Hedley Byrne v Heller [1964] AC 465

Key point

  • Duty of care for negligent misstatement arises where there is an assumption of responsibility, and loss is recoverable despite being pure economic loss

Facts

  • C, an advertising agency, sought information on the creditworthiness of a potential client (E) from the client’s bank D
  • D confirming the credit worthiness of E headed with the disclaimer “for your private use and without responsibility on the part of this bank or its officials”
  • C entered into contracts with and lost $17,000 when E went into liquidation
  • C sued D for negligence

Issue

  • Was there a cause of action in negligence given that:
    1. The loss was caused by negligent misstatement
    2. The loss was pure economic loss

Held (House of Lords)

  • D is not liable to C in negligence
  • Although a duty of care can be owed for negligent misstatement, the disclaimer excluded any duty of care

Lord Reid

In general, an innocent but negligent misrepresentation gives no cause of action

  • Negligent words must be treated differently from negligent acts, Donoghue v Stevenson does not apply to negligent words: p 482
  • Careful people often express definite opinions in informal settings while it is unusual to put negligently made things into circulation
  • A thing will only cause one accident so proximity with the manufacturer is more likely, but words can spread with consent or foresight of the speaker or writer

However, an exception arises when expressly or by implication from the circumstances the speaker has assumed responsibility, the requirements being (at p 486):

  1. The party seeking information or advice was reasonably trusting the other to exercise a degree of care
  2. The other ought to have known that the inquirer was relying on it
  3. An answer was given without qualification

Lord Morris

  • ‘I consider that it follows and that it should now be regarded as settled that if someone possessing special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference.’
  • ‘Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise’: p. 502-503

Current case

  • ‘in my judgment, the bank in the present case, by the words which they employed, effectively disclaimed any assumption of a duty of care. They stated that they only responded to the inquiry on the basis that their reply was without responsibility. If the inquirers chose to receive and act upon the reply they cannot disregard the definite terms upon which it was given.’

Lord Devlin

Duty of care for negligent misstatement

  • There is no general duty to be careful or honest in speech nor action, the duty is limited to those who can establish some relationship of proximity such as was found to exist in Donoghue v. Stevenson: p 515 – 6
  • There is ‘neither logic nor common sense’ in drawing a distinction between pure economic loss and physical injury: p 517
  • “It is a responsibility that is voluntarily accepted or undertaken, either generally where a general relationship, such as that of solicitor and client or banker and customer, is created, or specifically in relation to a particular transaction”: p 529

Assumption of responsibility

  • The guiding rule is “wherever there is a relationship equivalent to contract, there is a duty of care”: p. 530
  • The presence of consideration is relevant since the payment for information or advice is very good evidence that it is being relied upon and that the informer or adviser knows that it is
  • In the absence of consideration, care must be taken to distinguish social and professional relationships, and relationships that are of contractual character or those that are not: p 529
  • It may often be ‘material’ to consider whether the adviser acting out of good nature or was getting his reward in some indirect form
  • In the present case, banks have interest in retaining their clients by assisting with their deals

Commentary

There were 2 different strains of reasoning for finding an assumption of responsibility

  • Lord Reid and : undertaking and reasonable reliance
  • Lord Devlin: something akin to contract, basically some dealing between parties but without consideration
  • Lord Devlin’s reasoning limited and cannot be applied to any subsequent cases that involved third party Cs that did not deal directly with D or even know the existence of D

Jane Stapleton in ‘Duty of Care and Economic Loss’

  • The court overcame two obstacles with the assumption of responsibility test:
    1. loss was caused by negligent words as opposed to acts and
    2. recovery of pure economic loss as opposed to loss connected with physical damage
  • But the judgments focused more on the first issue