Legal Principles and Key Points
- In the case of Hedley Byrne v Heller 1964 ac 465, the Hedley Byrne principles of special duty were born.
- These principles laid down were requirements for which a claimant would need to satisfy to establish a duty of care for a negligent misstatement causing pure economic loss:
- The existence of a ‘special relationship’ between the C and D, involving a ‘voluntary assumption of responsibility’ by the D;
- ‘reliance’ by the C on the statement, where such reliance was ‘reasonable in the circumstances’.
Facts of the Case
- The appellant company (H) appealed against the Court of Appeal’s decision that it could not recover damages arising from monies lost in reliance on the credit reference given by the respondent bank (X) in respect of one of X’s customers (E).
- H was an advertising agent who had placed substantial orders for advertising space for E, for which H was personally liable.
- H had enquired of X concerning the creditworthiness of E.
- In reliance on the representations of H refrained from cancelling the orders to relive its personal liability.
- H then became doubtful as to the financial position of E and sought further reference “without responsibility” from X.
- X responded that E was considered good for its ordinary business engagements.
- E then went into liquidation and H lost money.
- H then sought to recover the money by a claim of negligence.
- By a binding authority, both the judge at first instance and the Court of Appeal considered themselves driven to the conclusion that no such action could lie in the absence of a contract or fiduciary relationship and that no special relationship involving a duty of care could be inferred.
- H appealed.
Issues in Hedley Byrne v Heller 1964 ac 465
- Did a special relationship exist and could it be held that H relied on the statements made by X.
Held by House of Lords
- Appeal dismissed
- It was held that although there was a relationship established, the disclaimer made by E, excluded a duty of care towards H.
- The negligent words must be treated differently from negligent acts and Donoghue v Stevenson could not be applied to negligent words as reasonable people often stated opinions without taking care and the law treats those words and acts differently.
- “In Robinson v. National Bank of Scotland Ltd.310 also the correspondence expressly excluded responsibility. Possibly that factor weighed with Lord Haldane when he said “” : ” But when ” a mere inquiry is made by one banker of another, who stands “in no special relation to him, then, in the absence of special ” circumstances from which a contract to be careful can be in inferred, I think there is no duty excepting the duty of common ” honesty to which I have referred.” I appreciate Mr. Gardiner’s emphasis on the general importance to the business world of bankers’ references and the desirability that in an integrated banking system there should be a duty of care with regard to them, but on the facts before us it is in my opinion not possible to hold that there was a special duty of care and a liability for negligence.” P.536