Hedley Byrne v. Heller
Encyclopedia
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is an English tort law
case on pure economic loss, resulting from a negligent misstatement. Prior to the decision, the notion that a party may owe another a duty of care
for statements made in reliance had been rejected, with the only remedy for such losses being in contract law
. The House of Lords
overruled the previous position, in recognising liability for pure economic loss
not arising from a contractual relationship, introducing the idea of "assumption of responsibility".
, to get a report from Easipower’s bank, Heller & Partners Ltd., who replied in a letter that was headed,
It said that Easipower was,
The letter was sent for free. Easipower went into liquidation and Hedley Byrne lost £17,000 on contracts. Hedley Byrne sued Heller & Partners for negligence, claiming that the information was given negligently and was misleading. Heller & Partners argued there was no duty of care owed regarding the statements, and in any case liability was excluded.
. It was reasonable for them to have known that the information that they had given would likely have been relied upon for entering into a contract of some sort. This would give rise, the court said, to a "special relationship", in which the defendant would have to take sufficient care in giving advice to avoid negligence liability. However, on the facts, the disclaimer
was found to be sufficient enough to discharge any duty created by Heller's actions. There were no orders for damages. Lord Morris of Borth-Y-Gest,
Effectively, the House of Lords had chosen to approve the dissenting judgment of Denning LJ in Candler v Crane, Christmas & Co
[1951] 2 KB 164.
English tort law
English tort law concerns civil wrongs, as distinguished from criminal wrongs, in the law of England and Wales. Some wrongs are the concern of the state, and so the police can enforce the law on the wrongdoers in court – in a criminal case...
case on pure economic loss, resulting from a negligent misstatement. Prior to the decision, the notion that a party may owe another a duty of care
Duty of care in English law
In English tort law, an individual may be owed a duty of care by another, to ensure that they do not suffer any unreasonable harm or loss. If such a duty is found to be breached, a legal liability is imposed upon the duty-ower, to compensate the victim for any losses they incur...
for statements made in reliance had been rejected, with the only remedy for such losses being in contract law
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
. The House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
overruled the previous position, in recognising liability for pure economic loss
Pure economic loss
Economic loss refers to financial loss and damage suffered by a person such as can be seen only on a balance sheet rather than as physical injury to the person or destruction of property...
not arising from a contractual relationship, introducing the idea of "assumption of responsibility".
Facts
Hedley Byrne were a firm of advertising agents. A customer, Easipower Ltd, put in a large order. Hedley Byrne wanted to check their financial position, and credit-worthiness, and subsequently asked their bank, National Provincial BankNational Provincial Bank
National Provincial Bank was a British retail bank which operated in England and Wales from 1833 until its merger into the National Westminster Bank in 1970; it remains a registered company but is dormant...
, to get a report from Easipower’s bank, Heller & Partners Ltd., who replied in a letter that was headed,
"without responsibility on the part of this bank"
It said that Easipower was,
"considered good for its ordinary business engagements".
The letter was sent for free. Easipower went into liquidation and Hedley Byrne lost £17,000 on contracts. Hedley Byrne sued Heller & Partners for negligence, claiming that the information was given negligently and was misleading. Heller & Partners argued there was no duty of care owed regarding the statements, and in any case liability was excluded.
Judgment
The court found that the relationship between the parties was "sufficiently proximate" as to create a duty of careDuty of care in English law
In English tort law, an individual may be owed a duty of care by another, to ensure that they do not suffer any unreasonable harm or loss. If such a duty is found to be breached, a legal liability is imposed upon the duty-ower, to compensate the victim for any losses they incur...
. It was reasonable for them to have known that the information that they had given would likely have been relied upon for entering into a contract of some sort. This would give rise, the court said, to a "special relationship", in which the defendant would have to take sufficient care in giving advice to avoid negligence liability. However, on the facts, the disclaimer
Disclaimer
A disclaimer is generally any statement intended to specify or delimit the scope of rights and obligations that may be exercised and enforced by parties in a legally recognized relationship...
was found to be sufficient enough to discharge any duty created by Heller's actions. There were no orders for damages. Lord Morris of Borth-Y-Gest,
Effectively, the House of Lords had chosen to approve the dissenting judgment of Denning LJ in Candler v Crane, Christmas & Co
Candler v Crane, Christmas & Co
Candler v Crane, Christmas & Co [1951] 2 KB 164 is an English tort law case. In it, Denning LJ delivered an important dissenting judgment, arguing for a duty of care for negligent statements...
[1951] 2 KB 164.
Subsequent developments
- Home Office v Dorset Yacht Co [1970] AC 1004, Lord Reid remarked,
In later years there has been a steady trend towards regarding the law of negligence as depending on principle so that, when a new point emerges, one should ask not whether it is covered by authority but whether recognised principles apply to it. Donoghue v Stevenson [1932] AC 562 may be regarded as a milestone, and the well-known passage in Lord Atkin's speech should I think be regarded as a statement of principle. It is not to be treated as if it were a statutory definition. It will require qualification in new circumstances. But I think that the time has come when we can and should say that it ought to apply unless there is some justification or valid explanation for its exclusion. For example, causing economic loss is a different matter: for one thing it is often caused by deliberate action. Competition involves traders being entitled to damage their rivals' interests by promoting their own, and there is a long chapter of the law determining in what circumstances owners of land can and in what circumstances they may not use their proprietary rights so as to injure their neighbours. But where negligence is involved the tendency has been to apply principles analogous to those stated by Lord Atkin (cf. Hedley Byrne v. HellerHedley Byrne v. HellerHedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is an English tort law case on pure economic loss, resulting from a negligent misstatement. Prior to the decision, the notion that a party may owe another a duty of care for statements made in reliance had been rejected, with the only...
[1964] A.C. 465).
- Smith v Eric S Bush [1989] 1 AC 831; The defendants were surveyorQuantity surveyorA quantity surveyor is a professional working within the construction industry concerned with building costs.The profession is one that provides a qualification gained following formal education, specific training and experience that provides a general set of skills that are then applied to a...
s for a mortgagee. They performed a survey of the house, declaring it to need no significant repair. Relying on this, the house was conveyed to a purchaser. The chimney stack in the house subsequently fell down, and the purchaser sued for the negligent statement. It was held that even though the defendants had issued a liability waiver, this could not stand up to the Unfair Contract Terms Act 1977Unfair Contract Terms Act 1977The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
's test of reasonableness. More importantly, however, the court held that it was not unreasonable for the purchaser of a modest house to rely on the surveyors' evaluation, as it was such common practice. In this way the court extended Hedley Byrne liability to proximate third parties.
- Caparo Industries plc v Dickman [1990] 2 AC 605; This concerned an auditor (Dickman) who had negligently approved an overstated account of a company's profitability. A takeover bidder (Caparo) relied on these statements and pursued its takeover on the basis that the company's finances were sound. Once it had spent its money acquiring the company's shares, and company control, it found that the finances were in poorer shape than it had been led to believe. Caparo sued the auditor for negligence. The House of Lords however held that there was no duty of care between an auditor and a third party pursuing a takeover bid. The auditor had done the audit for the company, not the bidder. The bidder could have paid for and done its own audit. Consequently there was neither a relationship of "proximity" nor was it "fair, just and reasonable" to make the auditor liable for the lost sums of money that the takeover incurred.
- White v JonesWhite v JonesWhite v Jones is a leading English tort law case concerning professional negligence and the conditions under which a person will be taken to have assumed responsibility for the welfare of another.-Facts:...
[1995] 2 AC 207; In this case, which was only carried by a 3:2 majority, a solicitorSolicitorSolicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
was told to draw up a new willWill (law)A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
, splitting the testatorTestatorA testator is a person who has written and executed a last will and testament that is in effect at the time of his/her death. It is any "person who makes a will."-Related terms:...
's estateEstate (law)An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person...
between the two plaintiffPlaintiffA plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
s, his daughters. He negligently failed to do this by the time of the testator's death, and the estate passed in accordance with the testator's wishes expressed in a previous will. The daughters sued the solicitor in negligence. It was held that the solicitor had assumed a special relationship towards them, creating a duty of care which he had carried out negligently, and therefore had to indemnify them for their loss. Once again this extended Hedley Byrne liability to a proximate third party.
- Henderson v Merrett Syndicates LtdHenderson v Merrett Syndicates LtdHenderson v Merrett Syndicates Ltd [1995] 2 AC 145 was a landmark House of Lords case. It established the possibility of concurrent liability in both tort and contract.-Facts:...
[1994] 2 AC 145; This case concerned the near collapse of Lloyd's of LondonLloyd's of LondonLloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...
when hurricanes in America devastated its property holdings. It called upon its "Names" (the shareholderShareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s) to indemnify them for its losses. The Names sued the shareholding company for mismanagement and negligence. The Names were both direct shareholders and, crucially, those who had obtained a stake through another third-party agent. It was held that Merrett Syndicates was liable to both types of shareholders, as there was enough foreseeability to extend pure economic loss liability to "un-proximate" third parties. The major significance here was, however, the allowance of claims in both contract and tort, which blurred the divide between the two. Some of the first party Names claimed in tort to overcome the three-year limit in which an action must be taken in contract. In allowing such an action, the House of Lords expressly overruled Lord Scarman's ruling in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986], in which it was held that: "there is nothing advantageous to the law's development in searching for a liability in tort where the parties are in a contractual relationship." The allowance of concurrent actions was immensely controversial, as it ran contrary to legal orthodoxy.
External links
- Full text of House of Lords decision: UBC Oxford BAILII.org