Hedley Byrne v Heller - Brief Case Summary

Legal Case Summary

Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 (HL)

Summary: Claiming Economic Loss Against Experts

Introduction

In 1963 the House of Lords established that in limited circumstances – if a duty of care arose in the making of statements – pure economic loss in tort could now be recoverable in English law.

Issues Raised by Hedley Byrne & Co Ltd v Heller & Partners Ltd (‘Hedley Byrne’[1])

A negligent misstatement may give rise to an action for damages for economic loss. When a party seeking information or advice from another – possessing a special skill – and trusts him to exercise due care, and that party knew or ought to have known that the first party was relying on his skill and judgment, then a duty of care will be implied.

Facts in Hedley Byrne

Hedley Byrne were advertising agents placing contracts on behalf of a client on credit terms. Hedley Byrne would be personally liable should the client default. To protect themselves, Hedley Byrne asked their bankers to obtain a credit reference from Heller & Partners (‘H&P’), the client’s bankers. The reference (given both orally and then in writing) was given gratis and was favourable, but also contained an exclusion clause to the effect that the information was given ‘without responsibility on the part of this Bank or its officials’. Hedley Byrne relied upon this reference and subsequently suffered financial loss when the client went into liquidation.

Decision in Hedley Byrne

The court found that H&P’s disclaimer was sufficient to protect them from liability and Hedley Byrne’s claim failed. However, the House of Lords ruled that damage for pure economic loss could arise in situations where the following four conditions were met:

1. (a) a fiduciary relationship of trust & confidence arises/exists between the parties;
2. (b) the party preparing the advice/information has voluntarily assumed the risk;
3. (c) there has been reliance on the advice/info by the other party, and
4. (d) such reliance was reasonable in the circumstances.

Subsequent impact of Hedley Byrne on tortious liability

In the years following Hedley Byrne, other types of economic loss claim were tried and sometimes successful. Defective products, including construction projects, were held to result in liability[2], culminating in Anns v Merton London Borough Council[3] where the court held that the negligent oversight by a council resulting in cracks to a building from inadequate foundations amounted to ‘material physical harm’, rather than pure economic loss so that damages for the costs of repairs were recoverable. This case was followed 5 years later[4] before a major shift in the legal climate resulted in this decision being overruled[5].

The House of Lords in Caparo Industries plc v Dickman[6] also refined the Hedley Byrne test. Lord Bridge set out the three requirements to be found before a relationship of sufficient proximity would be established in a misstatements case:

‘The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation,knew that the advice or information would becommunicated to him, directly or indirectlyand knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation.’[7]

In Caparo itself, reliance on the information was not reasonable because it was supplied for one purpose and could (and should not) be relied upon for any other purpose.

The current test for determining assumption of responsibility was set out in Henderson v Merrett Syndicates Ltd (No. 1)[8]. Investors, acting in syndicates, in the Lloyds of London insurance market, (the ‘Names’) brought claims arising out of losses incurred in the 1980s. The actions were against underwriting and managing agents who had set out the syndication for negligence.

The House of Lords unanimously ruled that liability may be found even where there is no statement or advice relied upon, if there has been an assumption of responsibility for the conduct of another’s affairs. Lord Goff, giving the lead judgment, specifically built upon his decisions in earlier cases[9], emphasising the concept of assumption of responsibility and stating that even in Hedley Byrne itself, Lord Devlin and Lord Morris’s judgments showed that ‘the principle extends beyond the provision of information and advice to include the performance of other services’[10].

This case also dealt with ‘concurrency’, the liability in both tort and contract on the same facts. Lord Goff considered that both were possible and that a claimant who could choose between the two was able to select the remedy that was most advantageous.

The 2006 case of Customs and Excise v Barclays Bank plc[11] applied a multi-test approach incorporating a threefold test set out by Lord Griffiths in Smith v Bush[12], the assumption of responsibility test and Lord Bridge’s approach in Caparo.

Other developments in Hedley Byrne

Despite the decision in Caparo limiting the situations in which a duty of care would arise in relation to pure economic loss, some subsequent decisions have in fact extended it further. A duty of care has been found in relation to the writing of references[13], advice in respect of pension rights[14] and more recently, to expert witnesses in court[15].

Of particular interest is the growth of the duty in the ‘will cases’, a number of decisions between 1980[16] and 1999[17]. White v Jones[18] was another decision where Lord Goff delivered the lead judgment. Two sisters were cut out of their father’s will. Following a reconciliation, the father instructed a solicitor to draw up a new will reinstating earlier legacies. There was delay and the father died before the will was revised. The sisters sued the solicitor and the court found in their favour, awarding them damages for the economic loss they had suffered as a result of the solicitor’s negligence.

This is hard to reconcile. Loss arose because of the negligent provision of a service rather than from a statement given in the context of a special relationship. Further, although solicitors have a fiduciary relationship of trust and confidence with their clients, there is the risk of a conflict of interest if that is extended to intended beneficiaries. Any actual conflict of interest between testator and beneficiaries will absolutely fall outside the White exception[19].

Conclusion

Hedley Byrne opened up a cause of action outside the law of contract for loss based on reliance on a statement. There have been considerable fluctuations in its application in the fifty years since the decision, but it has opened the door to liability for negligent statements made by those in a ‘trust’ capacity and beyond into the wider area of professional services.

Footnotes

[1] [1964] AC 465 (HL)

[2] Dutton v Bognor Regis Building Co Ltd [1972] 1 QB 373 – local authority had approved defective foundations

[3] [1978] AC 728

[4] Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520

[5] Murphy v Brentwood District Council [1991] 1 AC 398

[6] [1990] 2 AC 605

[7] Ibid at 621

[8] [1995] 2 AC 145

[9] eg Spring v Guardian Assurance [1995] 2 AC 296

[10] Henderson v Merrett Syndicates Ltd (No. 1) [1995] 2 AC 145 at 180

[11] [2006] UKHL 28

[12] [1990] 1 AC 831

[13] Spring v Guardian Assurance [1995] 2 AC 296

[14] Gorham v British Telecommunications plc [2000] 1 WLR 2129

[15] Jones v Kaney [2011] 2 AC 398 (no justification for continuing to hold expert witnesses immune from suit)

[16] Ross v Caunters [1980] Ch 297

[17] Carr-Glynn v Frearsons [1999] Ch 326

[18] [1995] 2 AC 207

[19] Clark v Bruce Lance & Co [1988] 1 WLR 881