Hedley Byrne v Heller & Partners [1964] AC 465

KEY POINTS

• When one party gives inaccurate information that another party relies on because of their experience or vocation, this is referred to as negligent misstatement. As a result, the other party suffers financial loss.

• There must be a "special relationship" between the parties in order for culpability to exist in situations of negligent misstatement. This unique relationship is built on one party taking on responsibility freely and the other party putting a reasonable amount of trust in the information provided.

FACTS

• Hedley Byrne and Co. Ltd. (the plaintiff) was an advertising firm that was thinking about signing a deal with a brand-new customer. Hedley Byrne wanted to make sure the client's finances were stable before signing the contract.

• The client had an account with the bank Heller & Partners Ltd. (the defendant). Inquiring about a reference regarding the client's financial situation, Hedley Byrne got in touch with Heller.

• However, Heller also inserted a disclaimer provision in the reference letter, noting that the bank accepted no responsibility or obligation for the veracity of the information provided. Heller produced a reference letter, claiming that the client's financial status was "satisfactory."

• Hedley Byrne signed a contract with the customer on the basis of the reference letter; but, when the client filed for bankruptcy, Hedley Byrne suffered significant financial losses.

JUDGEMENT

• Appeal dismissed. Even with the disclaimer, Heller had assumed responsibility for supplying correct information, and Hedley Byrne had justifiably relied on the reference he had given. In light of these facts, the court determined that Heller had a duty of care to Hedley Byrne.

COMMENTARY

• This case is notable because it gave English law the concept of negligent misstatement. It clarified that, even in the presence of a disclaimer, a party might still be held accountable for careless misstatement if a special relationship existed.

• In particular, situations involving negligent advice or statements made in a business environment, this case has had a significant impact on contract and tort law and served as the cornerstone for the modern doctrine of negligent misstatement.

ORIGINAL ANALYSIS

• Plaintiffs had booked advertising space, for which Plaintiff was liable, on behalf of X. To ensure that X wouldn’t fail to pay them, they asked Defendant, X’s bank, whether X would be able to pay and Defendant said they were certain that X could pay but that this assurance included a disclaimer of responsibility on X’s behalf. 

• It turned out X was unable to pay so Plaintiff sued Defendant for negligent misrepresentation. 

• HL held that Plaintiff must fail due to the disclaimer, but would otherwise have been able to sue, since negligent misrepresentation causing economic loss can, in some cases, make Defendant liable. 

• A duty of care would arise in relation to statements where there is:

  1. A "special relationship" between the advisor and the advisee, such that the advisor could reasonably anticipate that the advisee will rely on his/her advice for a particular purpose; 

  2. A statement that was false/inaccurate/misleading; and 

  3. Advisee reasonably relied on statement & suffered detriment as a result. 

Lord Devlin

• Such relationships are ‘equivalent to contract,’ that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.

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