Facts
- Hedley Byrne, an advertising agency, sought information on the creditworthiness of Easipower Ltd, a potential client.
- Hedley Byrne’s own bank asked Heller & Partners, bankers for Easipower, to provide a credit reference.
- Heller & Partners issued a favourable credit reference but included a disclaimer stating the information was given “without responsibility” on their part.
- Relying on this reference, Hedley Byrne contracted with Easipower, who later went into liquidation.
- Hedley Byrne suffered a financial loss of approximately £17,000, consisting solely of pure economic loss.
Issues
- Whether a duty of care arises for negligent misstatements which cause pure economic loss, even in the absence of a contractual relationship.
- Whether Heller & Partners’ disclaimer was effective in excluding any such duty of care.
- Whether the principle from Donoghue v Stevenson, initially extended to physical injuries from negligence, should also apply to negligent statements causing financial loss.
Decision
- The House of Lords determined that, in principle, a duty of care may arise in cases involving negligent misstatements that cause pure economic loss if there is an assumption of responsibility and reasonable reliance.
- The disclaimer issued by Heller & Partners was found to be effective in negating the duty of care, and thus no liability arose on the facts.
- It was clarified that a relationship of proximity, analogous to that in Donoghue v Stevenson, may trigger a duty of care for information or advice resulting in financial loss.
- The court drew a distinction between liability for negligent acts and negligent words, with the latter requiring special consideration.
Legal Principles
- A duty of care in negligent misstatement arises where there is an assumption of responsibility by the party giving advice and reasonable reliance by the recipient.
- The existence of special skill or knowledge, coupled with reasonable reliance and awareness of that reliance by the adviser, supports the imposition of a duty.
- Disclaimers, when clear and unambiguous, can preclude the formation of a duty of care for information relied upon by others.
- The principle of proximity, taken from Donoghue v Stevenson, serves as the basis for extending negligence to pure economic loss in cases of misstatement.
- Later cases such as Caparo Industries v Dickman introduced a three-part test for duty of care: foreseeability, proximity, and whether it is fair, just, and reasonable to impose liability.
- The concept of assumption of responsibility and reasonable reliance remains central in such claims.
- Recovery of pure economic loss is restricted to negligent misstatements or situations comparable to those identified in Hedley Byrne.
Conclusion
Hedley Byrne & Co Ltd v Heller & Partners Ltd marked a significant development in negligence law, establishing that a duty of care in respect of negligent misstatements causing pure economic loss may arise outside contract, but may be excluded by effective disclaimers and is primarily governed by the principles of assumption of responsibility and reasonable reliance.
