Tort A - Negligent Misstatement

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Negligent misstatements

The law for negligent misstatements has developed differently from the law of negligent activities. In most cases the claim is for economic loss so allowing such a claim is an exception to the general rule that no claims can be made in tort for economic loss. 

however, damage by words may raise causation problems. You don't suffer problems unless you choose to rely on the information, so the court must be sure that the advisee isn't seeking to blame others for his own bad conduct. 

There may be liability of an indeterminate amount for an indeterminte time to an indeterminate class. Words travel further than acts. A misstatement in the newspaper,eg, would create wide liability. 

it may undermine principles of contract.

There has been minimisation of the scope for 'free-riding', making commercial use of free advice. 

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Originally, the rule was that NO claim could be made in tort for a negligent mistatement. A claim could only be made for A FRAUDULENT STATEMENT. 

however, this all changed in Hedley Byrne:

Hedley Byrne were advertising agenst about to enter into contracts on behalf of their clients, Easpower, on the terms that if Easipower failed to honour its obligations under the contracts, Hedley Byrne would become liable to pay Easipower's debts. Hedley Bryne wished to find out if Easipower was credit worthy, and through their own bankers sought a reference from Easipower's bankers Heller and Partners, who said that they considered Easipower to be good for the ordinary course of business, but made it clear that they were not accepting responsibility on their part - a disclaimer of liaiblity. Hedley Byrne went ahead on the basis of this report and Heller and Partners had failed to realise that Easpiower were about to go into liquidation. Hedley Byrne became liable to pay their £17,000 worth of debt.

Because of the disclaimer, Heller and Partners were not liable, but this was a landmark case because it was decided that THERE COULD BE A DUTY TO TAKE CARE IN MAKING A STATEMENT OR GIVING ADVICE TO ANOTHER PERSON. 

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The Hedley Byrne principle

Their Lordships introduced a radical change int he law, noting that because statements may be repeated and relied upon by an unlimited number of people the effects of negligent statements have a greate propensity to spread through society. They therefore laid down requirements which a claimant will need to satisfy in order to establish a duty of care in respect of a statement. 




These factors are the Hedley Byrne pinrciple.

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Special relationship?

Sufficient degree of proximity between claimant. A special relationship will arise if the person giving the information knows that the other party is relying on it - you do not owe a duty to the whole world. 

A special relationship arises, it was said in Hedley Byrne, when it is plain that the party seeking the information was trusting the other to be careful where it was reasonable for him to do that and where the other gave the information knowing that the inquirer would rely on him. 

It was decided that a reasonable man when asking for advice and knows he is being relied upon has 3 options. 1. Keep silent. 2. Answer will a qualification that he accepts no responsibility for his words. 3. Answer with no such qualification. 

In the third instance, they would be taken to have assumed responsibility for his answer being given carefully and would owe a duty to the recipient. 

A duty is likely to be recognised where one skilled person is acting in a business context and gives misleading information directly to another person knowing the importance they will attach to it and the specific purpose for which the information is wanted and that that person will rely on it. The relationship must be close and proximate

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The defendants, a trade association, had a website listing lots of swimming pool installers. The claimant chose one from the list and contracted with them, but the installer became insolvent. The claimant sued the defendant for negligent misstatement, but the website advised customers to make independent inquiries and it was held that there was not sufficient proximity between them for a special relationship and the defendant was not liable. 

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Lord Reid made it clear in Hedley Byrne that a special relationship could only arise when the statement was made in a business connection, meaning that there could be NO LIABILITY ON PURELY SOCIAL OCCASIONS. Very few cases brought to court involve a friendly or domestic relationship. 

However, in this case the Court of Appeal seemed to depart from this fundamental principle. A family friend had agreed to held the plaintiff find a second hand car telling her she could rely on him and that she need not have the car inspected by a mechanic. The defendant then advised her to buy a car which was unroadworthy and practically worthless. Before the trial though he conceeded that he owed her a duty of care and so the court found that she was able to recover her financial loss. 

The dissent said that imposing liability was hazardous and undesirable but the defendant conceded the duty of care and the decision stands alone. It has not, though, been overturned. 

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The plaintiff sought advice from his insurance company about the wisdom of investing in a company with which it was associated. He was given information that turned out to be false and sought to recover the money he lost on his investment. The majority held that Hedley Byrne principle should be limited to cases involving defendants whose profession included giving advice, eg, accountants, surveyors, lawyers. Since they were investors, they couldn't be held liable. 

However, it has been argue that this would limit the principle to an extreme and generally, the person giving the advice does not have to be someone who gives advice as part of their job. Generally it is sufficient if the advice is given in the course of business. 

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The defendant does not have to be in the business of giving advice:

The plaintiff leased a filling station on the strength of Esso's advice that he could expect to sell at least 200,000 gallons of petrol a year, the forecast based on the presumption that the petrol pumps would be kept at the front of the filling station, but it transpired they would have to be at the back. Esso failed to revise its forecase and the plaintiff only sold 78,000 in 15 months, sueing Esso for his financial loss. The Court of Appeal allowed the claim. Esso was held to have assumed responsibility for the accuracy of its forecast, and it was reasonable for Mardon to rely on them in predicting likely sales forecasts. 

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The following decision makes it clear that a special relationship exists betwen an employer and an employee asking for a job reference. 

The plaintiff, Mr Spring, had been employed by the defendants but subsequently dismissed. He sought to work for the defendants competitor but received such a bad reference he failed to get the job. The reference had been misleading about his dismissal. The House of Lords held that the defendants owed a duty of care in preparing the reference and accordingly were liable. It did not matter that the plaintiff was seeking to recover for a statement made to SOMEONE ELSE not him. 

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It has been stated that in appropriate cases the Hedley Byrne principle should be extended to situations involving the provisions of services.

In this case the action involved five appeals against an insurance organisation who invested in Lloyds by underwriting their insurance policies. The Names grouped into syndicates and the plaintiffs alleged that the agents who had organised their syndicates had been negligent in handling their affairs. The House of Lords held that there was a duty owed because the agents had assumed responsibility for the financial welfare of the Names and confirmed that the existence of a contractual relationship does not preclude the existence of a special relaitonship to give rise to liability in tort. Many of the defendants had contracts with the defendants but sought to sue in tort. 


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The Court of Appeal was prepared to hold that in appropriate cases the providers of financial services may be liable to the dependants of a deceased person who had been wrongly advised as to how to make provisions for them. Gorham had opted out of his employer's pension scheme and sought advice but the company negligently failed to advise him that his employer's pension scehem might provide superior cover, selling him one of their plans. Their Lordships held it analogous to White v Jones - selling a pension plan, the company had a duty not to give negligent advise which adversely affected the interests of his dependents as he intended them to be. 

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Customs officials who were seeking to recover outstanding tax payments from two companies obtained freezing orders on those companies' bank accounts, meaning that the defendant was prohibited by law from allowing money to be paid out. However, negligently, the bank allowed funds to be withdrawn. The customs officials sought to recover by arguing that the bank had assumed responsibility to them for the financial losses, but the claim was denied. Their Lordships argued that the bank could not have assumed responsibility because it had NO CHOICE to comply with the freezing order. However, it is clear that in this case there were policy concerns, and there was no proximity of relationship between the two. 

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If someone has arguably assumed responsibility for their statement, this does not imply that they have EXPRESSLY indicated acceptance of legal responsibility. Liability is imposed OBJECTIVELY to which expressed intentions are often irrelevant. Although a disclaimer will normally work to absolve the defendant from liability, as in Hedley Byrne, there may be exceptional circumstances where LIABILITY CAN BE IMPOSED DESPITE ASSERTING NO LEGAL RESPONSIBILITY. 

In this case, a woman was applying to a building society for a mortgage. The building society instructed a surveyor to carry out the survey but advised the buyer to have an independent survey. The woman relied on their survey, but it was carried out negligently. Later, a chimney collapsed. The surveyor's report contained an exemption clause. The defendants argued that they could not be liable because of their disclaimer, but it was held that the surveyor knew that the buyer would rely on their report, and the survey had been paid for. Therefore the exemption clause was unfair and the surveyor was held liable in negligence. He had assumed responsibility, even though he stated not to have, because the law deemed he had 

Their Lordships chose to confine this case to where it was a private purchaser buying a modest house. If the buyer was well-off or commercial and therefore able to obtain a surveyor's report. 

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The claimant applied to a building society for a mortgage and the building society commissioned a survey from a firm of which the defendant was an employee. By the time the claimant discovered that the survey had been conducted negligently causing her economic loss, the firm had gone into liquidation. However, the Court of Appeal held that the negligent surveyor had assumed PERSONAL responsibility for the accuracy of the report. Even though the claimant had been unaware of who conducted the survey, the had relied on their skill and they were therefore liable. This decision seems harsh on the surveyor. 

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The plaintiffs had obtained a franchise from a company, the first defendant, to run a health food shop. They had relied on representations made by the company about the likelihood of success, but their turnover was substantially less than predicted and they made a loss. The plaintiffs sought to recover but the company had gone into liquidation and so they sued the managing director, Mr Mistlin, arguing that he had assumed personal responsibility towards them because the website had made reference to Mistlin's personal expertise and experience. The House of Lords however held that he had not assumed responsibility towards the plaintiffs in a personal capacity. 

The court did not seem to want to lift the corportate veil and undermine the protection of limited liability. This decision was made in line with decisions in New Zealand. However, it seems unfair when compared to Merrett v Babb.One rule for company directors and another for employees?

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The plaintiffs had taken over a company called Fidelity and had relied on figures contained in an audit prepared by the defendants, a firm of accountants. The plaintiffs alleged that the audit had been prepared negligently, causing them financial loss. The House of Lords held that they owed no duty of care, as there needed to be a sufficient relationship of proximity between the plaintiffs and the defendants and it was necessary to consider the size of the class to which the plaintiff belonged. Although the plaintiffs were shareholders, they may have been regarded as anyone wishing to buy shares in Fidelity, therefore belonging to an potentiall wide class of people, potentially exposing Dickman to enormous liability. 

Also, the audit had been prepared by statutory requirement for informed control over a company, NOT to enable shareholders to buy shares with a view to profit. Prepared for one reason could not be used for another. 

If the case had been decided the other way, accountants insurane premiums would have increased dramatically, leading to a rising cost of accounting, which would place a burden on businesses and have a depressing effect on the national economy. It was also unfair that the world at large would be given entitlement to knowledge and expertise that they had not paid for. Therefore  HIGH DEGREE OF PROXIMITY SHOULD EXIST BETWEEN THE MAKER AND USER OF THE STATEMENT. 

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This case probided a useful summary of the factors influencing the courts in determining whether a duty of care will arise. The case was brought against a firm of accountants instructed to prepare the accounts of a company, knowing that they would be relied on by a take-over bidder. The accounts proved inaccurate and the take-over bidder suffered economic loss. A duty of care was denied. The law is these days reluctant to extend the scope of the duty of care to protect claimants other than persons whom the maker of the statement directly intended should rely on the statement. He said it was necessary to take into account all the circumstances of the particular case but that certai matters were likely to be important when deciding whether to impose a duty of care...

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Factors taken into account

1. THE PURPOSE for which the statement was MADE       - to advise the advisee? Has the statement been made for a different purpose? Why was it communicated, and why was it used?

2. The PURPOSE for which the statement was COMMUNICATED      -was the communication for information ONLY? Was it made for action to be taken by it? Who request it?

3. THE RELATIONSHIP BETWEEN THE ADVISOR, THE ADVISEE AND ANY RELEVANT THIRD PARTY -      Where the statement is primarily to benefit someone else rather than the advisee the courts will consider the relationship between the parties. The court must ask whether it is reasonable for the claimant to look through the third party to the advisee for advice

4. THE SIZE OF ANY CLASS TO WHICH THE ADVISEE BELONGS -      it is easier to infer a duty of care when it is only a small class of people. However, membership of a large class may make an inference more difficult due to the floodgates of litiation. 

5. THE STATE OF KNOWLEDGE OF THE ADVISER  -    does the adviser know the purpose of the advise, that the advisee will rely on the statement without obtaining indepdent advice?

6. RELIANCE BY THE ADVISEE - rely in fact on statement? Act on own judgment? Reasonable to rely on statement?

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A married man had a vasectomy carried out by the defendants who told him he did not need to use contracpetion. Three years later he started a relationship with the claimant, who became pregnant. She sued for the cost of bringing up the child and it was held that the defendant did not know the advice would be acted upon by the claimant withough independent enquiry. The defendant had known known about the claimant and could not know that their advice would be given to her and so the defendant was not liable to her. 

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Reliance upon a statement must be REASONABLE. This is an OBJECTIVE question which will be decided on the facts of the case. Is the statement made for one purpose but relied on by the claimant for another purpose?

The Ogdens had put in a tender relying on the defendants advice, but the court was divided as to whether it was reasonable for the Ogdens to rely on the quotation without indicating to the defendants how important the information was to them. The information was given to the Ogdens over the phone. It was held that it was not reasonable for them to rely on this information. 

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The plaintiff was the owner of a fishing boat which required an annual certificate of seaworhtiness from the Department of Transport. The boat had beeen covered by a certificate when he bought it, but he discovered that the surveyor had been negligent and the boat was unseaworthy. The Court of Appeal held that it was not reasonable for the buyer to rely on the certificate to establish the boat;s commercial value as this was not the reason for which the certificate had been provided, its purpose was merely to promote safety at sea. 

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Generally, a successful claimant must show that they relied on the defendant's advice rather than their own or someone else's/ 

In this case the plaintiffs had been encouraged to invest in a company by a circular sent to them by the company's directors containing inaccurate forecasts for profit. The defendant sued the accountants who prepared the forecasts, but it was held that the plaintiffs had not relied on these accountants because they believed the information had come from the directors of the company at the time of investment. 

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In this case, the purchasers of flats were told by builders before the exchange of contract that they would receive architect's certificates upon completion. Some did, but some didn't until after the purchase was finalised. The flats showed construction problems, and they sought to rely on the architect;s certificates in sueing the architects. However, for those who had received the certificates after the completion of the purchase, they could not succeed in the claim, ebcause they could not have reasonably relied on the certificates if they arrived after the purchase had been made. 

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