#17240 - Negligent Misstatement - GDL Contract Law

NB this must be kept separate from fraudulent/negligent/innocent misrepresentation discussed above.

This is an action in tort of negligence.

Hedley Byrne v Heller [1964] – Hedley Byrne wanted to check the creditworthiness of a potential client and asked the clients bank for a report. The free report, headed “without responsibility on the part of this bank” which went on to state that Easipower was “considered good for its ordinary business engagements”. Client later went into liquidation.

• House of Lords held unanimously that a duty to take care would have arisen in these circumstances had it not been prevented from doing so by the disclaimer.

• A duty of care arises outside of a contract when the parties were sufficiently proximate to establish a special relationship. If this duty is breached, causing economic loss, a claim in tort is available.

Caparo v Dickman [1990] – Appellants audited accounts of a PLC. Respondents, bought shares in reliance on these accounts. Later arose that the accounts were negligently prepared.

• HoL allowed the appeal as although it had been “foreseeable” that shareholders including Caparo might rely on the accounts, there was nevertheless insufficient proximity between them and the auditors.

• Three elements required in support of imposition of a duty:

  • (a) that the loss sustained by the claimant was foreseeable;

  • (b) that there was sufficient proximity between the claimant and the defendant; and

  • (c) that it was fair, just and reasonable to impose a duty of care in the circumstances.

Henderson v Merrett Syndicates [1995] Individual investors (“names”) alleged that the funds to which they subscribed had been negligently managed. Links between names and managing agents were of two types – direct and indirect. Indirect investors had formed a syndicate behind the names.

• Held the agents were still liable to indirect...