Economic Loss - Negligent Misstatements

Economic Loss - Negligent Misstatements

1. In Candler v Crane, Christmas & Co, Lord Denning delivered a dissenting judgment where he would allow recovery for pure economic loss caused as a result of careless statements. The House of Lords in Hedley Byrne adopted this approach.

2. Hedley Bryne v Heller = The appellants, Hedley Byrne, were advertising agents who received an order from a company, Easipower Ltd. Under the terms of the advertising order, Hedley Byrne were personally liable for the cost of it. They asked their bankers to inquire into Easipower’s financial stability and their bankers made inquiries of the respondents, Heller, who were Easipower’s bankers. Heller gave reassurance that they were solvent & gave favourable reference. They had a disclaimer ‘held without responsibility’ Relying on these references, the appellants placed the orders. It turned out that Easipower was not creditworthy and so the claimants lost £17,000. They brought a claim in negligence against Heller alleging that the references were carelessly prepared.

   • Held; Claim failed as Heller had issued their advice with a disclaimer that it was ‘without responsibility’, they were not liable in negligence. However, the House of Lords considered that there are circumstances when you can recover from negligent misrepresentation.
     • 1. A special relationship between the claimant and defendant. 2. A voluntary undertaking or assumption of responsibility by the defendant. 3. A statement made by the defendant. 4. Reasonable reliance upon the statement or advice by the claimant

3. 1. Special Relationship Between D & C

   • DOC only imposed upon defendants who have special knowledge in the subject matter of the statement that arises from their skill or profession.
   • Mutual Life and Citizens’ Askssurance Co Ltd. v Evatt = A policy holder took out insurance with mutual life. He asked mutual life employee about a company and whether it was good to buy shares in company. Employee said yes. C bought shares and lost a lot of money. Brought a claim of negligent mispresentation. Held; Claim failed as wasn’t special relationship between employee and mutual life, employee wasn’t there to advise on investment.
   • Social Situations:
     • Chaudhry v Prabhakar = C just passed driving test, and wanted to buy first car. She wanted to buy used car that hadn’t previously been in accident. She asked friend to come along & help her to buy car. Friend had special interest in cars. He held himself out as having some sort of knowledge. She bought a car & it was revealed car was involved in previous accident & deemed unroadworthy. She sued friend, arguing he owed her a DOC. He made a representation she relied on. He acknowledged he owed her a DOC. Held: Judge said he shouldn’t have acknowledged that he owed her a DOC. He did owe him a DOC, he held himself out as knowledgeable about cars. He gave advice that she relied on.

4. 2. Voluntary Undertaking/Assumption of Responsibility

   • There must have been a voluntary assumption of responsibility by the defendant for the statement.
   • Customs & Excise Commissioners v Barclays Bank = Customs & Excise were owed tax from a firm that they feared was about to go out of business. Customs & Excise were granted injunctions to freeze firms assets. Both companies held bank accounts with Barclays, Barclays didn’t freeze accounts despite injunction. Barclays allowed them to withdraw their money. Companies become insolvent. Customs & Excise incurred a financial loss.
     • Held: No DOC as no contractual relationship, between customs & excise and Barclays. Barclays hadn’t assumed responsibility for customs & excise
   • Banca Nazionale del Lavoro SPA (Respondent) v Playboy Club London = Man wanted to go gambling in a casino, he applied to casino for check cashing facility for 800,000. Playboy’s policy for gamblers was to check with the bank that he was good for at least twice the amount of money he wanted to gamble with. To maintain confidentiality of its customers, they had a company that did checks for them, so playboy didn’t have to contact bank. So they contacted Banca Nazionale for a credit reference. Banca respondent to Playboy and confirmed he was good for money. On this advice, Playboy granted check facility and increased the gambling facility allowance. Man made net winnings of 420,000, But cheque bounced that he had written to playboy. Man was never seen again, Playboy lost 800,000. Banca had no reasonable basis to reference they gave Playboy. They held no account until two days after given reference. He had zero in his bank account with Banca.
     • Held: Only DOC Banca had with Berlington to who the reference was addressed to. SC held: No DOC, Banca had no reason to suppose that Berlington was acting on behalf of someone else. They couldn’t voluntarily assume any responsibility for Playboys club.
   • Steel and another (Appellants) v NRAM Limited = Miss Steel was a solicitor, acting on behalf of company called HL. HL borrowed money from NRAM to purchase business park, they instructed Miss Steel to act on their behalf. NRAM didn’t appoint their own solicitor. Miss Steel wrote an email to NRAM which they relied on, left loans on two of the units unsecured. HL went into liquidation, NRAM discovered their loans were unsecured and lost money. NRAM sought to recover pure economic loss they sustained from Miss Steel, stating that they relied on email. Essentially that she had assumed responsibility to NRAM.
     • SC held: she didn’t owe a DOC, SC said Caparo has been interpreted wrongly in this context. Court reformulated test for the doctrine of assumption of responsibility to come into play, the representee must establish that: (i) it was reasonable for him to have relied on the representation; and (ii) the representor should reasonably have foreseen that he would do so

5. 3. Statement/Representation

   • Law Society v Schubert Murphy = Murphy looking to purchase property, went on to law society website to check that the solicitor who was acting on behalf of vendor was registered with law society. Solicitor & firm was registered. Murphy transferred money, actually was a fraudster. Held; that the claim could go to trial as this might constitute a negligent misrepresentation. The law society may owe a DOC for their representation & economic loss caused. C may not be recipient of statement but can be subject of it.
   • Spring v Guardian Assurance = C worked for firm as Director, he was fired. He looked for job elsewhere, potential new employer contacted previous employer for reference. D supplied reference that was shaming him. Reference was carelessly prepared. Mr Spring may have been incompetent but he wasn’t dishonest. HOL held: he had a claim.

6. 4. Must be Reasonable Reliance on Statement

   • Caparo Industries plc v Dickman = Purpose of the statement must be taken into account when determining whether C’s reliance upon it was reasonable.
   • James McNaughten Paper Group v Hicks = D relied on statement that was draft statements which indicates it wasn’t a final statement. It wasn’t reliable to rely on draft.
   • Lord Oliver in Caparo believed the necessary relationship for imposing a duty of care would typically exist where: 1.The advice is required for a purpose which is made known to the adviser at the time when the advice is given; 2.The adviser knows that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; 3.It is known that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and 4.It is so acted upon by the advisee to his detriment.

7. *Disclaimers

   • Smith v Eric S Bush = Miss Smith was buying modest house, she applied to building society for mortgage. Building society instructed surveyor to value property. Miss Smith didn’t get independent report, she relied on banks report. Bank surveyor noticed chimney stacks was missing, failed to check whether chimney still adequately supported. Also said no repair work was necessary. In valuation report there was a disclaimer of responsibility, removing surveyor and bank from liability derived from report. Consequently, Miss Smith suffered economic loss,
     • Held; Was reasonable for her to rely on valuation report. They said disclaimer must conform to Unfair Contract Terms Act and reasonableness requirement within it.
   • Scullion v Bank of Scotland = C was an investor, buying property to invest. Building society advised him that he could expect £2,000 per month from rent. In actual fact, flat generated £1,050, it was then left for two years before he sold it. He brought a case against building society for loss incurred.
     • Held: a purchaser who bought a property for the purpose of letting it out was likely to be richer and more commercially astute than a purchaser who bought to occupy and could be expected to obtain his own advice on some important matters not covered in a surveyor's report that had been prepared for a prospective mortgagee. it wasn’t reasonable for him to rely on survey for him to buy property.

8. *Status of the Defendant

   • Williams v Natural Life Health Foods Ltd = it was not reasonable for customers of a company to rely upon the defendant director to indemnify their loss. To establish the personal liability of a director or employee there had to have been such an assumption of personal responsibility by him as to create a special relationship between him and the plaintiff

9. *Negligent Services

   • Henderson v Merrett Syndicates Ltd = Claimants were rich investors who lost money on the Lloyd’s of London insurance market due to the carelessness of underwriting and management agents. Some claimants had contracts with the defendants but some did not. In any event, the limitation period for the contractual claims had expired so they all brought claims in negligence.
     • Held; DOC owed, liability under Hedley Byrne was extended: it is no longer only applicable to negligent misstatements but also to the negligent provision of services.
   • White & Jones = Concerned negligent services offered by a solicitor, Barratt had two solicitors, he took family out of his will. Family made up and he wanted to reinsert them within his will. He contacted solicitor to arrange this, Mr Jones never got round to doing this. Mr Barratt died. Daughter brought action for economic loss as to money they should have received.
     • Held: there was a DOC. After white there is two requirements after Hedley Bryne; (1) Agreement of the defendant to perform a service; and (2) the defendant having special skill and knowledge.
   • Henmans v Wilson Browne = C was having an affair with another women and offered to give her money. Solicitor was careless in drafting up paperwork, couldn’t enforce, so sued solicitor. Distinguished from White & Jones, as settlor was still alive. Could get new paperwork drafted.

10. *Concurrent Liability

    • HOL in Henderson also held that a duty of care was not excluded by any relevant contractual regime: claims could be brought concurrently in tort and contract.
    • If there are concurrent claims in contract and tort, the claimant can choose whichever is most advantageous to them.
    • Lord Goff in Henderson ‘the law of tort is the general law, out of which the parties can, if they wish, contract.’

11. Claims where A promises B to perform a service for B, B intends to benefit C

    • White v Jones = Lord Brown Wilkinson 'the case could be reconciled with the Hedley Byrne line of authorities if one took ‘assumption of responsibility’ to be assumption of the task rather than legal liability