Hedley Byrne v. Heller

"Hedley Byrne v. Heller & Partners Ltd." [1963] 2 All E.R. 575 is the decision of the House of Lords that first recognized the possibility of liability for pure economic loss, not dependent on any contractual relationship, for negligent statements. The basis of this liability was variously held to be an "assumption of responsibility" to the claimant, a "special relationship" between the parties, or a relationship "equivalent to contract".

The significance in legal history and developments is the application of principles over authority (being precedence). As Lord Reid said in "Home office v Dorset Yacht" [1970] AC 1004, [1970] UKHL 2

In later years there has been a steady trend towards regarding the law of negligence as depending on principle so that, when a new point emerges, one should ask not whether it is covered by authority but whether recognised principles apply to it. Donoghue v. Stevenson [1932] A.C. 562 may beregarded as a milestone, and the well-known passage in Lord Atkin's speech should I think be regarded as a statement of principle. It is not to be treated as if it were a statutory definition. It will require qualification in new circumstances. But I think that the time has come when we can and shouldsay that it ought to apply unless there is some justification or valid explanation for its exclusion. For example, causing economic loss is a different matter: for one thing it is often caused by deliberate action. Competition involves traders being entitled to damage their rivals' interests by promoting their own, and there is a long chapter of the law determining in what circumstances owners of land can and in what circumstances they may not use their proprietary rights so as to injure their neighbours. But where negligence is involved the tendency has been to apply principles analogous to those stated by Lord Atkin (cf. Hedley Byrne v. Heller [1964] A.C. 465).

Facts

The bankers for Hedley Byrne (an advertising partnership) telephoned the bank of Heller & Partners Ltd. inquiring about the financial state and credit record of one of Heller's client companies, Easipower Ltd. Hedley Byrne was about to undertake some significant advertising contracts for them, and wanted to be sure of their financial security. Heller vouched for their client's record but qualified it by waiving responsibility, stating that the information was: "for your private use and without responsibility on the part of the bank and its officials." Hedley Byrne relied on this information and entered into a contract with Easipower which went bankrupt soon afterwards. Unable to obtain their debt from the bankrupt, Hedley Byrne sued Heller for negligence, claiming that the information was given negligently and was misleading.

Judgment

The court found that the relationship between the parties was "sufficiently proximate" as to create a duty of care. It was reasonable for them to have known that the information that they had given would likely have been relied upon for entering into a contract of some sort. This would give rise, the court said, to a "special relationship", in which the defendant would have to take sufficient care in giving advice to avoid negligence liability. However, on the facts, the disclaimer was found to be sufficient enough to discharge any duty created by Heller's actions. There were no orders for damages.

Effectively, the House of Lords had chosen to approve the dissenting judgment of Denning LJ in "Candler v. Crane, Christmas & Co" [1951] 2 KB 164.

ubsequent developments

*"Smith v. Eric S. Bush" [1989] 1 AC 831; The defendants were surveyors for a mortgagee. They performed a survey of the house, declaring it to need no significant repair. Relying on this, the house was conveyed to a purchaser. The chimney stack in the house subsequently fell down, and the purchaser sued for the negligent statement. It was held that even though the defendants had issued a liability waiver, this could not stand up to the Unfair Contract Terms Act 1977's test of reasonableness. More importantly, however, the court held that it was not unreasonable for the purchaser of a modest house to rely on the surveyors' evaluation, as it was such common practice. In this way the court extended Hedley Byrne liability to proximate third parties.

*"Caparo Industries plc v. Dickman" [1990] 2 AC 605; This concerned an auditor (Dickman) who had negligently approved an overstated account of a company's profitability. A takeover bidder (Caparo) relied on these statements and pursued its takeover on the basis that the company's finances were sound. Once it had spent its money acquiring the company's shares, and company control, it found that the finances were in poorer shape than it had been led to believe. Caparo sued the auditor for negligence. The House of Lords however held that there was no duty of care between an auditor and a third party pursuing a takeover bid. The auditor had done the audit for the company, not the bidder. The bidder could have paid for and done its own audit. Consequently there was neither a relationship of "proximity" nor was it "fair, just and reasonable" to make the auditor liable for the lost sums of money that the takeover incurred.

*"White v. Jones" [1995] 2 AC 207; In this case, which was only carried by a 3:2 majority, a solicitor was told to draw up a new will, splitting the testator's estate between the two plaintiffs, his daughters. He negligently failed to do this by the time of the testator's death, and the estate passed in accordance with the testator's wishes expressed in a previous will. The daughters sued the solicitor in negligence. It was held that the solicitor had assumed a special relationship towards them, creating a duty of care which he had carried out negligently, and therefore had to indemnify them for their loss. Once again this extended Hedley Byrne liability to a proximate third party.

*"Henderson v Merrett Syndicates Ltd" [1994] 2 AC 145; This case concerned the near collapse of Lloyd's of London when hurricanes in America devastated its property holdings. It called upon its "Names" (the shareholders) to indemnify them for its losses. The Names sued the shareholding company for mismanagement and negligence. The Names were both direct shareholders and, crucially, those who had obtained a stake through another third-party agent. It was held that Merrett Syndicates was liable to both types of shareholders, as there was enough foreseeability to extend pure economic loss liablity to "un-proximate" third parties. The major significance here was, however, the allowance of claims in both contract and tort, which blurred the divide between the two. Some of the first party Names claimed in tort to overcome the three-year limit in which an action must be taken in contract. In allowing such an action, the House of Lords expressly overruled Lord Scarman's ruling in "Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd" [1986] , in which it was held that: "there is nothing advantageous to the law's development in searching for a liability in tort where the parties are in a contractual relationship." The allowance of concurrent actions was immensely controversial, as it ran contrary to legal orthodoxy.

ee also

*Negligence
*English tort law

Notes

External links

* Full text of House of Lords decision: [http://faculty.law.ubc.ca/biukovic/supplements/Hedley.htm UBC] [http://oxcheps.new.ox.ac.uk/casebook/Resources/HedleyByrne1964%20.pdf Oxford] [http://www.bailii.org/uk/cases/UKHL/1963/4.html BAILII.org]