Hedley Byrne v Heller

Facts

Hedley Byrne, an advertising agency, was asked by a client, Easipower Ltd, to place advertising orders on credit, which would make Hedley Byrne personally liable to the media. Hedley Byrne asked its own bank to check Easipower's financial standing. The bank sought a reference from Easipower's bankers, Heller and Partners. Heller gave favourable references, stating that they were given in confidence, for the private use of the enquirer and without responsibility on the part of the bank. The references were passed on to Hedley Byrne, which went ahead with the orders. Easipower went into liquidation, and Hedley Byrne lost a substantial sum. It alleged that Heller had been negligent in giving the references.

History

McNair J held that no duty of care was owed to Hedley Byrne in respect of the references, and the Court of Appeal agreed. The House of Lords dismissed the appeal on a different ground, the disclaimer.

Issue

Whether a person who gives advice or information, carelessly and without a contract or fiduciary relationship, owes a duty of care to the recipient who relies on it and suffers purely economic loss; and, if so, whether the disclaimer prevented liability.

Held

Appeal dismissed. Their Lordships held that, in principle, a duty of care may arise in respect of negligent statements where there is a special relationship, but Heller had expressly disclaimed responsibility, and so had not assumed any responsibility to Hedley Byrne, and no duty arose.

Ratio

• A duty of care in respect of a careless statement causing financial loss may arise where there is a special relationship, in which the person giving the information or advice has assumed responsibility for it, or the circumstances show that he knew or ought to have known that the recipient was relying on his skill and judgment.
• A person who gives advice or information may effectively exclude responsibility for it by a disclaimer, and where he does so no duty arises.

The judgments

Key reasoning

• There is no principled reason why a careless statement should not give rise to liability for financial loss where a party has taken on responsibility for the accuracy of information on which another is expected to rely.
• Cases that denied liability for careless words had turned on the absence of a contract or fiduciary relationship, and the better view is that the existence of a special relationship, rather than the form of the relationship, determines whether there is a duty.
• The bank's reference was given on terms that it was without responsibility, and a reasonable recipient could not take it to have been given on the footing that care would be taken.

Obiter

• Because the claim failed on the disclaimer, the statements that a duty of care can arise for careless words causing economic loss were not strictly needed for the decision, but they have been treated as the authoritative statement of the law.

Where it fits in the module

In Tort (FHS), on Negligent statements and provision of services, Hedley Byrne is the starting point. The course traces the principle through Caparo Industries plc v Dickman [1990] 2 AC 605, Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, White v Jones [1995] 2 AC 207, Spring v Guardian Assurance plc [1995] 2 AC 296, Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28 and Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] UKSC 43. Candidates are expected to say whether assumption of responsibility is a test of liability or just a label for the court's conclusion, how reliance and the voluntary acceptance of risk fit in, and how the Unfair Contract Terms Act 1977, section 2(2), and the Misrepresentation Act 1967 control disclaimers.

Criticisms

• Assumption of responsibility is an unclear concept: it is often attributed to defendants who never intended to take on liability, so the court's language of voluntary assumption hides an objective policy judgment about when liability is fair.
• The principle was stated in a case in which the claim failed because of the disclaimer, so the central statement is obiter and was left without clear boundaries, and later courts had to decide what a special relationship required.
• The need for reliance and a disclaimer makes the outcome turn on the form of words used, so a careful drafter can avoid liability for defective advice in circumstances where the recipient has no alternative.
• Extending tort liability to pure economic loss from careless words risks indeterminate liability to an unlimited class, which the House addressed only by relying on the idea of a special relationship.