Liability for Negligent Misstatement

In seeking to critically evaluate the view that “Liability for negligent misstatement has never been clearly defined” with reference to the recovery of economic loss in tort, this essay will look to determine as to whether liability for negligent misstatement has, in fact, ever been defined in practice sufficiently with reference to the matter of economic loss in tort. This means that it is first necessary to consider what is meant by the concept of negligent misstatement in general and then more specifically in relation to the matters of the ‘tort of deceit’ related to acts of fraud and dishonesty. In addition, this essay will look to define what economic loss is in the context of the law of tort and how it relates to the need for an apparently restricted duty of care along with its relationship more specifically with the concept of negligent misstatement. But, whilst this discussion will also attempt to show there is a general arbitrariness in this area as a reflection of judicial reluctance to effectively deal with the issues to show a detailed knowledge regarding liability for economic loss, this essay will also seek to consider whether there is sufficient clarity. Finally, this essay will look to conclude with a summary of the key points that have been derived from this discussion in seeking to determine whether the aforementioned view with reference to the recovery of economic loss in tort is, in fact, apt in the circumstances.

When considering whether any given individual should be held liable under the principle of negligent misstatement in tort, this has been defined as a statement carelessly made in circumstances where there is a duty to be careful and honest, leading to a loss to someone to whom that duty is owed and has acted on that statement in tort (see, for example, Hedley Byrne & Co Ltd v. Heller & Partners & Esso Petroleum Co Ltd v. Mardon). Moreover, it should also be recognised that where the particular negligent misstatement is considered, in more extreme cases, to be ‘fraudulent’, then the statement in question may be in keeping with what has come to be labelled as the ‘tort of deceit’. But then it also has to be appreciated that, in view of the fact that dishonesty was recognised as an essential element of this offence, in the decision of Derry v. Peek it could be argued that an individual offender was merely careless – although this would seem unlikely. The reason for this assertion is that this area is somewhat complicated by the fact that issues of negligent misstatement are associated with ‘pure economic loss’ (see, for example, Anns v. Merton London Borough Council & White v. Jones). But, in the House of Lords decision of Hedley Byrne & Co Ltd v. Heller & Partners, it was generally accepted that someone who gives inaccurate information, where it is likely to be acted on in practice, could be liable for losses suffered as a result of that reliance. Nevertheless, the claimant’s in Hedley Byrne & Co Ltd v. Heller & Partners failed not because their losses were unrecoverable in law but because they had not shown their reliance upon the defendant’s misstatement was reasonable in the circumstances of that particular case. This is because a key factor in such cases is as to whether the particular defendant has ‘assumed responsibility’ for their statements (Chaudry v. Prabhakar), since it seems largely dependent upon whether the statement was made for the benefit of the given claimant (see, for example, Smith v. Eric S. Bush & Caparo v. Dickman).

There is a prevailing view held by the domestic courts that claimants may not solely make claims for ‘pure economic loss’ (i.e. solely financial) because such claims are less foreseeable than physical losses in the circumstances of cases as an when they arise (Spartan Steel & Alloys v. Martin & Co (Contractors) Ltd). As a result, it has come to be recognised as a prevailing view that such claims of liability are considerably less deserving of redress leading to a limited scope for the duty of care (Harpwood, 2008, p.93). Therefore, it has been argued if the loss suffered was connected with physical injury (Tomlinson v. Congleton Borough Council) to a claimant then they could claim for the loss arising in such circumstances. Such a view stemmed from the fact it has been recognised in these cases that even if the loss is financial, it is not considered ‘pure economic loss’ and is recoverable as a result (Cattle v. Stockton Waterworks Co & S.C.M Ltd v. W.J. Whittall). Moreover, the courts have since come to understand that economic loss can be claimed for as ‘financial loss’ where it is foreseeable and consequential upon physical damage to property the claimant has a proprietary interest in (Murphy v. Brentwood District Council) otherwise the courts are commonly candid for fear of a proliferation of claims materialising from all and sundry seeking to claim compensation by way of redress (Harpwood, 2005, p.75).

That such a fear developed was marked by the fact that the courts have effectively moved away from what may be considered a ‘liberal’ period to allow for liability to be recognised in any given case with matters effectively coming to a head in Junior Books Ltd v. Veitchi Co Ltd where it was held there could liability for damages that would not threaten either health or safety. By way of illustration, in Weller v. Foot & Mouth Disease Research Institute questions of remoteness have been used to exclude liability for economic loss because whilst farmers losses were considered direct, those of the claimant (auctioneers) was considered only indirect (Harpwood, 2005, p.89). But the distinction has not always been considered clear. In this regard, the expansionist nature of liability was effectively illustrated by Dutton v. Bognor Regis UDC where it was recognised that, regarding the defective nature of the foundations of a building having to be repaired, the claimants could claim against the council because of their building inspector’s negligence and the fact there was a risk of harm to health and safety (Donoghue v. Stevenson).

The problems with the law have then only been further exacerbated by the fact compensation has been awarded too easily for financial losses resulting from property damage or personal injury in the current climate (Kennedy, 2005). This is because people have become increasingly aware of their rights in all areas (O’Hara v. United Kingdom) thanks to the European Convention on Human Rights 1950’s domestic implementation by the Human Rights Act 1998 leading to the rise of a ‘compensation culture’ (McIlwaine, 2004). However, that is not to say there is not some clarity of thought in this area pertaining to economic loss in the context of negligent misstatements being made. This is because, whilst it may be considered somewhat complicated by the fact issues of negligent misstatement are associated with ‘pure economic loss’ (Anns v. Merton London Borough Council), in Hedley Byrne & Co Ltd v. Heller & Partners it was recognised that, generally, where someone gives inaccurate information in a position of authority it is likely to be acted on so they could be liable for losses resulting from that reliance. That such an understanding has developed is marked by the fact that the key factor in such cases is as to whether the defendant has ‘assumed responsibility’ for their statements (Chaudry v. Prabhakar), since it seems largely dependent on whether the statement was made for the benefit of the claimant for them to act upon (Caparo v. Dickman). Then, in Henderson v. Merrett, it was also recognised that whether it was ‘fair, just, and reasonable’ to impose liability for negligent advice was not a separate test so it was reasonably foreseeable the claimant would rely upon the defendant’s advice (White v. Taylor) to assume a duty of care was present because of their special relationship (Francis v. Barclays Bank).

Nevertheless, in the decision of Henderson v. Merrett it was recognised that in determining as to whether it was considered to be ‘fair, just, and reasonable’ to impose liability for negligent advice was not a separate test from whether the defendant in a given case assumed responsibility for their actions. Therefore, it has also come to be understood that, where responsibility was assumed, it was reasonably foreseeable that the claimant would look to rely upon a given defendant’s advice in the circumstances of a particular case so as to be able to assume that a duty of care was present. As a result, the decision that was reached in Henderson v. Merrett would seem to suggest that liability for ‘pure economic loss’ not only flows from a negligent misstatement, but also from negligent advice. With this in mind, it has been recognised that it is then only a small step from this point to look to impose liability for negligence in the performance of a given set of services. Such a view has arisen in practice because success is dependent upon proof that the parties in a given case have a ‘special relationship’ in a purely commercial situation where the ‘representor’ in the circumstances purports to have some special skill or knowledge and it is reasonable to assume that the ‘representee’ will look to rely upon this in the actions that they then take (Williams v. Natural Life Health Foods). Therefore, since liability could be found in cases of negligent misstatement and advice, it was also arguable this understanding of the law also apply to negligence in the performance of services. For example, it was recognised in White v. Jones where a solicitor was asked by his client to modify their will because the solicitor in question failed to organise this change before the client died the beneficiaries sued the solicitor to recover the money they would have obtained had the will been completed (R (On the application of A & another) v. Secretary of State for the Home Department).

To conclude, it is clear that there is in fact a significant degree of consistency in this area regarding the matter of negligent misstatements that has also been applied through the decisions of the courts to both advice and the performance of services despite the apparent scope for judicial discretion emanating from the exercise of the principle of ‘stare decisis’ (i.e. judicial precedent) being exercised (Newell v. Ministry of Defence). Therefore, despite its level of consistency, it is arguable that academics like Harpwood’s view (2008, p.93) regarding the development of the law is flawed in this area at least – although this is in fact little more than an aberration in practice. The reason for this is that the reality is that the law is somewhat arbitrary in the decisions that have been reached to the detriment of both claimants and defendants alike as has been discussed as part of this essay. This is because, by way of illustration, whilst it is generally understood that a particular given defendant cannot be held to be liable for ‘pure economic loss’, they can be held to be liable where there is physical damage to property or harm to someone’s physical health being likely to result from out of a given statement being made. But, as the decision in Weller v. Foot & Mouth Disease Research Institute shows, liability in this regard in relation to negligent misstatements can be even further limited according to the standard rules of tort in relation to matters including proximity, causation and the duty of care. With this in mind, it is arguable that the law still remains unclear largely because of the fact that the courts have not established an overriding principle for all future courts to adhere to in reaching their decisions that is considered to be sufficiently satisfactory outside of the law of judicial precedent and so this area will not be resolved until such a decision is reached.