmental liability must be set the decision by the European Court of Justice in the Francovich case.
Broadly put, the Court held that Governments of Member States shall make good any damage suffered by individuals owing to the non-implementation of EEC directives or, more generally, by any act or omission imputed to a branch of the government which turns out to be inconsistent with Community law.
The judgment stems from two requests for preliminary ruling under the procedure laid down by article 177 of the EEC Treaty. The requests were made by the Pretore of Bassano del Grappa and by the Pretore of Vicenza, first instance judges who decide disputes relating to industrial relations and more generally to claims by employees, including many arising from welfare legislation.
The EEC law relevant to the cases was the Council directive 80/987/CEE, concerning the harmonisation of legislation in the Member States in the field of the protection of employees damaged by the insolvency of their employers. In particular the directive established common standards regarding the rights of employees in cases of insolvency, who should be able to look to organs set up ad hoc if necessary for payments due from their employer.
Despite the fact that the deadline for the implementation of the directive 80/987 in the national legal system was already long past, Italy had not yet, at the time of the commencement of the actions, taken the necessary steps required by article 189 of the EEC Treaty or, more accurately, had not taken them correctly.
The plaintiffs' employers were firms which had become insolvent leaving past salaries and other benefits unpaid, with insufficient assets to satisfy the demands of the employees in the subsequent bankruptcy proceedings. Francovich and the other plaintiffs then sued the Italian State, asking the judges either to condemn the defendant to pay them their lost salaries, applying Council directive 80/987/CEE to their cases, or to hold it liable for the damages following from the defective incorporation of the directive into the national legal system.
The two judges decided to submit certain questions to the Court of justice, questions worded identically in the two proceedings, probably owing to the fact that the same learned counsel assisted the plaintiffs in both cases. They asked whether directive 80/987 could be said to produce direct effects within domestic legal systems, and, if not, whether Member States could be held liable for not having correctly implemented a Community directive.
Answering the first question formulated by the Italian judges, the Court of Justice held that directive 80/987 was devoid of direct effects, its content not being "sufficiently clear" from the point of view of the subject to the obligation to pay the benefits secured for the employees by Community law.
In fact, directive 80/987 left to the discretion of Member States the choice of the body responsible for the charges it imposes; consequently, national law could have laid the obligation upon a private association, for example a collective insurance body administered by the Trade Unions; it was far from certain that in the end it would have been for the Government to pay on behalf of the insolvent employers.
The European Court was thus able to discuss the second question submitted by the Italian judges, concerning the existence and limits of liability for non-implementation or mis-implementation of Community law causing damage to private parties.
After stating that the problem of governmental liability due to violations of Community law had to be solved in the light of the basic principles underlying the Treaty, the Court started its reasoning by recalling two decisions from the founding era of the Community - Van Gend en Loos and Costa - which established that Community law conferred rights and duties directly upon the citizens of the Member States. Then the Court referred to the previous case law - primarly Simmenthal and Factortame - which established the principle of effective protection of Community law rights, a principle capable of imposing new tasks and conferring new powers on the judges of the Member States.
Having recalled its most relevant case law, the Court then ruled it to be inconsistent with the effectiveness both of Community law and of judicial protection to deny a tort action against the Government to individuals suffering damage due to a breach of Community law. This was particularly true, the Court went on, in cases such as the one to be decided, where the rules in question were devoid of direct effect. Liability for infringement of Community law was justified also with reference to article 5 of the EEC Treaty; article 5 lays on the Member States the duty to adopt every measure necessary to implement the obligations arising from the Treaty, one of which is - according to the Court - the obligation to make good any damage.