Law of Torts: Duty of Care and Economic Loss (Negligent Misstatements)
Course Administration and Mid-year Examination Details
This is of the Law of Torts course (Clause ). The current focus of the syllabus is the duty of care, which will continue through the remainder of the week. Next week, the curriculum will transition to the second element of negligence, which is breach. This will be followed by several weeks dedicated to causation. Once causation is concluded, the study of the tort of negligence will wrap up, and Doctor Asiki will join the class to discuss ACC towards the end of the semester.
The mid-year examination for this course will account for of the final grade. The format will be a closed-book, restricted entry examination, meaning no books, study guides, cheat sheets, or lists of cases will be permitted. I have decided not to provide a study reference guide for this specific exam to keep the workload sustainable and to avoid the logistical burden of printing over copies. Furthermore, providing a study guide would necessitate more complex and trickier questions to differentiate between grade bands. Consequently, the exam will remain relatively straightforward without an external guide.
The exam is structured to take one hour, consisting of two questions with approximately allocated for each. Students should expect to write between half a page and one full page per answer. The scope of the exam is strictly limited to four torts under the category of trespass to the person: battery, assault, false imprisonment, and intentional infliction of emotional distress. While students should study all four, the exact combination of these torts on the exam remains a surprise; they may be single questions or potentially overlap. There are no recent past papers that would be helpful because the curriculum changed significantly in the last two years, but mock questions and model answers provided in class are the best resources for practice. Drilling under a clock is the recommended study method.
Regarding referencing in the exam, students are required to provide the case name as best as they can remember. It is highly recommended to underline the case name (e.g., Hadley Burn). Underlining signals to the marker that the student recognizes the case as a legal authority and source, making it stand out on the page. While noting the year of the case can be helpful, it is not strictly necessary, and page numbers are not expected.
Introduction to Economic Loss in Negligence
Economic loss is treated as a special class of harm within the law of torts, distinct from personal injury and property damage. In cases such as Stone and Bolton, involving a cricket ball striking a person, the liability is geographically localized and limited because property damage and physical injury have a naturally restricted scope. Economic loss is significantly more complex because modern technology allows negligence to cause financial harm to someone on the other side of the world, creating a much wider potential scope of liability.
In Professor Todd's textbook, negligent misstatements (paragraph ) are treated separately from pure economic loss (paragraph ). However, for the purposes of this course, they are integrated because most misstatements result in economic harm. The legal system treats pure economic loss differently from physical damage due to two primary policy concerns. The first is the concern over "wealth transfer" and "net social loss." Under a capitalist system, the courts acknowledge that for every winner, there is a loser. The courts often view these financial shifts as mere wealth transfers rather than a total loss to social wealth. Justice McHugh discussed this in the Australian High Court decision of Perrin Appin, noting that courts should not necessarily rewrite the economic system through the law of negligence.
Policy Concerns: Indeterminate Liability
The second and most critical policy concern regarding economic loss is the risk of "indeterminate liability." As Justice Cardozo famously noted in the United States, courts must avoid imposing liability for "an indeterminate amount for an indeterminate time to an indeterminate class." This risk is amplified by modern technology, interconnected global systems, network failures, data breaches, and infrastructure damage. For instance, current events in the Strait of Hormuz demonstrate how specific actions can trigger economic loss for the entire world. Because the scope of potential claimants is so large and undefined, courts must draw clear lines to prevent overstepping their role and imposing unsustainable burdens on defendants.
Negligent Misstatements and the Nature of Harm
While children are often taught that "sticks and stones may break my bones, but words will never harm me," the legal experience proves that words, misstatements, and bad advice can be just as damaging as physical force. A significant example is the UK Supreme Court decision in Darnley v Croydon Health Services NH Trust. The plaintiff, Mr. Darnley, sought help at an A and E department after being struck on the head. A receptionist negligently informed him that he would have to wait to see a triage nurse. Relying on this information, Mr. Darnley left after , suffered medical complications overnight, and sustained serious, permanent brain damage. Although this case involved a misstatement, the court upheld the claim because it resulted in physical injury, and a duty of care for medical professionals towards patients is already well-established. However, cases where misstatements lead only to economic loss are more difficult to litigate.
Negligent misstatements causing pure economic loss are tricky because verbal or written statements can reach an audience far beyond what was intended, leading back to the problem of indeterminate liability. There is also a tension between tort law and contract law. Courts are reluctant to allow tort law to encroach upon the proper scope of contracts, where parties have already agreed on the allocation of risk. Additionally, causation and reliance issues arise when advice passes through a chain of people, making it difficult to prove which specific statement caused the final loss.
The Evolution of the Headley Burn Principle
Prior to the landmark case of Hadley Burn in the early , there was no duty of care for negligent statements causing pure economic loss in common law unless a contract or a fiduciary duty existed. Hadley Burn (or Hedley Burn) changed this by establishing that a duty can arise for negligent advice or information if a "special relationship" exists and responsibility has not been expressly disclaimed.
In the Hadley Burn case, an advertising agency requested credit information about a company called Easy Power from Easy Power's bank. The bank provided a statement claiming Easy Power was solvent but included a disclaimer (exclusion clause) stating they would not be liable for losses. Easy Power later failed to pay the agency, leading to a claim for negligent misstatement. While the claim ultimately failed because of the valid disclaimer, the House of Lords issued an obiter statement—legal reasoning not strictly necessary for the final decision—explaining that liability would have existed without that disclaimer. This created the "special relationship" or "assumption of responsibility" test.
The Four Criteria of the Special Relationship
A defendant owes a duty of care regarding a statement if four specific criteria are met. First, the defendant must have, or hold themselves out as having, a special skill. This was illustrated in Chaudhry and Prabhakar, where a friend who claimed to know a lot about cars advised a plaintiff to buy a vehicle that turned out to be a "heap of junk." Even gratuitous advice can attract a duty if the person presents themselves as knowledgeable. This principle also applies to professionals like lawyers and financial advisors.
Second, the plaintiff must have specifically asked the defendant for advice or information based on that skill. This request must have a specific purpose. This was a point of failure in Caparo Industries plc v Dickman, where accountants published a statutory report on a company (Fidelity plc). The plaintiff, Caparo, relied on the report to invest roughly in shares, only to find the company was in poor financial health. Because Caparo did not directly ask for the report—it was a general public publication—the claim failed for lack of a direct relationship.
Third, and most importantly, the defendant must have known, or should have known, that the plaintiff would rely on the advice and for what specific purpose. This is the core of the Hadley Burn rule and relates to proximity. In Hadley Burn, the bank knew exactly why the ad agency was asking. In contrast, Caparo failed because the accountants did not know specifically who would use the report or how. Similarly, in Playboy Club London v Banca Nazionale del Lavoro, the club used a third-party agent to check the credit of a gambler (Mr. Barricat) who wanted to write a check for . The bank provided negligent confirmation of funds but did not know the inquiry came from the Playboy Club or that it was for casino credit. The lack of proximity regarding the undisclosed principal and the specific context of the request defeated the claim.
Fourth, it must be reasonable for the plaintiff to rely on the information. In Hadley Burn, it was reasonable to trust a company’s own bank. However, in Steele and NRAB, a solicitor made a misrepresentation in an email to a plaintiff after having a few glasses of wine. The court found that because the plaintiff had ample opportunity to verify the veracity of the claim before the loss occurred and failed to do so, their reliance was not reasonable. These four criteria function as a formulaic way for courts to test the proximity between parties in cases of negligent misstatement.