Fearn v Board of Trustees of the Tate Gallery: What did Ronald Coase know about modern art?

Every system of property rights must determine what the correlative duties demand of those who owe them. In contrast to the amorphous “bundle of rights” conception of property, the now-ascendant “exclusion” thesis holds that, for the most part, one’s property right correlates to an in rem duty that forbids non-owners from physically interfering with its object. 

A paragon example of this “look but don’t touch” approach is the venerable decision of the Australian High Court in Victoria Park Racing & Recreation Grounds v Taylor, in which the defendants erected a tower adjacent to the plaintiff’s racecourse in order to broadcast the outcome of horse races. Whilst the defendants’ behaviour was callously opportunistic and financially injurious to the plaintiff,  a slim majority of 3:2 dismissed the plaintiff’s claim that the defendants’ conduct amounted to an actionable nuisance. Latham CJ remarked that, ‘

In this post, I argue that the Court of Appeal was correct to reject the claimant’s appeal, though not for the reasons articulated by the Court. Instead, in reaffirming the orthodox position, the Court created the conditions that are conducive to “welfare-increasing” trades; that is, trades that make each party better off.    

Imagine that Blackacre is owned by a cricket club and is used as its home oval and that the neighbouring property, Whiteacre, is owned by Walter and is used as a freight depot. What would happen if Whiteacre were turned into a tannery, the foul odour from which made playing cricket on Blackacre impossible? Should the emanation, though it does not amount to an act of gross boundary crossing, nevertheless amount to a wrong known as a “nuisance”?

In the spirit of Denning LJ in Miller v Jackson, we could decide that, for aesthetic reasons, we prefer the playing of cricket to the tanning of hides and restrain any further use of Whiteacre as a tannery. Another way would be to view the dispute with complete indifference and decide the “liberty to/duty not to” question with the toss of a fair coin.

The latter is the preferred approach in Coase’s (avowedly) fictional zero transaction costs world in which, irrespective of their initial allocation, the final allocation of rights will be “efficient”, meaning that they will be held by those who value them most. Imagine that, by switching from freight logistics to leather tanning, Walter gains £1m, but the cricket club loses £100,000. The odour could be eliminated by an industrial air purifier that costs £50,000. If Walter has a liberty to discharge foul odours, then the cricket club will pay for the installation of the air purifiers. If Walter is under a duty not to discharge foul odours, then he will pay for the purifiers. Irrespective of whether the discharge of the odours constitutes a nuisance, the efficient outcome is that Whiteacre is used as a tannery. This simple example demonstrates that, contrary to the musings of the Court of Appeal, it is not true that a right not to be overlooked would necessarily prevent the growth of a sprawling metropolis such as London. Because, in the absence of high transaction costs, parties can trade, the only thing that turns on the choice of legal starting point is who must pay whom in the event that the initial allocation is not also the efficient allocation.     

There are many objections to this economic analysis. Perhaps we should care about the distributive effects of different starting points, or object that this approach invites moral relativism or fails when the rights in question are fundamental and ought not to be bargained away. Importantly, none of these objections apply to a dispute such as Fearn. The developer maximised the use of glass to ensure that the apartments had ample natural light and impressive views. The trustees of the Tate, on the other hand, wanted a viewing deck that afforded its many visitors sweeping views over one of the world’s great cities. These objectives were incompatible because, in addition to desiring natural light and extensive views, the residents of the apartment complex also wanted privacy from those in the viewing gallery. Given these competing priorities, the best approach would simply be to leave the parties to bargain amongst themselves. Because the development of the apartment building and the viewing gallery were near-contemporaneous, a bargain between the developer and the trustees of the gallery was certainly possible.

As Tom Merrill has argued, positive-sum bargains are not only thwarted by “transaction costs” (the cost of negotiating and enforcing bargains) but also by what he calls “entitlement-determination costs” (the cost of determining who has the right/liberty, and who the duty/no-right, in respect to some actual or threatened conduct). Where, as in Fearn, purely bilateral negotiations mean that transaction costs are likely to be small, low entitlement-determination costs make welfare-increasing trades more likely. Herein lies the great benefit of the exclusion strategy. The “look but don’t touch” norm of trespass allows the parties to cheaply determine the baseline of entitlements against which a proposed rearrangement of those rights is to be assessed. This is because each party knows that anything that is not a physical encroachment is not wrongful. Nuisance, by contrast, relies on indeterminate standards such as “reasonable user”, notions of “give and take” and an assessment of whether the locus of the dispute more closely resembles Belgrave Square or Bermondsey. Determining whether some conduct amounts to a nuisance is fact-sensitive, unpredictable and expensive. The money expended by parties in making this determination is a transfer of wealth from them to their legal advisers. If that transfer is greater than the surplus created by any trade between them, no welfare-increasing bargain will be struck. 

The virtue of the traditional common law position is not that people ought to be able to overlook their neighbours. It is instead that, as a clear rule, it promotes welfare-increasing bargains by allowing the parties to cheaply determine the baseline against which any agreement is to be measured. Lord Camden’s dictum is thus evidence of Posner’s thesis that the common law is efficient. Although the Court of Appeal may not have appreciated this, its decision in Fearn should nevertheless be welcomed on this basis.   

__________

How to cite this blog post (Harvard style) 

Crawford, M. (2020). Fearn v Board of Trustees of the Tate Gallery: What did Ronald Coase know about modern art?. Available at: https://www.law.ox.ac.uk/research-and-subject-groups/property-law/blog/2020/06/fearn-v-board-trustees-tate-gallery-what-did (Accessed [date]).