Legal Principles and Key Points
- In the case of Mutual Life Citizens’ Assurance Co Ltd v Evatt  A.C. 793, it was held that an action for financial loss caused by a negligent statement can only be brought if the person making it has held themselves out as having skill in the subject-matter of the statement.
Facts of the Case
- C was a policy holder within D. C sought information and advice from D concerning the financial stability of another company with intention to invest.
- By virtue of both companies being subsidiaries of a larger corporation, D had better facilities than C for obtaining complete and up-to-date information concerning the other company, but when C asked D was not in actual possession of this information.
- D by itself, its servants and agents advised C that the company would continue to be financially stable and that it would be safe to invest in. They supplied this information without disclaimer of responsibility and knowing C intended to act based on this advice.
- C did not realise on his existing investments within the company and invested further sums within. He subsequently lost the value of the investments altogether.
- Was D liable for giving negligent advice despite not being in the service of providing such advice?
- Did the appreciation that C is likely to or fully intends to act on advice given create a duty of care?
Held by the Privy Council (Australia)
- Held that, since D’s business did not include giving advice on investments, nor did it claim to have the necessary skill to give such advice, its duty towards C was merely the duty to give an honest answer. The facts alleged did not create a cause of action.
- Accepted English law has held that without contract, one making a statement owed to the inquirer whom they could reasonably foresee would rely upon it in economic matters had the duty of honesty. They did not owe any duty to be careful unless the relationship between parties was fiduciary. Hedley Byrne decided that a greater duty of care could extend to non-fiduciary relationships possessing other characteristics.
- One gratuitously performing an act requiring the exercise of some special skill and competence has the duty to conform to an ascertainable standard in relation to the subject-matter of the advice given.
- “It would not in their Lordships’ view be consonant with the principles hitherto accepted in common law that the duty to comply with that objective standard should be extended to an adviser who, at the time at which the advice is sought, has not let it be known to the advisee that he claims to possess the standard of skill and competence and is prepared to exercise diligence which is generally shown by persons who carry on the business of giving advice of the kind sought” [804C].
Lords Reid and Morris Dissenting
- It is common practice for businesses to perform gratuitous services for their customers with the object of retaining their goodwill. If they incur expense in doing so, this is clearly a business expense. Both companies and their customers would be surprised to learn that they have no obligation to take any care in the matter.
- Much argument was directed to establishing that an advisor cannot be under any duty to take care unless he has some special competence or qualification regarding the matter. How this shall be determined is unclear. A man with professional qualification is seldom an expert on all matters dealt with by his profession.
- “In our judgment when an inquirer consults a businessman in the course of his business and makes it plain to him that he is seeking considered advice and intends to act on it in a particular way, any reasonable businessman would realise that, if he chooses to give advice without any warning or qualification, he is putting himself under moral obligation to take some care. It appears to us to be well within the principles established by the Hedley Byrne case to regard his action in giving such advice as creating a special relationship between him and the inquirer and to translate his moral obligation into a legal obligation to take such care as is reasonable in the whole circumstances” [812G].