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Negligence and Economic Loss
PEL = economic loss not suffered consequentially of person/property dmg.
This is to be distinguished from economic loss which can be consequential of person/property dmg.
Loss only counts as consequential economic loss if it arises from damage to C's own person/property.
Loss which results from damage to another's property is PEL.
Hedley Byrne v Heller (1964) - negligent misstatement (later extended to negligent provision of services in Henderson v Merrett Syndicates).
FACTS: HB (firm of advertising agents) wanted to find out whether Easipower Ltd was creditworthy or not before they placed some advertising orders on Easipower's behalf; HB's bankers received a favourable reference of Heller (Easipower's bankers) who gave the advice
"without responsibility"; Easipower went into liquidation and HB were unable to recover from Easipower so sued Heller for breach of duty to take care not to mislead HB as to
HELD: Heller's disclaimer of responsibility meant no DoC arose. But had Heller not excluded responsibility, it would have owed a duty to take care not to mislead HB as to Easipower's creditworthiness. Judges' reasons were vague and inconclusive, but tended to collectively focus on an "assumption of responsibility".
NB: The judges in Hedley Byrne do not speak with one voice - Devlin says must be 'a relationship akin to contract except without consideration' (IMPORTANT CASE TO READ IN
o Lord Reid: The principle in Donoghue v Stevenson had no direct bearing on the instant case. Donoghue set out to reflect the standards of the reasonable man but reasonable people often stated opinions without taking care, so the law had to treat words and acts differently. It was clear that liability for negligent misstatement could not be founded on the Donoghue principle alone; something more was required,
namely that the representor had expressly or impliedly undertaken responsibility for their statement. The representor impliedly undertakes responsibility when he gives advice without qualifying that he took no responsibility, yet while knowing that his advice was being relied on.
The basic principle of Hedley Byrne & Co v Heller (1964) was given by Lord Reid at p. 486:
A duty geared towards protecting against PEL arises under the following circumstances:
a party seeking information or advice was trusting the other party to exercise such a degree of care as the circumstances required,
where it was reasonable for him to do that,
and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him.
In other words,
A reasonably trusts B to give information or advice with reasonable care, and B knew or ought to have known that A was relying on him.
The duty is to "exercise such a degree of care as the circumstances require" = reasonable care and skill (as across the tort of negligence).
NB: This case therefore overruled Candler v. Crane, Christmas & Co (1951).
Caparo Industries v Dickman (1990, UKHL) added three factors that had to exist for there to be a duty of care Lords Bridge, Roskill, Ackner and Oliver of Aylmerton in Caparo Industries v Dickman:
Whilst recognising the importance of the underlying general principles common to the whole field of negligence, the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes.
Suggests that whether a DoC exists is less down to principles of general application but rather an incremental, analogy-based approach.
The UKHL in Commissioner for Customs & Excise v Barclays Bank (2006, UKHL) had a similar view;
that the tests used in considering whether a defendant sued as causing PEL owed a duty of care disclosed no single common denominator by which liability could be determined and the court would focus its attention on the detailed circumstances of the case and the particular relationship between the parties in the context of their legal and factual situation taken as a whole.
Lord Mance at : "This review of authority confirms that there is no single common denominator, even in cases of economic loss, by which liability may be determined. In my view the threefold test of foreseeability, proximity and fairness, justice and reasonableness provides a convenient general framework although it operates at a high level of abstraction. The concept of assumption of responsibility is particularly useful in the two core categories of case identified by Lord Browne-Wilkinson in White v Jones, at p 274F-G, when it may effectively subsume all aspects of the threefold approach. But if all that is meant by voluntary assumption of responsibility is the voluntary assumption of responsibility for a task, rather than of liability towards the defendant, then questions of foreseeability, proximity and fairness, reasonableness and justice may become very relevant. In White v Jones itself there was no doubt that the solicitor had voluntarily undertaken responsibility for a task, but it was the very fact that he had done so for the testator, not the disappointed beneficiaries, that gave rise to the stark division of opinion in the House. Incrementalism operates as an important cross-check on any other approach." (NB: While this is only authority/in relation to a D sued as causing PEL
by negligence, I don't see why it could not also be applied to DoCs in general.)
The two categories of cases of special relationship that were identified by Lord
Browne-Wilkinson at p 274F-G in White v Jones were: "(1) where there was fiduciary relationship and (2) where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff's affairs or by choosing to speak."
In Commissioner for Customs & Excise v Barclays Bank, the Bank was held not to have assumed a responsibility giving rise to a DoC because of the "involuntary nature of the bank's involvement with the commissioners" - the bank, by law, was required to comply with the request for a freezing order (but failed to do so, hence the action in negligence), but this obligation does not give rise to an AoR as it is not voluntary.
In other words, the assumption of responsibility must be properly voluntary.
: "The key question therefore is whether it is therefore fair, just and reasonable to recognise a duty? …" Lord Mance goes through the relevant factors: (1) The floodgates argument carried no weight in this case, since "[t]he freezing orders define both the potential claimants and the maximum amounts of any claim", .
(2) The availability of adequate alternative protection for Cs: "a civil remedy for breach of a duty of care would be a much more satisfactory and complete protection than potential contempt proceedings for a claimant like the commissioners" since contempt requires a higher standard of proof for a serious offence, .
(3) The availability of insurance to D, to pay the liability for negligence. A
distinction might possibly be made between banks (who have "and who could be expected to have" insurance to cover the risks of a freezing order) and others. "But this would, I think, prove a difficult distinction both to justify in principle and to draw and apply", .
(4) Whether the suggested DoC to the Cs would be inconsistent with the bank's (D's) duty to the court (to comply with the freezing order). On the facts it would not - it would complement and reinforce that duty, .
(5) "the suggested duty of care would be equally consistent with the bank's duty to the defendants as its customers"
(6) "the nature of a freezing order means that a duty could without difficulty be recognised, although it would amount to a duty to take care to avoid a disposition which would itself involve an intentional contempt of court by the bank's customer."
(7) The "determinative factor in this case, that is the absence of any real voluntary aspect to the involvement of a third party such as the bank in relation to a claimant's freezing order such as the present",
Interesting that only the last reason, which was decisive, is the only principled reason for not imposing a DoC. The others (all of which,
except perhaps (6), pointed towards imposing a DoC) seem to be policy considerations.
: "There is no analogy between any of these cases and the present. The recognition of a duty of care in the present case would not be closely incremental upon any existing duty. …"
: "A further subsidiary consideration is that the commissioners, at least in a case such as the present, cannot be said to have relied to their detriment on anything said or done by the bank. …" (Unsure if this is a good point, given that omissions can constitute a breach of duty.)
: "Despite the consistency of many of the factors in play with the recognition of a duty of care, I would therefore answer the question whether it is fair, just and reasonable to impose such a duty on the bank in the negative.
The common law has, it seems to me, developed a system offering very significant protection for claimants, together with very considerable incentives,
backed by ample sanctions, for banks and other third parties to do their best to comply. Having imposed such an obligation on a third party, I do not consider that it should go further by imposing a duty on the third party towards a claimant to take care to prevent abstractions committed by the defendant in breach of a freezing order. This would not be analogous with or incremental to any previous development of the law. The position as it is without any such duty
I.e. consistency with other duties
of care seems to me to represent a fair and normally effective balance between the respective interests involved."
Banca Nazionale v Playboy Club London (2018, UKSC) - knowledge required by D
UKSC held that there were two fundamental components to a DoC geared towards protecting from PEL in negligence:
a voluntary assumption of responsibility (based either on a general relationship or a particular transaction) to an identifiable person or group of persons, rather than to the world at large.
proximity between the parties.
FACTS: Similar facts to Hedley Byrne (a credit reference negligently supplied by a bank for a person who subsequently defaulted), but critical difference: the reference was relied upon not by the party to whom it was addressed (Burlington) but by that party's undisclosed principal (Playboy Club, a casino). Thus, the bank (Banca Nazionale) did not know the reference was going to go to the casino for the purpose of certifying Mr
Lord Sumption (w/ agreement of Hale, Reed and Briggs):
He first did an overview of the applicable principles:
: Hedley Byrne "allowed the recovery of a purely economic loss in negligence where the existence of a special relationship between claimant and defendant made this appropriate" … "The ratio of the decision was that the reasonable reliance of HB on the reference,
combined with Heller's appreciation of the fact that they would reasonably rely on it, gave rise to a direct relationship between them involving a duty of care".
: "The principle thus established is capable of development. Indeed it has undergone considerable development since 1964, for example to cover omissions and the negligent performance of services. But these have been incremental changes within a consistent framework of principle. … The defendant's voluntary assumption of responsibility remains the foundation of this area of law [as confirmed by UKSC at
- of NRAM v Steel (2018)]. It is fundamental to this way of analysing the duty that the defendant is assuming a responsibility to an identifiable (although not necessarily identified) person or group of persons, and not to the world at large or to a wholly indeterminate group."
: "The defendant's knowledge of the transaction in respect of which the statement is made is potentially relevant for three purposes:
to identify some specific person or group of persons to whom he can be said to assume responsibility;
to demonstrate that the claimant's reliance on the statement will be financially significant; and
to limit the degree of responsibility which the defendant is taken to assume if no financial limit is expressly mentioned."
NB: Relevant to this case was the first of these purposes.
: "… I would go further and say that the representor must not only know that the statement is likely to be communicated to and relied upon by B. It must also be part of the statement's known purpose that it should be communicated
and relied upon by B, if the representor is to be taken to assume responsibility to B. …"
Thus, for the representor (A) to be taken to assume responsibility to B, it must be that:
1. A knew that his statement was likely to be communicated to and relied upon by B, and
2. Part of the statement's known purpose was that it should be communicated to and relied upon by B.
: "… On the facts, the bank (although giving a creditworthiness reference without being truthful) "had no reason to suppose that Burlington was acting for someone else [Playboy Club], and they knew nothing of the Playboy Club. In those circumstances, it is plain that they did not voluntarily assume any responsibility to the Club. …"
Lord Mance concurred, and examined one or two points in more detail "in order to identify precisely why the Club's claim nevertheless fails":
: "I do not consider that this claim should fail for want of communication of the purpose or kind of purpose for which an assessment of trustworthiness was required. Had Burlington been the operator of the gambling blub and suffered the loss, it should have succeeded. … There is no reason in principle why a duty of care should not arise in relation to so unspecific a purpose, provided (as is here clear) that the representation was requested and given in terms showing that it was intended to be and would be relied on. The decision in Caparo does not exclude liability on this basis."
: "I would therefore dismiss the claim only because … [t]he representation was directed simply and solely to Burlington. It is true that, so far as appears,
BNL was probably as uninterested in Burlington and its identity as it was in the nature and purpose of the intended financial commitment. But the representation was, objectively, requested by Burlington alone and, objectively,
confined in its making to Burlington. To my mind, this consideration is strengthened by the notation 'This information is given in strict confidential' in
BNL's representation mail."
Thus, the operative condition = C must be a specific person or within a group to whom responsibility may be said to have been undertaken.
The claim should not fail for want of communication of the purpose, or kind of purpose, for which the assessment of trustworthiness was required. Had the agent been the operator of the casino and suffered the loss, it should have succeeded. However, the claim should fail because the representation was directed simply and solely to the agent, applied.
Lord Pearce at  in the original case of Hedley Byrne: Whether a special relationship has arisen
"depends on the circumstances of the transaction".
There need not be a contractual or fiduciary relationship between the parties for such a duty of care to arise. "Leaving aside cases where there is some contractual or fiduciary relationship, there may be many situations in which one person voluntarily or gratuitously undertakes to do something for another person and becomes under a duty to exercise
reasonable care" (Lord Morris of Borth-y-Gest at p. 497 in Hedley Byrne, supported by Lord
Reid at p. 484).
o NB: Lord Devlin noted (obiter?) that where there was a general relationship (such as that of solicitor-client, bank-customer, etc.) it was unnecessary to prove any more than its existence, and the duty flowed.
"[T]o import such a duty the representation must normally, I think, concern a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer" (Lord Pearce at p. 539 in Hedley Byrne).
It is even more likely that a duty arises if the representor is "in a sphere where [the representor] is so placed that others could reasonably rely upon his judgment" (Lord
Morris at p. 503 in Hedley Byrne, supported by Lord Hodson at p. 514 ).
If D has explicitly told C to rely on him it is unlikely that D can escape liability "simply because he belonged to no profession or calling, had no qualifications or special skill and did not hold himself out as having any" (Devlin LJ at p. 531 in Hedley Byrne).
The circumstances include the degree of skill and experience that D possessed or held himself out as possessing (Stuart Smith LJ at p. 33H in Chaudhry v Prabhakar (1989))
expected to exercise that degree of skill and experience.
Advice given in social contexts:
- There is a general long-standing principle that the court should not interfere or get involved with things done or said between family members, for litigation between family members is undesirable. Hence, advice given on a social occasion does not usually entail an assumption of responsibility and give rise to a DoC.
- "The giving of advice sought in the context of family, domestic or social relationships will not in itself give rise to any duty in respect of such advice" (Stocker LJ, p. 36H in
Chaudhry v Prabhakar (1989)). This statement does not preclude the imposition of a liability between parties in a social relationship. He continues "The existence of the duty would depend upon all the circumstances in which the advice was sought or tendered … If [the parties] are friends, the true view may be that the advice or representation is made upon a purely social occasion and the circumstances show that there has not been a voluntary assumption of responsibility".
Lord Devlin at p. 529 in Hedley Byrne: "Responsibility can attach only to the single act, that is, the giving of the reference, and only if the doing of that act implied a voluntary undertaking to assume responsibility" suggests that no prior relationship need even exist between the advisor and the advisee for a duty of care to arise.
If a banker gives a reference in the form of a "brief expression of opinion" in regard to credit-worthiness, he does not accept, and there is not accepted of him, any higher duty than that of giving an honest answer (Lord Morris and Lord Hodson in Hedley Byrne at p.
504 and p. 513, respectively).
- Two words to pick up on: "Brief" suggests that to rely on advice, the advice must be given in a more formal (?) manner. "Opinion" suggests that the advice must be a statement of fact (not opinion) to be relied upon.
NB: One the facts of HEDLEY BYRNE there was NO DUTY due to the DISCLAIMER OF REPSONSIBILITY
parts of the above discussion on HB are just PERSUASIVE and NOT NECESSARILY BINDING.
In the case itself, there was no DoC imposed on Heller since the advice had been given
"without responsibility". While a disclaimer of responsibility usually means there is no DoC,
s2(2) Unfair Contract Terms Act 1977 means that a disclaimer of responsibility may not be valid if given "in the course of business". NB: contract between business and consumer
Consumer Rights Act 2015.
However, the HoL made it clear that had Heller not done this, it would have owed HB a DoC -
reasoning inconsistent, but general idea that Heller "assumed a responsibility" towards HB.
Some people think 'assumption of responsibility' is an empty concept, used by the courts whenever they want to impose a DoC (e.g. Lord Griffiths in Smith v Eric S Bush (1990)).
Others think 'assumption of responsibility' is not an empty concept, and it is only possible to find an AoR in certain definable circumstances, and where an AoR has been found outside of these circumstances, the courts are guilty of abusing the concept (e.g. Lord Steyn in
Williams v Natural Life Health Foods Ltd (1998)).
In Hedley Byrne, Lord Reid observed that if a reasonable man
knew that his advice was being relied on, and answered without qualifying that he took no responsibility
… then he must be held to have "accepted some responsibility for his answer being given carefully,
or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require".
This also applies where the advisor implicitly indicates that his advice can be safely relied on
(Customs and Excise Commissioners v Barclays Bank Plc (2007)) - the test is objective: "what would reasonably be inferred from his conduct against the background of all the circumstances of the case"
(Lord Hoffmann at ).
However, advice given on a social occasion will not give rise to a DoC unless A explicitly assures B that she can safely rely on his advice (Chaudhry v Prabhakar (1989)).
The Privy Council also suggested that if A undertakes to advise B on some matter, A will not owe B a DoC in giving that advice if A did not hold himself out as being an expert on the matter advised upon (Mutual Life and Citizens' Assurance Co Ltd v Evatt (1971)) probs too strong whether A purports to be an expert, implicitly or explicitly, is one factor to consider.
The writer of a text/article cannot be taken to have invited his readers to rely upon the text without seeking further advice (Candler v Crane, Christmas & Co (1951)). The same applies to the maintainers of official registers (Yuen Kun Yeu v AG for Hong Kong (1988)).
The rule on assumption of responsibility still applies regarding advice given by a 3rd party. The advisor only owes a DoC to the person to whom he indicated that his advice could be relied upon
(Williams v Natural Life Health Foods Ltd (1998)). In other words, if A tells B to buy many shares in
X, and B then tells C to buy many shares in X, C cannot sue A. This is because A only owed a DoC to B
- A never indicated that C could safely rely on the advice (there was a complete lack of contact).
Hence, Hedley Byrne & Co v Heller (1964) gives a general formulation of PEL DoC:
A undertakes to do a task for B.
A knows, or ought reasonably to know, that B will rely on A to do this task.
It is reasonable for B to rely on A to do this task (as A indicates either explicitly or implicitly to B that he can do so).
This is in a non-social context (Chaudhry v Prabhakar ??? (1989)).
… which can be extended regarding the duty that A will owe to a third person (C) when there is a relationship of proximity in that:
A knew that his statement was likely to be communicated to and relied upon by B, and
Part of the statement's known purpose was that it should be communicated to and relied
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