TORT: NEGLIGENCE LIABILITY FOR PURE ECONOMIC LOSS (Neg Misstatements) (Podcast)

Key exam notes to attach mentally

Foreseeability alone ≠ duty in economic loss
Hedley Byrne dominates; Caparo is residual and contested
Disclaimers negate duty unless unreasonable (UCTA 1977)
Extensions (Spring / White v Jones) sit within Hedley Byrne logic, not outside it

BIG FOCUS ON THE VOLUNTARY ASSUMPTION ! (Hedley Byrne)

E.G BARCLAYS – IMPOSED ON THEM, NOT VOLUNTARY

E.G PLAYBOY - [BNL] had no reason to suppose that Burlington was acting for someone else, and they knew nothing of the Playboy Club – SO how could they voluntarily assume any responsibility to the club?

Negligent Statements & Provision of Services

False Statements:

Deceit requires that:

D knowingly makes a false rep to the C with the intention that C should rely upon it
C must rely upon the representation to his or her detriment

Unlike most of the Group A Torts - deceit typically applies in a 'two-party' situation

*Hedley Byrne v Heller & Partners [1964]

RATIO: duty of care can arise in circumstances where a party provides information or advice to another, even in the absence of a contract, and can be held liable for pure economic loss caused by negligent misstatement.

= "Hedley Byrne principle" - introduced the concept of "negligent misstatement" into English tort law.

House of Lords held that this duty of care is based on the following key conditions:

A "special relationship" of trust and confidence exists between the party giving the advice and the party receiving it.
The advising party has voluntarily assumed responsibility for their statement or advice.
The recipient of the advice reasonably relied on the information given.
The advising party knew, or ought to have known, that the other party would rely on their statement for a particular purpose.

HERE: Hedley Byrne's claim ultimately failed due to an effective disclaimer of responsibility included by Heller & Partners with their credit reference, which negated the assumption of responsibility.

FACTS:

C, an advertising agency, sought information on the creditworthiness of a potential client (E) from the client’s bank D
D confirming the credit worthiness of E headed with the disclaimer “for your private use and without responsibility on the part of this bank or its officials”
C entered into contracts with and lost $17,000 when E went into liquidation
C sued D for negligence

LORD DEVLIN: 'Wherever there is a relationship equivalent to contract, there is a duty of care'

Where a particular relationship - need only examine the particular facts to see whether there is an express or implied undertaking of responsibility

Could be said to be weird this ‘pure economic’ loss distinction:

In Tort law we believe that all torts are economic as the cases are translated into money for damages

Why are damages sus about recognising torts of pure economic loss?

Our Remedial System
Human nature - physical hurt is more personal than economic - HIERARCHY OF INTEREST
Contract law protects economic interests

ISSUE: For Causation to be present need RELIANCE - acting on the info provided - how do I prove that I was induced to act as I did??

CRITICISM: McHugh J (High Court of Australia) - 'Since the decision in Hedley Byrne… confusion bordering on chaos has ruled in the law of negligence'

LONGEVITY: recognized by the SC : 'the fountain of the most modern economic claims' in negligence

*Smith v Bush [1990]

TAKEAWAY: it’s recognized that a surveyor offering an independent appraisal of the state of premise) may owe duties to take care in an appropriate case

(NB: some defects may remain genuinely hidden from a competent surveyor)

FACTS:

Cs paid for a valuation of property arranged by their mortgage company
Cs had no direct contractual relationship with surveyor

Tho the report stated that only the mortgage company should rely upon the report - was clear that the report would be supplied to the purchasers

They didn't secure a further survey of the property

HL: surveyor owed a duty in Tort directly to the purchasers despite the contractual structure

Despite disclaimer in valuation report - valuer could still be said to have assumed responsibility to the purchaser

THERE WAS INDEED A WAY OUT: valuer can escape responsibility to exercise reasonable skill & care by an express exclusion clause provided it doesn't fall foul under the Unfair Contract Terms Act 1977

Unfair Contract Terms Act 1977

Changed Hedley law - An attempted exclusion of liability would be effective only if it was judged to be 'reasonable'

HERE: Lord Templeman - exclusion of liability was not reasonable

Valuation included a specific disclaimer of responsibility to any party other than the mortgage building society which had commissioned the valuation (thought at the purchaser's expense)

LORD GRIFFITHS: cast doubt on the usefulness of the 'voluntary assumption of responsibility' idea

Steele rationalises this - he thought that he could not hold that there was a duty of care on the basis of a 'voluntary assumption' when D had done something in their power to disclaim responsibility

Steele: Decision in Smith 'is sensitive to its facts'

*Caparo Industries v Dickman [1990]

Robinson & Steel: HL: Caparo had not in fact endorsed the 3-stage test (incremental approach) but rather used Caparo label to cover up what they were acc doing

TAKEAWAY: Steele - apparent that where Caparo applied, due to all the component factors - will be hard to predict whether a duty of care will be said to arise or not

TAKEAWAY: The necessary ingredients of a duty of care = INCREMENTAL APPROACH

Harm to C must be foreseeable
Situation must be one of proximity or neighbourhood
Situation must be one in which it is 'fair, just and reasonable' to impose a duty of care

TAKEAWAY of Steele: Hallmark of the Caparo approach included the reinstatement of 'proximity' as a separate criterion which would restrict the operation of foreseeability

JANE STAPLETON: criticizes the new approach as likely to entrench 'pockets' of liability

Flaw in HL's approach to economic loss is the assumption that difficult issues of duty should be analysed within and by analogy to pockets of 'relevant' case law
The selection of the 'relevant' pocket could preclude consideration of factors/'policies' which would provide a more coherent overall approach

COMPARISON TO ANNS TEST: Tho Caparo is known to establish the 'three-stage test' - 3 factors not intended to operate in distinct stages like Anns test as here no factor takes priority

FACTS:

D auditors prepared an annual report for company F plc

Obliged by sections 236 & 237 Companies Act 1985

Cs published shares in F plc - both before & after the publication to shareholders of the audited accounts
Cs argued that they relied on the published accounts in deciding to purchase sufficient shares to take over the company

Cs alleged that auditors were negligent in their preparation of accounts - & they owed a duty of care to Cs
Was foreseeable both that F plc would be susceptible to a take-over bid & that any investor seeking to make such a bid would rely upon the accounts accuracy

HL: in preparing the annual accounts - no duty of care owed to C as investors or shareholders

Foreseeability would not be sufficient to form the basis of such duty

Since this was a case of economic loss caused by allegedly negligent statements - would be essential to show that there was a 'special relationship' between parties as explained in leading case Hedley

LORD BRIDGE: concepts of proximity & fairness are not susceptible to any precise definition, this will enable them to be used as 'convenient labels' to attach to features of specific situations which the law recognises as giving rise to a duty of care of a specific scope

Recognises wisdom of Brennan J's words in High Court of Australia

'It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care

*Spring v Guardian Assurance [1995]

TAKEAWAY: duty of care can be owed not only to the direct recipient of the misstatement but also to a person reasonably relying upon it extends Hedley Byrne principle (only concerned duties of care owed to direct recipients of advice)

FACTS:

C was the subject of a very negative reference from his ex-employer D which damaged his job prospects
C sued D in negligence

HELD: duty to take care arises upon an assumption or undertaking of responsibility by the defendant towards the plaintiff, coupled with reliance by the plaintiff on the exercise by the defendant of due care and skill

D was liable to C in negligence for the pure economic loss C suffered

LORD WOOLF (majority): directly applied Caparo

*Henderson v Merret Syndicates [1995]

TAKEAWAY: Goff defended idea that there was a role for tort law even in circumstances where the parties had entered contractual arrangements BUT that the tort action would be subject to limitations derived from the terms of the relevant contracts

FACTS:

Case arose out of losses suffered by investors ('Names') in the Lloyds Insurance market in London in the 1980s

Plaintiffs brought these actions against underwriting & managing agents for negligent conduct of their affairs which exposed them to unreasonable risk of losses

ISSUE: Whether the existence of a contract between the parties prevented the existence of a concurrent duty in Tort

Goff: Hedley Byrne principle extends to provision of services
When C entrusts D with the conduct of his affairs, C can be held to have relied on D to exercise due skill and care in such conduct
There is no need to explain why it is ‘fair, just and reasonable’ to impose liability for economic loss once case is identified as falling within Hedley Byrne

HL (LORD GOFF - leading judgement):

The direct Names could choose to sue the managing agents either in contract, or in Tort
The indirect Names could sue the managing agents in Tort despite the existence of a contractual chain

Building upon his own judgement in Spring v Guardian Assurance - Goff emphasised the concept of assumption of responsibility drawn from Hedley Byrne & defended the idea that there was a role for tort law even in circumstances where the parties had entered into contractual arrangements

*White v Jones [1995]

TAKEAWAY: Whilst the solution adopted was intended to be confined to the facts of this & other cases relating to negligence in respect of wills - recently it has inspired an exception to the exclusion of 'relational' losses on behalf of beneficial owners e.g Shell UK v Total UK

FACTS:

Testator executed a new will after a family quarrel - disinheriting his 2 daughters (P)
Post-reconciliation - contacted his solicitors with instructions to draw up a new will restoring the legacies to Ps

Little progress made & died before completion

HL: D liable for negligence

Whilst there was a controversy of whether this case would have been more appropriately resolved through a contractual remedy, Lord Goff considered the potential contractual routes to a remedy in this case & none of them sufficed to fill the 'lacuna'

Lord Goff: route to a contractual remedy is blocked by the doctrine of privity
theres an “impulse to do practical justice” in cases where there could be otherwise be no claim against negligent solicitors of small law firm

The Tortious solution:

GOFF: 'your Lordships' House should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor'

LORD BROWNE-WILKINSON: There is no assumption of responsibility as the intended beneficiary will often be ignorant of the solicitor's work; so cannot be said to have relied upon it

*Commissioner for Customs & Excise v Barclays Bank [2006]

TAKEAWAY: SC’s determination that there is no 'three stage test' derived from Caparo now makes it v hard for lower courts to seek any guidance from decision in cases where no assumption of responsibility but may offer guidance on interpretation of 'assumption of responsibility' itself

FACTS:

Commissioners obtained 'freezing orders' - served them on Barclays to prevent companies from removing funds from their accounts so Cs can recover outstanding VAT

Barclays failed to act to prevent funds from being moved out of the accounts

Commissioners couldn't recover the full sums - so sought to recover the shortfall (several million pounds) from Barclays as it had breached a duty of care owed

HL - dismissed claim since:

Injunction was enforceable through contempt of courts actions, not private actions
Since P & D were not in contact, nor was there any reliance on the bank Plaintiff, D couldn't be said to have assumed responsibility

LORD BINGHAM: would allow appeal & dismiss the commissioners' claim

3 types of tests for pure economic loss cases, based on negligent mis-statement or mis-performance have been suggested:

The Assumption of responsibility test

Problematic as test is objective so that it really refers to the cases where the law would imply such an assumption - the more objective the test becomes the less likely that D ever intended to assume responsibility

From Goff's perspective - if case falls within Hedley Byrne - you are WITHIN Hedley Byrne if must establish assumption of responsibility but barclays bank gives a different framework

If something falls within Hedley Byrne - then CAN apply flexibly

2. The Caparo 3-step

Capable of vagueness – shouldn't be more than broad guidelines as to type of situations to be covered

3. The Caparo incremental/analogous approach

Of no value

BIG THEME: different judges have different attitudes to Caparo test & try to convince other judges in SC to reduce scope of application

SC: presently - against Caparo test

Either don't like applying it
Bingham is againt applying Caparo to a case of Hedley category

The test for tortious liability in negligence for pure financial loss:

LORD HOFFMAN:

How does one determine whether a duty of care is owed? In cases of pure economic loss such as this, it is not su–cient that the bank ought reasonably to have foreseen that unless they had proper systems in place and C their employees took reasonable care to give e›ect to any freezing orders which came along, the beneÞciaries of those orders might su›er loss. In the case of personal or physical injury, reasonable foreseeability of harm is usually enough, in accordance with the principle in Donoghue v Stevenson [1932] AC 562, to generate a duty of care. In the case of economic loss, something more is needed.

DOROTA:

Barclays: Each judge has own dicta

Hoffman - only go for Caparo
Hedley byrne still restricts policy based reasoning bc if we establish duty of care we CANNOT USE POLICY TO DENY THE DUTY
If duty is not established bc criteria not met - Barclays can go on & try Caparo
In the field of economic loss it is very unlikely to find policy arguments in favour of applying

WHY AGAINST CAPARO:

Danger that Hedley Byrne test will cease to exist
Don't like policy based decisions

WHAT DO WE WANT:

Transparency - Caparo - honest about the fact its policy

Dangers that sometimes create a formal rules

Constrain them - Hedley Byrne

SOME I HAD FORGOT/LEFT OUT:

Williams v Natural Life Health Foods Ltd [1998]

TAKEAWAY: directors and shareholders acting within their capacity as agents of the company are not personally liable in negligence unless they have in the exceptional case assumed personal responsibility towards the claimant

FACTS:

Mr Mistlin (M) was the managing director and principal shareholder of Natural Life Health Foods Ltd (NL).
The plaintiff franchisee (C) entered into a franchise agreement with NL.
During the course of negotiations, C was provided with a glossy brochure which M put together but he didn’t directly deal with C.
C brought proceedings against the NL and M for misrepresentations in the brochure.

HL: M was always acting as a corporate agent and therefore liability was restricted to the company and not him personally

LORD STEYN: There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself

Playboy Club London Ltd v Banca Nazionale del Lavoro [2018]

TAKEAWAY: assumption of responsibility cannot occur where D did not know C’s identity (who had an agent acting on his behalf)

FACTS:

Mr. Barakat wanted to gamble, using cheques worth £800,000.
The London Playboy Club casino (C) needed a credit reference for twice that amount, but did not ever ask the bank directly, using an agent, an associated company named Burlington Street Services Ltd, to do so instead.
BNL (D) thus had no idea this was a gambling debt and negligently stated that he was trustworthy for £1.6 million in any one week – they had no customer relationship with Mr. Barakat, who had no balance at all with BNL.
Mr. Barakat won £427,000 then fled to Lebanon – both the cheques bounced, and then C sued D for negligence in providing a false credit reference

SC: no duty of care owed by D to C

“[BNL] had no reason to suppose that Burlington was acting for someone else, and they knew nothing of the Playboy Club. In those circumstances, it is plain that they did not voluntarily assume any responsibility to the Club.” [16]