📖 Hedley Byrne and Co. Ltd. v. Heller and Partners Ltd. [1964] AC 465

Facts The appellants were advertising agents. They proposed to place substantial advertising orders on behalf of a client company, on terms that made them personally liable for the cost. Through their own bankers they sought a reference from the respondent bank, the client's bankers, as to the client's creditworthiness. The respondents replied favourably, but expressly headed the reply "without responsibility on the part of this bank or its officials". The client went into liquidation and the appellants lost over seventeen thousand pounds.

Held The respondents were not liable, because of the disclaimer.

Ratio Notwithstanding the outcome, the House of Lords established that a duty of care may arise in respect of a negligent misstatement causing purely economic loss, independently of contract and of any fiduciary relationship. The duty arises where there is a special relationship between the parties, where the maker of the statement assumes responsibility for its accuracy, and where the recipient reasonably relies on it. An effective disclaimer negatives the assumption of responsibility and so prevents the duty from arising at all.

The requirement

What it means

A special relationship

The maker must be in a position in which it is reasonable for the recipient to rely on his skill and judgment. It need not be contractual or fiduciary, and ordinarily requires that the maker be in the business of giving such advice or profess special skill

Assumption of responsibility

Judged objectively: what the defendant's conduct conveyed, not what he privately intended. A disclaimer may negative it, subject to any statutory control of unfair terms

Reasonable reliance

The recipient must in fact have relied on the statement, and it must have been reasonable for him to do so. A person who makes his own inquiry, or who would have acted the same way anyway, fails here

Knowledge of the purpose

The defendant must have known the purpose for which the statement was sought, and that it would be acted on for that purpose

A determinate class

The statement must have been made to the plaintiff, or to a class of which he was a member, and not to the world at large

📖 Caparo Industries plc v. Dickman [1990] 2 AC 605

Facts The plaintiffs bought shares in a company, relying on its audited accounts, and then made a successful takeover bid. They alleged that the accounts were inaccurate, showing a profit where in truth there had been a loss, and that the auditors had been negligent. They claimed both as existing shareholders who had bought further shares and as outside investors.

Held No duty of care was owed, either to existing shareholders buying further shares or to members of the investing public.

Ratio The auditors' statutory duty is owed to the company, for the purpose of enabling the shareholders as a body to exercise informed control over the company. It is not owed for the purpose of guiding investment decisions by individual shareholders or by the public. The controlling question in negligent misstatement is therefore the purpose for which the statement was made and communicated, and whether the defendant knew that this plaintiff would rely on it for that purpose. The case is also the source of the threefold test of foreseeability, proximity, and whether it is fair, just and reasonable to impose a duty, examined in TORT 028.

Fraud, or deceit

Negligence

The state of mind

Dishonesty

Carelessness

Pleading

Must be specifically pleaded with full particulars, and is never inferred from carelessness however gross

Pleaded in the ordinary way

Proof

The civil standard, applied with the weight the seriousness of the charge demands

The balance of probabilities

Is a duty required

No

Yes

Remoteness

All loss flowing directly from the transaction

Only foreseeable loss

Contributory negligence

No defence

A defence, and damages are apportioned

If the plea fails

A failed allegation of fraud does not convert itself into one of negligence; negligence must be pleaded in the alternative

Not applicable

Deceit

Defamation

Who is deceived or told

The plaintiff himself is deceived and acts on the statement

A third person is told something about the plaintiff

The interest protected

Economic interests

Reputation

Is publication to a third party required

No. The statement is made to the plaintiff

Yes. It is the essence of the tort

Is falsity presumed

No. The plaintiff must prove the statement false

Yes. The defendant must prove truth

Is reliance required

Yes, and it is central

No

Is damage required

Yes

No for libel, and no for slander in India

⚠ What the assumption of responsibility test is actually doing

The phrase "assumption of responsibility" is sometimes criticised as circular, on the ground that a court decides there was a duty and then says the defendant assumed one. The criticism has force where the phrase is used as a conclusion, and none where it is used as it was intended. The test asks a real question: looking at what passed between these parties, would a reasonable person in the recipient's position have understood the defendant to be taking responsibility for the accuracy of what he said, and would a reasonable person in the defendant's position have realised that he was being so understood. That question has a definite answer in most cases. A bank that heads its reply "without responsibility" has answered it in the negative; a surveyor who knows his valuation will be handed to the purchaser has answered it in the affirmative. What the test does, and what no simple foreseeability test could do, is to make the scope of the duty follow the purpose of the communication, which is exactly the control Caparo held to be necessary.